Shrinking the cloud.
Why Vertical SaaS will dominate 2023 market trends
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SaaS
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Industry Article
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Discover how vertical and micro SaaS platforms became a market-defining trend, and learn why a tailored SaaS solution is essential for business in 2023.
SaaS product use is omnipresent. 70% of business apps used by companies today are SaaS based. By 2025, SaaS app growth is expected to reach 85%.
Business owners of all sizes recognize “the SaaS trend” as the gold standard of modern customer retention and supply chain management.
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The irony in this statement is that as the SaaS industry expands, more attention and SaaS marketing dollars are being spent on ‘shrinking the cloud’.
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65% of companies using SaaS platforms have under 1,000 employees; 46% employ under 500 people. The concept of a ‘SaaS company’ is shifting, with small businesses investing in cloud spending for tailored services.
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2023 promises to be the year that vertical SaaS grabs hold of the global SaaS market. With more versatility and scalable solutions, it's a far more flexible approach for more revenue-conscious niche business owners.
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But what is vertical SaaS, and how do we explain its meteoric rise in popularity and SaaS market share?
4 core benefits of a vertical SaaS product
1. Ease of native integration and updated customizations
Vertical SaaS is built from the ground up to serve a narrow slice of industry. It’s simpler to introduce (and even construct) native integrations as a result. Since most vertical SaaS is created by industry experts, it’s likely the platform you choose was designed to handle that integration from the start.
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For example, a SaaS app targeting food service can account for niche solutions a broader platform cannot. This includes employee shift-swap functions, food inventory and delivery management, and seasonal sales forecasting.
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Vertical SaaS developers are also better able to project future needs and industry-specific hurdles. As a result, their software will adapt more quickly to the evolving needs of its industry, with faster updates to applications and support.
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2. Targeted customer acquisition increases revenue potential
A narrower focus equals a narrower lead pool. A narrower lead pool equals less time and money spent on chasing less reliable consumers. A lower cost per customer acquisition equals increased revenue.
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Focused lead generation equals intelligent spending.
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Vertical SaaS companies often have access to customer data pools and survey responses that broader horizontal SaaS simply can’t afford to focus on. This further lessens potential cost for customer acquisition and raises conversion rates.
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Often, these companies share these data pools and customer information with the end user as an added incentive to invest in their software.
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A smaller lead pool also helps your customer base feel more personally connected with your brand. This is highly important in a small business marketplace that — no matter how digital — still relies on word of mouth to drive sales.
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3. Adaptable software with focused machine learning and A.I.
Horizontal SaaS has streamlined the large business workplace with machine learning to handle repetitive, time-consuming tasks. Broad artificial intelligence solutions within horizontal SaaS platforms have allowed employees to focus on more meaningful tasks.
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Now, vertical SaaS creators provide focused machine learning and A.I. solutions for specific industry tasks. Niche industries are able to implement task automation in the cloud and rely on increasingly responsive software solutions. Trending sectors in vertical SaaS include marketing automation, tailored CRM, and inventory management.
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As vertical SaaS captures an exponentially greater market share ($441.4 billion after Q3 2021), even more investment will be made in vertical AI capabilities.
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4. Scalable SaaS app solutions
Every industry has peaks and valleys, “up” and “down” seasons, and specific sales cycles. The experts behind vertical SaaS applications understand these fluctuations and trends and how to respond intelligently.
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The result is forward-thinking infrastructure that is scalable for your industry’s unique roadmap. The pairing of industry-specific knowledge with focused machine learning allows for responsive software that eliminates inventory waste and enhances labor and sales forecasting.
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Just how scalable can vertical SaaS really be? The rise of the micro SaaS industry proves there is massive value (and adaptability) on the smallest of scales.
The hybrid workplace is boosting vertical SaaS demand
58% of American workers work from home at least once per week. 35% of workers can choose to work remotely 5 days a week. In concrete terms, 58% of the United States workforce equates to roughly 92 million people.
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Employees are accustomed to workplace flexibility established during the COVID-19 pandemic, and they aren’t letting it go.
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The hybrid workplace will dominate North America in 2023, and cloud-based software is even more vital as a result. Companies need the specificity of a vertical SaaS application, with easier native integrations and adaptable software.
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Companies are approaching a hybrid work environment by hiring more freelancers as well. Upwork reports 59 million Americans engage in freelance work, up 6 million from the previous year.
Vertical SaaS applications offer companies a streamlined way to manage tasks, track billable hours, and provide industry-specific functionality for freelancers. Freelance workers will benefit from the expert guidance of tailored software in a hybrid cloud platform.
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An evolving workplace will lean heavily on vertical and micro SaaS in 2023
The evolving hybrid workplace will force companies to demand further specificity from its cloud software solutions. Each industry’s need for individual attention from app developers will only increase over time.
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Horizontal SaaS platforms and enterprise management software are entrenched and don’t have much reason to adapt. Companies will instead turn to niche solutions from vertical SaaS and micro SaaS offerings that serve their industries’ unique demands.
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The combination of expert-driven software and scalable assets align well with the direction of the American workplace in 2023. Vertical SaaS appears poised to become the hottest digital trend of the coming year.
