As SaaS took off over the last decade, cloud software evolved from mostly all-encompassing solutions to software that serves industry-specific and even niche needs.
We’ve seen massive growth of Horizontal SaaS tools — aka software-as-a-service developed for specific areas of the business, such as marketing, sales, and finance — as well as the emergence of Micro SaaS tools, or cloud software that solves a single problem.
Perhaps Vertical SaaS, which serves specific industries like automotive shops, restaurants, and the trades, saw the most impressive growth. In fact, Bessemer Venture Partners reports public Vertical SaaS companies grew approximately 10x in market cap from 2010-2020.
“Today, every industry runs on software, making the vertical software opportunity more valuable than ever before,” the Bessemer report says. “In the past decade, we’ve watched the market cap of public vertical software companies explode from $71 billion to more than $650 billion.”
Early Vertical SaaS Companies Dominate a Growing Field
Vertical SaaS companies support all types of industry, from restaurants to lawn care services to law firms. In a way, Apple’s tagline from 2009 — “There’s an app for that” —seems more applicable than ever before.
Even if the term sounds new, you’ll most certainly recognize dozens if not hundreds of Vertical SaaS vendors. And you probably use a few in your day-to-day work. These solutions have been around for over a decade. Two companies stick out as early trailblazers in a growing field.
Shopify: Founded in 2007, Shopify provides e-commerce software to small and medium-sized businesses. Today, it claims more than 2.1 million daily active users in 175 countries. It’s no surprise, as Shopify provides a simple solution to help businesses quickly launch and run professional-grade online stores, with no long-term contract terms.
Toast: Toast’s all-in-one software solution for the restaurant industry now serves over 40,000 paying customers. Founded in 2011, the restaurant management and point-of-sale system facilitates online ordering and payroll, inventory and back-of-house management, guest engagement, and back-of-house management to help the food service industry work efficiently from the cloud.
Some newer examples of Vertical SaaS leaders include:
- ServiceTitan – The Trades
- AutoLeap – Mechanic Shops
- Socio – Event Management
- Squire – Barber Shops
- OnBoard – Executive Board Management
- Guild – Education
- Weave – Dental
“Vertical SaaS Wave Becomes a Tsunami”
Despite a decade of monstrous growth, Bessemer expects Vertical SaaS to continue to rise in prevalence, declaring “Vertical SaaS Wave Becomes a Tsunami” as one of their top State of the Cloud 2021 predictions.
“Every industry has accelerated their adoption of the cloud and are reaping the benefits,” the report states. “With this theme in mind, vertical SaaS giants are going to be making a huge splash in 2021 and beyond as they join the pool of public cloud markets.”
According to Bessemer, market leadership proves key to topping the Vertical SaaS market. They claim one or two vendors typically dominate the field per industry. In general, Bessemer says the most successful Vertical SaaS companies follow one of three paths to market leadership:
- Address a new or underserved market: Simply put, many of the most successful Vertical SaaS vendors fill a void with no existing cloud software solutions.
- Unseat sleepy incumbents: Established companies enjoy several benefits, notably name recognition. They’re also set in their ways and ripe for the taking.
- Replace custom-built systems: Bessemer says many large companies utilize custom-built, in-house applications, and Vertical SaaS vendors increasingly step up to the plate to replace these legacy applications with modern cloud software.
As SaaS moves from digital transformation to digital maturity, we fully expect to see Vertical and Micro SaaS solutions continue to grow and outpace on-premise software, simultaneously increasing the need for dedicated SaaS Management. For additional insights impacting the cloud, check out Zylo’s Top 5 SaaS Trends for 2022 and Beyond.