Multi-Product Strategies in SaaS

In Japan, following Horizontal SaaS, Vertical SaaS and other players are gradually emerging and achieving Product-Market Fit (PMF). In the process, we often hear discussions about when and what kind of product should be developed as the second or third product.

This is because the market is limited in Japan, where language and business practice barriers are high, and therefore, the question is being considered much earlier than for SaaS companies targeting the US and other global markets. In particular, in the case of Vertical SaaS, we even have the impression that they are starting to think about it from the pre-PMF stage because of the industry limitation.

Therefore, in this article, we would like to sort out what kind of multi-product strategy should be taken depending on the target industry, business type, and user persona.

What is a multi-product strategy?

A multi-product strategy in SaaS involves a company offering several distinct products. This allows the company to address the needs of different segments and user groups and diversify its revenue.

It is an approach in which a SaaS company does not rely on one main product, but rather develops new products as new growth drivers and improves its business through the combination of multiple products.

Types and Examples

What are the types of multi-product strategies? Essentially, second and third products vary in their objectives and positioning.

Here, we categorize them into four types of multi-product strategies based on the relationship between the main product and the second and third products (whether they are peripheral or completely different products) and the relationship between the buyers of each product (whether they are the same buyer or different buyers).

Specifically, as shown in the figure below, we will derive four strategies: add-on type, suite type, target type, and category type, and we will check each of them in detail.

Add-on type multi-product

This model provides additional modules and functions to the core product, allowing customization to meet users' specific needs. Customers can select and implement the functions they need.

SaaS companies plan additional modules and functions that solve problems in areas peripheral to the core product's scope of operations, and gradually expand the scope of the product. This is one way to achieve the so-called All in One strategy.

For example, Vertical SaaS can complement not only the order and supply area but also invoicing and settlement as add-ons, or provide dashboard functions that contribute to decision making in addition to realizing work flow.

This type of SaaS is used not only in Vertical SaaS but also in Horizontal SaaS, and is applicable to both SMB and enterprise. Since customizability can be achieved through add-ons, this type of SaaS is more suited for enterprises that require a high degree of business-attachment.

For example, Toast, a SaaS for restaurants, focuses on functions such as POS, but also offers add-ons such as mobile ordering, shift management, and labor management to comprehensively support various restaurant operations.

Suite-type multi-product

Suite-type multi-product strategy involves offering multiple products related to the same business area as a single integrated suite. For example, by offering a single suite of customer-related products, such as marketing automation, CRM, and customer analytics, a consistent solution is provided. This format is also part of the All in One strategy.

This type of strategy is used in Vertical SaaS as well as Horizontal SaaS, but it is a strategy for Horizontal SaaS because the TAM must be large enough to deploy each product separately.

It is also a strategy that can be used for both SMBs and enterprises, but SMBs with lower functional requirements are more likely to choose this strategy and deploy it earlier.

For example, Google Workspace, which offers a variety of tools for business, including Gmail, Google Docs, Google Spreadsheets, Google Calendar, Google Meet, and Google Drive; Photoshop, Adobe Creative Cloud, which supports various aspects of creative production, including Photoshop, Illustrator, InDesign, and Premiere Pro.

Targeted Multi-Product

Targeted multi-product, as the name implies, is a strategy of offering different products for different user segments. For example, by offering products with different features for SMBs and for enterprises, the company will cater to a wide range of markets.

The adoption of this multi-product strategy is often discussed. The frequency and intensity of the discussion increases, especially when the organization is designed by user segment. This is because the focus is on how to provide value to the segment for which you are responsible, and if you develop products only for that segment, you can achieve meticulous function expansion and easily lead to user value creation.

In general, however, this strategy is a double-edged sword, requiring nearly twice the development resources as soon as the products are separated. In addition, this decision is irreversible, and integrating the separate products is extremely painful from both the business and development perspectives. Therefore, most of the time, the basic alternative is to band the functionality by user segment and offer separate plans.

There are also cases where the needs are perceived a little differently, such as when freee is developing products that can be utilized in scenes such as incorporation registration for needs prior to corporate registration, which are different from its mainstay accounting.

Category-based multi-product

Category-based multi-product refers to offering products in different categories. For example, offering products that specialize in different business areas, such as a project management tool and a customer support tool.

The realization of this type of product will either be achieved through M&A or by developing a new business in a completely different area by in-house production. The former requires a certain amount of financial resources, and therefore, Horizontal SaaS, whose market is not limited by industry, would be more compatible with the former.

When evaluating SMB versus enterprise SaaS, SMBs with lower barriers to entry and more players are more likely to adopt this strategy, as there are more opportunities for M&A.

New businesses in the latter's separate domain are often not related to the SaaS typology or user segment. For example, a company may have strengths in technology stacks such as OCR or AI, which it can leverage to develop new products, or a corporate culture that is full of venture spirit, which means it has an abundance of new business talent and can develop business in other areas. Specifically, Hubspot is developing products in different areas such as Sales and Marketing, and can be said to be one of this type.

Multi-product types and targets

The following is a plot of multi-product types based on the two axes of Horizontal SaaS/Vertical SaaS and Enterprise/SMB (multi-products by target, which are often deployed through pricing, are omitted).

It can be said that add-on type tends to be adopted mainly by Vertical x Enterprise, suite by Horizontal x SMB, and category by Horizontal in general.

Summary

As not only Horizontal SaaS but also Vertical SaaS is starting to win PMFs and more and more players are entering the growth phase, multi-productization is becoming one of the major themes. In this report, we have identified the affinity with multi-product types by dividing them into Horizontal SaaS/Vertical SaaS and Enterprise/SMB. We hope this helps you when you consider multi-product as your SaaS deployment in the future.