What is vertical SaaS?
Software as a service (SaaS) companies offer software applications over the Internet, generally through cloud-based platforms. They offer a ‘private cloud’ by which members of a company or team can access, edit and share information through a common hub. SaaS platforms provide easy customization and access and save businesses the hassle and cost of complex software installation.
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Vertical SaaS provides a cloud computing solution created for a specific industry — such as healthcare, manufacturing, or real estate. Unlike the ‘broad scope’ offered by horizontal SaaS products, the vertical cloud focuses on targeted solutions for a more defined user experience.
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Vertical SaaS offers expert, industry-specific focus
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Many vertical SaaS platforms were first developed as in-house solutions for forward-thinking companies. The resulting applications function with specific target markets in mind, with tailored cloud-based capabilities. This provides the end user with customization options directed at their specific needs.
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Vertical cloud-based subscription services are often developed by industry leaders and experts. This expertise means a clear, personal understanding of the specific needs of your industry.
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Riskalyze offers specific software for American financial advisors, helping measure portfolio risk, build 401(k) plans, and manage portfolios. Textura by Oracle manages payments, contracts and scheduling for the construction industry.
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By ditching broad, “out of the box” horizontal SaaS principles for hyper-focused niche solutions, these vertical SaaS products more effectively serve their end users.
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A competitive jumpstart for smaller and niche businesses
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This focused approach is highly valuable to small business owners. Horizontal SaaS often casts too wide of a net for a smaller company — results are often too top-level and don’t reach the heart of core problems in a niche industry.
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Vertical SaaS recognizes that businesses of all sizes must trend towards digitization. As Fractal Software’s State of Vertical SaaS 2021 explains, “Today, employees and customers expect businesses to use modern software tools regardless of their industry or size.”
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Digital software solutions with a narrower focus eliminate the small business dilemma of buying “out of the box” SaaS suites only to use a fraction of their capabilities. Saasitute notes “Vertical SaaS companies zero down on these pain points and provide industry-specific solutions”.
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A closer examination of this industry-specific approach reveals 4 core benefits of vertical SaaS for niche and small businesses.
The rise of the micro SaaS industry
Think of micro SaaS as a local microbrewery, serving highly specific beverages to an incredibly narrow but ardent customer base. The ability of that end consumer to derive an incredibly personal benefit from the product is the appeal of micro SaaS.
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Tyler Tringas (the godfather of micro SaaS) defines the concept as “a SaaS business targeting a niche market, run by one person or a small team, with small costs, a narrow focus, a small but dedicated user base and no outside funding.”
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Where vertical SaaS aims to satisfy the digital software needs of an industry, micro SaaS delves even further. The goal is to provide a highly effective solution to a specific problem (or subset of problems) within an industry.
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Micro SaaS can appear in the form of add ons and extensions, like Tringas’ Storemapper. It can also provide one hyper-focused solution that can be applied to multiple business types. In the case of ZenDesk, its sole focus is to manage customer service and support tasks for business.
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How SaaS providers learned to ‘shrink the cloud’
Micro SaaS existed before the pandemic, but COVID-19 certainly informed its rise in popularity. The spike in remote work and independent contracting caused an increase in self-funded digital entrepreneurship — for code experts and industry insiders, that often meant highly-specific, cloud-based software solutions.
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Horizontal SaaS is an entrenched industry, and sole proprietor upstarts can’t drive funding to compete with the ‘big boys’ in the marketplace. Instead, these individuals hone in on singular issues their software addresses for customers.
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While micro SaaS developers ‘shrink the cloud’, that does not correlate to less resources and solutions. If anything, micro SaaS ensures there are more specific industry problems solved than ever before.
And they’re not just limited to small and mid-sized businesses.
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Micro SaaS development isn’t dependent on business size
Don’t make the mistake of solely equating micro SaaS to small business. The right micro SaaS app can scale up its software to provide enterprise resource planning for customers.
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While micro SaaS offers deeply targeted digital solutions, its usage isn’t limited to niche businesses. The marketplace is defined more by its narrow scope and financing than narrow applications.
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Using ZenDesk as an example, its cloud software solutions are narrow in scope — customer service based on targeted, responsive CRM. But that service is not only of high value to multiple industries, it’s also inherently scalable.
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The appeal of app simplicity
And that’s the primary allure of micro SaaS — the ability to keep things simple. We’re used to a digital marketplace full of jargon and insider terminology. As established as SaaS is, it still feels like “complicated digital tech” to the average business owner.
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A quality micro SaaS provider allows the end user to communicate with a small team of developers (or often, one SaaS proprietor). Their apps offer well-defined solutions to clear, singular problems.
Imagine you’re a business that isn’t tech-savvy. The ability to easily explain exactly what a digital software application does is worth its weight in gold.
The peace of mind this simplicity creates often facilitates an increased price point for the service.
That’s the distilled advantage micro SaaS has over a more complex horizontal SaaS platform. As it becomes apparent that the hybrid workplace is a fact of life in 2023, the demand for these simplified niche solutions will continue to grow.
