The billion-dollar AI opportunity in Vertical SaaS

oston-based restaurant management software Toast went public in 2021 at a valuation above $30 billion, just a decade after its founders initially launched the platform as a consumer-facing restaurant app.  This was possible as the firm later decided to start selling restaurant point-of-sale (POS) solutions, ultimately becoming a multi-product software. It decided to switch its core product from solving a particular problem for restaurants, i.e., collecting customer payments, to pivoting to offering a back-of-house management system–serving as the finest example of the verticalisation of SaaS.  By embedding payments, lending, payroll, and other related features, Toast is now at $1.5 billion ARR and drives 80% of its revenue from financial technology solutions.  In simpler terms, Vertical SaaS (VSaaS) is software built specifically for certain industries, providing tools that meet the needs of sectors like healthcare, retail, fitness, or finance. Unlike broad SaaS platforms, VSaaS is built for specific businesses, helping them run more effectively with industry-focused features.  The VSaaS industry has been scaling once again in recent years, but now it’s struck gold in a different avenue: artificial intelligence.  The ‘Layer Cake Strategy’ Horizontal SaaS platforms like Zoho, Salesforce, or Slack provide general tools that can be used by many different industries. They focus on specific tasks but work across various types of businesses. In contrast, Vertical SaaS offers more specialised features–deeper integrations, and workflows that fit the industry’s needs.  This approach is called a “layer cake” strategy,  which includes building additional products to sell into their core vertical market. Vertical-focused startups can further expand by going multi-product and creating additional revenue streams beyond their core offering. Toast has executed this strategy by adding payroll and workforce management capabilities.  To put this in perspective, an example of a company putting its bet on a multi-product strategy is Whatfix. Since launching its insurance vertical in 2021 and expanding into pharma and life sciences in 2024, the digital adoption platform (DAP) has achieved significant results by working with several large global customers in these sectors. Today, Whatfixhas clocked a 4.5X increase in annual recurring revenue (ARR) since its latest funding round and is showing no signs of slowing.  “In insurance, the company focuses on core applications like claims processing, policy management, underwriting, and agent portals, driving improved efficiency, enhanced compliance, reduced claims leakage and underwriting errors. We work with several large global customers such as Baldwin Risk Partners, Brown & Brown Insurance, EIS Group Inc, Florida Peninsula Insurance, Westfield Insurance, and more,” Vara Kumar, Co-founder of Whatfix tells YourStory.   “Whatfix is unique in that it blends vertical SaaS and horizontal SaaS capabilities, enabling it to serve both specific industry needs while also being broadly applicable across various sectors. Our expertise in digital adoption ensures that customers achieve desired outcomes with speed, making Whatfix the go-to solution for vertical SaaS needs,” Vara adds.