Is your software application best suited for a horizontal or vertical market?

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Certain software applications are of value to businesses in a wide variety of industries. These horizontal market software applications solve common problems regardless of industry or type of business. Conversely, vertical market software applications are designed for a specific market and meet industry specific needs or support industry specific workflows.

What category does your software fall into – and are you sure?

The gray area of ​​the horizontal-vertical market

A seemingly simple example of classifying software as “horizontal” or “vertical” is a basic billing application. All businesses need to be able to invoice, so it looks like invoicing software would apply to anyone. It should be a horizontal application in the market, right? But two companies are downloading the software, one a maker of handcrafted toys and the other a fitness club – and it is possible that both will soon be frustrated with the app.

The toy company sells to both retailers and consumers, so it has to charge for specific products individually or in bulk and add shipping and taxes, if applicable. The fitness club offers annual memberships for the first year and on a monthly basis thereafter. He also sells a variety of products, some taxable and others not, and charges by the hour for sessions with personal trainers.

The software in our example does not meet all the needs of either company, so the user would have to adapt their billing process to the software, which is probably not an option, or he finds an application adapted to his activity. The prevalence of Software as a Service (SaaS) has made so many options available, most for a monthly fee rather than an upfront capital expense, so it is much easier to try out different software than when the software was sold primarily through a traditional on-premise model.

If you carefully evaluate your app, you’ll likely see that it works better for certain types of businesses. It can work for a variety of businesses across industries, or maybe it’s best suited for a specific vertical. An honest review can also reveal that you have been too narrow in your approach and that your solution may also benefit businesses beyond your target market.

The importance of the demo

Once you’ve confirmed that your app meets the business needs of your target market, be it horizontal, vertical, or niche, you will likely come across customers or prospects who also speak to your competition. If your application is flexible enough to meet the needs of different types of businesses, inevitably your competitors will do their best to convince your customers that their software designed specifically for their industry will be the most beneficial to them. If you market your software as specially designed for a particular market, your competitors will tout the benefits of its software, which has been proven to work in a wider market and can be customized for any industry.

The best way to prove that your software is the right choice is through a proper demonstration. For a simple application, a limited demo may be enough to prove that your claims that the software is suitable for the business are true. However, for an application designed to play a greater role in operational efficiency, it may be necessary to allow the prospect to use the full application on a trial basis.

It goes without saying that everything you say about your software must be true, as evidenced by the demo. It would not be wise to try to beat the competition by saying that your software is doing something that it is not doing. Your software is tailored to the right client. Maintain that integrity.

Be all to the right people

Your software will not work for everyone. Accurately defining your market, whether horizontal or vertical, for your software application is crucial to business success. Defining your target market incorrectly will mean nothing more than a waste of time and resources trying to sell your software to companies who will quickly find out that it does not support their operations. It is also a more cost effective way for an ISV to operate. Spring 2017 Update on Meridian Capital Software-as-a-Service Mergers and Acquisitions reports that SaaS companies with a precisely targeted customer base can acquire customers eight times cheaper than those targeting larger markets, experience less churn, and develop relationships that can lead to upselling in the future.

Your software doesn’t have to be everything for everyone. Define the market that makes the most sense for your application.


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