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Original article

The Verticalization of Everything

Key takeaway

• For entrepreneurs: AI-powered vertical SaaS solutions present a significant opportunity to disrupt and unbundle horizontal B2B SaaS markets by offering superior, industry-specific products.
• For investors: The vertical SaaS market is poised for exponential growth, with AI unlocking new value and creating multi-billion dollar opportunities in previously overlooked niches.

Summary

The article "The Verticalization of Everything" by Peter Flint from NFX discusses the emerging trend of AI-powered vertical SaaS solutions disrupting the B2B software landscape. It argues that AI will make the vertical SaaS market significantly larger and more diverse, creating opportunities for startups to unbundle horizontal SaaS offerings. The piece emphasizes the importance of deep industry knowledge, exceptional UX, and leveraging AI to create solutions that are 100x better than existing options.

Insights

• AI is enabling vertical SaaS companies to capture more of the customer experience in each industry.
• Generalist AI models are good for everyone but great for no one; industry-specific AI solutions can outperform generalist models.
• The basic infrastructure of most ERPs is commoditized, creating an opportunity for specialized solutions.
• Horizontal B2B SaaS companies are vulnerable to unbundling due to poor UX and lack of industry-specific features.
• AI is making it easier and cheaper to build software, particularly for well-established features.
• Historically stagnant industries (e.g., law, govtech, healthtech, education) are becoming more open to AI-driven change.
• The timing is right for an "unbundling" of horizontal SaaS, following a pattern similar to the unbundling of Craigslist.
• Successful vertical SaaS companies will build around a central knowledge database or "database of record" for their industry.
• The market opportunity for vertical SaaS is not just the existing SaaS market, but the entire cost of doing the work itself.

Implications

• Entrepreneurs should focus on developing deep industry expertise and leveraging AI to create highly specialized solutions.