Vertical software, particularly vertical SaaS, is expected to remain resilient even during a recession. This is because technology buyers tend to consolidate their IT spend with trusted mission-critical solutions that offer a clear return on investment. In the past, vertical software was considered too niche, but recent trends such as cloud software and the “Amazon effect” have opened up opportunities for greater adoption in industries like dining, education, energy, healthcare, and more. Vertical SaaS companies help customers operate more efficiently and can continue selling new products to their existing customer base. However, not all vertical SaaS companies may thrive during a downturn, and those serving discretionary categories may face challenges. Despite the risks, the vSaaS ecosystem is expected to continue flourishing in the coming years.
| Signal | Change | 10y horizon | Driving force |
|---|---|---|---|
| Vertical Software Wins in Bull and Bear Markets | Shift from horizontal to vertical software | Greater adoption of vertical SaaS | Consolidation of IT spend, ROI |
| Cloud software enables business mobility | Business operations on mobile devices | Increased use of cloud-based software | Convenience, ease of use |
| Expectation of Amazon-like ease of use | Higher customer expectations | Demand for user-friendly software | Consumer expectations, competition |
| Integration with financial infrastructure | Diverse revenue streams for vendors | More essential software for customers | Financial integration, revenue diversification |
| vSaaS is mission critical | Focus on essential software solutions | Increased reliance on vSaaS | Critical activities, must-have solutions |
| vSaaS helps customers operate more efficiently | Efficiency and value-driven software | Improved business performance | Increased revenues, decreased costs |
| vSaaS vendors can upsell to existing customers | Expansion of product offerings | Continuous upsell and cross-sell | Trust, customer demand |
| vSaaS companies may face challenges in a downturn | Discretionary vSaaS categories may suffer | Potential revenue decline | Economic uncertainty, customer health |
| vSaaS implementation may be delayed | Slow implementation may affect growth | Reduced new ARR growth | Implementation complexity, time to value |
| Strong vSaaS companies will continue to lead | Resilience and innovation in the future | Emergence of stronger vSaaS companies | Adaptability, innovation |
| Monitoring 30 private vSaaS companies | Tracking leading vSaaS companies | Identification of vSaaS leaders | Market observation, industry leadership |