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The Fast Company Executive Board is a private, fee-based network of influential leaders, experts, executives, and entrepreneurs who share their insights with our audience.

What’s next for the SaaS industry

End users are changing. Here’s what that means for the solutions on the market.

What’s next for the SaaS industry
[Gorodenkoff / Adobe Stock]

The verticalization of SaaS (software as a service) is here, and it’s already changing the way most companies do business. Many leaders may be wondering: Is a vertical platform the solution to some of my day-to-day headaches? Perhaps you’ve explored a vertical SaaS solution and didn’t understand the hype. I would argue that if that’s the case, you haven’t yet found the vertical solution that fits your mission.

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Some platforms have come to define what horizontal SaaS should represent. They are adaptable and customizable. But, even as horizontal SaaS platforms have become household names, vertical platforms—tailor-made software for a specific industry—are seeing signficant growth.

According to a recent analysis, market capitalization for the segment has increased nearly tenfold, from $71 billion in 2010 to $653 billion in 2020. Based on my experience in vertical SaaS, here’s what I can tell you about vertical software’s future and what you should keep in mind if you’re considering a possible switch.

WHY THE SOFTWARE LANDSCAPE HAS SHIFTED

The cost of building software, and the time it takes to do so, has dropped in recent years, largely thanks to the cloud computing revolution and innovations in software development. This has enabled SaaS companies of all sizes to justify a growing investment in solutions for narrower industry verticals, building more and more specific tools while spending less money and time.

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As common business processes, like document management or e-signatures, have been digitized, it has become easier for software companies to integrate those processes vertically. Everything from timesheets to communications, marketing, and even business intelligence can now be stacked, refined, and integrated depending on user needs. The advent of Microsoft Teams and its surge in daily active users (it even surpassed the once-ubiquitous Slack), illustrates this commoditization of chats, threads, groups, and other elements that, while previously unique, are now commonplace and expected.

Finally, end users are changing. Millennials are increasingly the ones making key purchasing decisions. A recent study on generational differences in B2B decision-making found that, unlike their predecessors, millennials are more likely to switch brands quickly and place a higher value on vendors that understand their company’s unique needs as compared to building their own solution. These buyers begin the buying process with the belief that business software should have a high level of industry-specific expertise.

THE CASE FOR VERTICAL SOLUTIONS

Vertical SaaS solutions have some inherent advantages. Chief among them is the ability to go deeper into the problems facing a particular target industry. When a vertical solution is familiar with a particular industry, the company can address those specific challenges, honing its tools to focus on what its users need most.

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What a law firm wants to do with documents is completely different from what a hospital or a film studio might want to do with its documents. Customers appreciate the level of knowledge, detail, and innovation that comes from a provider that understands their field and, in turn, their field’s unique challenges.

Most vertical SaaS platforms are competitive in cost compared to horizontal alternatives, and most providers can facilitate an easy migration. APIs make it possible for providers to perform reliable data transfers and integrations. Given that the vast majority of first-time vertical SaaS customers transition from a legacy horizontal platform, APIs help make the switchover seamless.

MAKING THE MOST OF YOUR VERTICAL SAAS PLATFORM

Once you decide to make the switch to a vertical SaaS platform, there are a few considerations to keep in mind that will set you up for success as you transition:

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1. Choose a platform that will help you migrate your knowledge. A platform isn’t useful if you have to populate it from scratch. That’s why many vertical SaaS options offer migration capabilities, so you can get right to work.

2. Check that the platform offers industry-standard compliance tools. It’s a headache to build out compliance after you need it. Make sure whichever platform you choose addresses your industry’s compliance standards. Intuitive software is exciting, but it also needs to check all your use case boxes.

3. Run a trial demo. Some platforms offer 90-day free trials of different features in order for your team to determine what they really need. A vertical SaaS platform packed full of features you’ll never use isn’t the right platform for your business.

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4. Consider how often you leave the platform. Have team members take note of how often they have to navigate out of the platform to manage daily tasks. If they’re spending more than 50% of their time elsewhere, whether it’s email or Slack, the platform may not be that useful.

5. Understand your automation capabilities. Many vertical platforms offer automation to make daily tasks more efficient. Automation can seem unfamiliar, but we all schedule emails, record meetings, and perform other, smaller automated tasks throughout the day.

Here’s the bottom line: There’s always going to be a place for horizontal SaaS solutions as we move into the future. But, as verticalization rises, so too will opportunities, creativity, and, ultimately, a thriving SaaS industry with both multiple solutions operating in sync to meet user needs.

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Ryan Anderson is the founder & CEO of Filevine, a project management, collaboration and legal case management tool for lawyers.

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