Over the past few years, I’ve been following numerous online articles, feeds, research and debates about whether software companies should develop software and business tools for vertical markets or build generic tools that suit many markets. With SaaS (Software As A Service) gaining strength also, the rules are changing.
Whilst there are successful software players selling to both mass market and vertical niches, the ‘older’ traditional model of ‘Selling’ software tended to have a bias towards creating complex niche products for niche vertical markets (ie: a Law Management solution for Lawyers, or Accounting product for Accountants). Often, these vertical solutions need to be ‘Sold’ or ‘Marketed’ to a vertical market, so tended to have high cost to sell product which was reflected in higher product prices.
The Global Market is Broad…
An interesting point is that the world online (for selling software) is, for lack of a better description, grey, generic, broad, large, massive, filled with spam, rubbish, tyrekickers, timewasters, distractions, confusion, false leads etc.
Cutting Through the Online Crap…
So, for a software company to target a smaller vertical slice effectively, actually takes a lot of effort, time and cost to ‘cut through the crap’ to the market you’re trying to reach. It can be done, but don’t assume it’s easy.
Vertical Markets are Risky…
These days, vertical markets are risky for software developers. With more competition, faster technological change and new emerging Web 2.0 solutions, a software company targeting a vertical can find not only his personal market share getting smaller (with new competition) but also the vertical market itself shrinking (or worse, disappearing) as new markets emerge or evolve. Customers are spreading the same dollars over a greater number of products and services and as such, there is a trend towards a reducing customer spend ‘per solution’.
As an example:
In the early to mid 1990s, I worked in a design firm. We did a lot of campaign work, and as an example, a client would say, here’s $100k for marketing. So the split was:
- 30% – Graphic Design (our Industry Slice – We were designers)
- 40% – Printing
- 20% – Television Ads
- 10% – Radio
Roll forward to the year 2000 and it started to look like:
- 10% – Graphic Design (our Industry Slice – 1/3 the size)
- 20% – Printing
- 10% – Television Ads
- 5% – Radio
- 20% – Website Design (New Market)
- 10% – Advanced Website Development (New Market)
- 10% – Search Engine Optimization (New Market)
- 5% – Flash Animation (New Market)
- 10% – DVD Creation (New Market)
Most of the graphic designers I know have felt this squeeze and the only ones really thriving are those who adapted to the changing/new industries and developed new skills to offer a ‘broader’ offering to their customers.
A Shift in the Software Industry…
I’ve noticed a shift in the industry in the past year or two towards simpler, more generic (mass market) business applications of which many are delivered as SaaS. Rather than target an ‘Industry’ or ‘vertical market’ the new breed of solutions are targeting ‘business processes’.
Most business have similar core processes (ie: accounting, project management, time tracking, CRM, data backup etc). These new-breed solutions can be used in many different vertical markets and across many different industries. ProWorkflow.com (Project Management) is a good example of this. So is XERO.com (Accounting), SalesForce.com (CRM), XDrive.com (Data Backup), etc…
These smart software companies are moving in the right direction and will survive the coming changes in the software industry. Vertical markets will disappear, new ones will appear, technology will change, competitors will come (and go). By staying generic, adaptable, responsive and lightweight, using SaaS models to simplify delivery and focusing on ‘business process’ based solutions these software companies are ensuring a healthy future.
Would you rather have 1% of 1000 vertical markets? or 100% of 1 vertical market? These days, I’d rather have1% of 1000 vertical markets!
OLD – Project Management Software (Targeted to Creatives)
NEW – Project Management Solution (Generic, for MANY industries)
OLD – Accounting Software (Targeted to Accountants)
NEW – Accounting Solution (Generic, for ALL businesses & non-accountants)
OLD – CRM Software (Targeted to Print industry)
NEW – CRM Solution (Generic, for ALL businesses)
The world and technology is changing and fast. Software companies wanting to grow/scale should create solutions to improve ‘business processes’ for ‘mass market’ use. Simplify everything, the solution, sales, marketing documentation etc. Move to a ‘Software As A Service’ model. Let the market influence the product development and over time the solution will become more flexible and generic.
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About the author:
Julian Stone, CEO – Project, Task & Time Management specialist for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
About The Author:
Julian Stone begin_of_the_skype_highlighting end_of_the_skype_highlighting is the CEO of ProActive Software, developers and creators of the leading web based project management software http://www.proworkflow.com.