The rise of artificial intelligence is transforming the software-as-a-service industry, prompting companies to shift from broad, cross-industry solutions to domain-specific vertical SaaS offerings. This transition enables SaaS startups to integrate AI-driven intelligence tailored to industry needs, facilitating faster adoption and higher returns on investment.
Industry experts indicate that over 60% of SaaS revenue comes from large enterprises, with global markets fueling demand for vertical SaaS. Until recently, developing domain-specific solutions was difficult due to technological constraints. However, advancements in AI now allow SaaS firms to scale quickly by selecting industries best suited for tech-driven transformation.
Zoho’s new CEO, Mani Vembu, emphasized the company’s strategic move toward domain-specific solutions targeting large enterprises globally. The company is prioritizing sectors like BFSI and healthcare across key markets, including the US, UK, and the Middle East. Vertical SaaS allows startups to embed domain-specific intelligence directly into their products, delivering greater value and a faster return on investment for clients, according to Milan Sharma, director at 35 North Ventures.
The vertical SaaS market is experiencing rapid growth. Business Research Insights estimates that the market, valued at $91.19 billion in 2023, will reach $317.49 billion by 2032, growing at a CAGR of 16.3%.
Several SaaS unicorns are capitalizing on this trend. LeadSquared has developed tailored solutions for fintech, healthtech, edtech, and manufacturing, addressing sector-specific challenges. Products include loan origination systems for fintech, patient interaction tools for healthtech, and enrollment management systems for edtech, as highlighted by COO and co-founder Prashant Singh.
SuperOps, a SaaS startup serving managed service providers, is also leveraging AI. CEO and co-founder Arvind Parthiban noted that their AI-powered solutions, such as advanced ticket classification and triage, are designed to resolve MSP pain points. The company raised $25 million in Series A funding in January to drive AI innovation and global expansion.
One of the key factors behind this shift is the challenge of implementing horizontal SaaS. A Zoho-IDC report found that 75% of Indian enterprises adopting SaaS faced implementation delays, with an average timeline overrun of 57% and a cost overrun of 43%. Vertical SaaS minimizes the need for extensive customization, reducing deployment challenges, according to Brijesh Damodaran, managing partner at Auxano Capital.
Venture capitalists are increasingly backing vertical SaaS startups that leverage AI for competitive advantage. HR tech firm Darwinbox secured $140 million, healthtech startup Innovaccer raised $275 million, and fintech company Perfios achieved unicorn status with an $80 million funding round. Investors are favoring SaaS firms that integrate AI solutions to minimize manual intervention. AI is now expected to be embedded within products rather than functioning as a standalone solution, according to Praval Singh, vice president of marketing and customer experience at Zoho.
