Horizontal vs. Vertical Software
Horizontal software targets a broad range of users across different industries, solving one particular problem (or a few related ones). Vertical software, by contrast, aims to be a complete solution for a specific industry, addressing the bulk of that industry’s software needs.
Zoom is horizontal software because it’s used by many industries for a specific function: video calling. Other examples are email clients like Gmail, booking software like Cal.com or Calendly, form software like Typeform, and the list goes on. In fact, most software businesses are horizontal. They don’t try to solve all the needs of a particular industry—nor can they, since their users come from many different sectors.
Toast is vertical software because it’s built for restaurants (one industry) and tries to handle everything from point-of-sale to payroll to inventory management. Vertical software is a relatively newer category but there are a growing number of companies that can be classified as such. Service Titan (home services), Mindbody (fitness studios) and Toast (restaurants) are all good examples. Related piece by a VC focused on investing in vertical software.
Horizontal software is especially vulnerable to competition from a narrowly focused competitor. Let’s call these “niche horizontal” software. These products aren’t full vertical solutions—at least not at the outset—but they win customers by tailoring their features and messaging to a single industry’s needs. For instance, a telemedicine solution might beat out Zoom in the healthcare industry simply because it meets HIPAA compliance and speaks the language of doctors and nurses—even if it doesn’t solve every other healthcare-related problem.
A big part of this differentiation is communication and go-to-market strategy. Early on, a niche horizontal tool doesn’t need massive feature parity to stand out against a broad, horizontal competitor; it just needs to resonate with the specific audience it’s targeting. That targeted approach can simplify marketing: when you focus on one industry, you know exactly where to find potential customers and how to speak their language, making it easier to build trust and gain traction.
Over time, these niche horizontal solutions can follow two different paths. One option is to layer on industry-specific features — by deeply understanding the job to be done for the ideal customer — ultimately evolving into a true vertical offering. Alternatively, they can broaden their feature set in ways that transcend a single industry’s needs. For instance, a telemedicine platform might add scheduling tools or create new industry-specific landing pages that appeal to companies outside healthcare. When that happens, the product becomes more horizontal, targeting a broader market.