Vertical SaaS Looks Like the Future of Software
Salesforce built a 35 billion dollar empire selling CRM to everyone. Toast focused only on restaurants and hit a
Salesforce built a 35 billion dollar empire selling CRM to everyone. Toast focused only on restaurants and hit a billion-dollar valuation in less time. Both strategies work, but for founders starting today, one path has far less competition.
The vertical SaaS market reached 106.05 billion dollars in 2024 and is projected to hit 369.24 billion by 2033, growing at 16.3 percent annually. Companies in the Vertical SaaS Index doubled their revenue from 14.9 billion to 29.5 billion dollars in just two years. Meanwhile, horizontal platforms like Salesforce and HubSpot continue to dominate their massive markets, but the white space for new entrants has essentially disappeared.
For founders choosing between horizontal and vertical strategies, the data points decisively toward going narrow.
Why Horizontal Software Still Dominates
Horizontal platforms own their categories completely. Salesforce controls CRM with over 20 percent market share globally. QuickBooks handles accounting for millions of businesses. Slack became the default for team communication. These companies print money and aren’t going anywhere.
The problem isn’t that horizontal software fails. It’s that horizontal markets have winners already, and those winners have decade-long head starts, billions in revenue, and brand recognition that new entrants cannot match. A startup launching a new horizontal CRM in 2025 isn’t competing on product features. They’re competing against Salesforce’s entire ecosystem, integration library, and sales army.
Horizontal platforms also face a structural challenge: they serve everyone, which means they serve no one particularly well. A restaurant using Salesforce sees features built for enterprise tech companies. A construction firm using generic project management software cannot track change orders the way their industry requires. These platforms work, but they require customization, consultants, and workarounds that eat into their value proposition.
How Vertical SaaS Creates New Categories
Toast didn’t beat Salesforce at CRM. Toast built restaurant management software so comprehensive that Salesforce became irrelevant to that industry. The platform handles menu management, kitchen displays, table reservations, staff scheduling, and payment processing designed specifically for food service operations. When a restaurant evaluates software, they’re not comparing Toast to Salesforce. They’re comparing Toast to legacy POS systems that don’t integrate with online ordering.
Procore took the same approach in construction, reaching 1.15 billion dollars in revenue by 2024 with 21 percent year-over-year growth. The company doesn’t compete with Microsoft Project or Asana. It built project management software that understands change orders, RFIs, submittals, and other construction-specific workflows that horizontal platforms treat as custom fields.
Veeva Systems focused exclusively on life sciences and hit 2.74 billion dollars in annual revenue by understanding regulatory compliance and clinical trials better than any horizontal CRM. These companies created new software categories by going deep into industries that horizontal platforms only served superficially.
The Unit Economics Tell the Real Story
Vertical SaaS companies don’t just grow faster. They make more money per customer with better retention. The business model advantages stack up quickly.
Revenue per customer in vertical SaaS typically runs 5-10 times higher than horizontal alternatives. Toast proves this with 82 percent of revenue coming from financial technology services, not software subscriptions. Once Toast became the operating system for restaurants, it could offer payment processing, capital loans, and other services that horizontal platforms cannot provide at the same depth.
Customer retention improves dramatically when software integrates into industry-specific workflows. Switching from Toast means replacing POS systems, payment processing, online ordering, staff scheduling, and inventory management simultaneously. Switching from Slack means teaching your team a new chat app. The switching costs aren’t comparable.
Competition shifts from feature wars to category ownership. Horizontal platforms compete against dozens of alternatives with near-identical feature sets. Vertical SaaS companies often become the only serious option in their industry. When suppliers, partners, and customers all use the same platform, network effects make the leader nearly impossible to displace.
Where the Growth Actually Is
By 2023, 89 percent of executives said vertical SaaS represents the future of software. That consensus reflects where new opportunities exist, not the death of horizontal platforms. Vertical SaaS companies reported 31 percent growth compared to 28 percent for horizontal competitors in recent studies. The gap seems modest, but it reveals which strategy offers more headroom for new entrants.
Embedded financial services separate vertical SaaS winners from traditional software companies. Research shows 88 percent of companies adding embedded finance saw better customer engagement, and 85 percent acquired customers faster. When software also handles payments, lending, and insurance, it becomes infrastructure that industries cannot easily replace.
International expansion works differently for vertical players. Procore’s international revenue grew 26 percent in 2024 because construction workflows stay consistent across borders. Toast added 28,000 locations in one year by focusing relentlessly on one industry. Veeva serves over 1,400 life sciences companies globally. These companies scale by dominating verticals worldwide rather than adding horizontal features domestically.
The Strategic Choice for Founders
The startup advice used to be simple: expand your addressable market, build features that appeal to everyone, and compete on execution. That worked when horizontal markets had room for challengers. Today, those markets have entrenched winners with resources that startups cannot match.
Vertical SaaS flips the strategy. Pick one industry, ignore everyone else, and build so deep into that vertical that horizontal platforms cannot compete without rebuilding their entire product. The companies executing this approach achieve better unit economics, higher valuations, and market positions that become defensible quickly.
Bain Capital Ventures and Headline publish an annual Vertical SaaS 50 list tracking emerging companies in agriculture, solar energy, legal services, logistics, and dozens of other industries. None of these companies started by serving multiple markets. They picked one vertical, became the standard, and are now expanding from positions of category dominance.
The framework is consistent across winners: find a large industry with outdated software, build tools that match how that industry actually operates, then extend into financial services and other offerings that horizontal platforms cannot provide at the same depth. Companies following this playbook reach profitability faster and face less competition during their growth phase.
Where This Leaves Horizontal Platforms
Horizontal SaaS isn’t dying. Salesforce, HubSpot, and Slack will continue growing their massive businesses for years. But the opportunity for new horizontal platforms has largely closed. The winners won, and the losers either got acquired or disappeared.
The future of software innovation is happening in verticals. Not because horizontal is bad, but because vertical is where the white space exists. Industries from veterinary medicine to solar installation to commercial insurance still run on spreadsheets and custom-built software from the 1990s. These industries need modern tools built by people who understand their specific problems.
For founders deciding strategy today, the math is clear. Horizontal platforms offer tiny chances of massive outcomes if you somehow beat established giants. Vertical SaaS offers realistic paths to building profitable, defensible businesses in industries desperate for better software. The total addressable market might be smaller, but the actual addressable market (the part you can realistically capture) is often larger.
The choice isn’t about which strategy is better in abstract terms. It’s about which strategy gives a startup the best odds of building something that matters. Right now, that’s vertical SaaS, and the gap is widening every year.
Sources
- Business Research Insights – Vertical SaaS Market Forecast 2025-2033
- Activant Capital – Vertical Software Is Having A Moment
- HiringThing – 2025 Vertical SaaS Trends
- Procore Technologies – Q4 2024 Financial Results
- Toast Inc. – Q3 2024 Financial Results
- Veeva Systems – Fiscal Year 2024 Results
- Bain Capital Ventures – Vertical SaaS 50 List
- SaaSworthy – Vertical SaaS Statistics
