Why Cloud Software Companies Should Build for Vertical Industries
Fits like a glove. Cloud companies can no longer afford to create general purpose software, and must instead begin tailoring their product to customer needs.
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Today, customers are doing a lot of the driving when it comes to product development and “innovation.” If a team has no grounding purpose or direction, user feedback becomes synonymous with the product roadmap. Not sure what to build next? Well, let’s ask our customers. Although customer feedback is essential to building successful products, if your customers are too varied — either vertically or by size — and your team is too impressionable, it won’t be long before you spiral quickly to failure.
“Jack of all trades, master of none.” What better way to describe how so many software companies have erupted in success, tried to do too much, and then failed because they had no expertise or direction on a particular vertical. But this is how it’s always been done in software right?
Starting in the 90s and moving into the 2000s, software companies consistently focused on building large, general purpose systems that could be adapted and customized to any industry. It was a promising direction and made a lot of sense at the time. Why would you leave out or discount an entire industry when you can build a platform any company can customize to their needs?
A seemingly perfect setup for software companies, but from the customer’s perspective, it was like getting a giant lump of clay, slapping it down on the table, and forcing them to mold it to a system that fits their business.
Companies were spending more time complicating their systems just to make it more difficult for their customers to implement. How did any of this make sense? These enterprise solutions required long implementation phases, likely involving multiple people, even teams of people over the course of several months. All of this work, all of this time, dedicated to a product that didn’t solve the problem for their customers — and in fact, likely upset them because they had to dedicate time on their end to build and implement this new system.
But lately, people are waking up to a new reality. As other spaces in their life become more efficient — communication channels, transportation, etc. — they are looking to enterprise software companies with the same level of expectation for speed.
Companies aren’t in the business of buying and building software packages — they’re in the business of making money. They want the software to leverage strengths in their business and help them grow. But when those same systems are tying them up in implementation, they’re now demanding a change. They’re demanding a better experience and enterprise companies can’t cling to legacy concepts any longer.
In response to these demands, it’s important for software companies to build smart systems that are targeted to specific industries. It has less to do with the industry and more to do with focusing on one problem to solve. Going deep on a singular problem requires less customization, less human capital, and less time burned in implementation so their customers can get moving immediately. This level of technology is at the core of what customers need, and today more than ever — are demanding.
And if cloud software companies want to continue growing, they need to stop building for the masses and start building for verticalized industries. Here’s why.
Beat the Competition and Get to The Market Faster
Technology is great, and so is expertise. There are a lot of companies out there that excel at either one. But the combination is what’s truly powerful.
Vertical-specific software companies favor convention over configuration. By staying focused, they develop industry-specific workflows that provide immediate value to their users. They also tend to have customer success teams that have extensive industry experience. So they can get products to market faster, get ahead of the competition with more features and not only intelligently guide customers, but they do it at a clip much faster than broader software companies.
Fostering Subject-Matter Experts & Modernized Technology
In a traditional company, you may have significant top talent — executives, marketing, and technical leaders. But within vertical specific organizations, you’re also incorporating industry expertise. This means you’ll draw people who have that deep subject-matter knowledge and greater exposure of tools that are relevant to that market. They’ll be able to add context to the development of new products and feature that may not have been around five or ten years ago. These new software companies can create more robust systems and user experiences and do it with less risk.
On the other side, companies that have extensive technical debt that are using older tools, older technologies are boxed-in in terms of their options and velocity.
Multi-Tenant Systems = Scalability & Data Expertise
The multi-tenant systems that modern SaaS companies are putting together have architectural scalability and data advantages. It’s very difficult to take that single-tenant architecture and move it to a true multi-tenant cloud and try to reap the multi-tenant benefits.
The computing infrastructure improvements in the last five years have been tremendous, fueling quite a bit of growth. Also, technically strong cloud companies that are directed at vertical specific industries have consistently had stronger growth. For example, public vertical-focused software companies are outperforming horizontal software companies as well as the market index. Software is a core competency in these strong vertical cloud companies. Either you have it, invest in it and understand the software game, or you don’t.
At the end of the day, it’s easier to create a general purpose software solution that everyone can use. That’s the clay in the middle of the table, and then we force customers to customize it and make it look good. The hard thing is to gather meaningful insight from subject matter experts you know and take the time to mold it to what specific people actually need. But the danger in going the easy route is that companies are waking up to the fact they need specific solutions, and they’re not willing to put up with general purpose tools any longer.
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