Mapping the industry cloud landscape

SaaS vendors targeting vertical markets now cover all points between early-stage startups to public companies with multi-billion dollar valuations. Some surprising new sectors are emerging too.
Written by Charles McLellan, Senior Editor

SaaS applications often address broad business functions such as accounting and finance, analytics and business intelligence, collaboration, customer relationship management (CRM), e-commerce, enterprise resource planning (ERP), human resources (HR) and security. Most companies require these functions, and the leading SaaS providers in each area -- most notably Salesforce in CRM -- have prospered as a result.

However, one size of software does not necessarily fit all potential customers which is why horizontal SaaS vendors often open up their applications to third-party customisation via APIs. However, if you're a healthcare provider, for example, you're unlikely to relish the effort and expense of customising a series of cloud services to fit your particular line of business. And if you're seeking mission-critical vertical-market functionality, you're going to require a specialist software vendor with deep expertise in your field.

These are some of the reasons why an increasing number of SaaS applications address the key business issues for particular vertical markets -- a sector known as the 'industry cloud'. This opportunity hasn't gone unnoticed by software giants such as Salesforce, which now offers customised implementations of its CRM solution for a range of verticals: banking, communications, consumer goods, government, healthcare, insurance, life sciences, manufacturing, media, nonprofit, retail, travel & hospitality and wealth management.

But what's happening at the other end of the scale, in the world of startups?

Emergence Capital Partners (ECP) is a Silicon Valley venture capital firm that invests exclusively in early-stage enterprise cloud companies, and the industry cloud has been a core ECP investment area for almost a decade. "At the highest level, we believe that focused cloud applications can solve the challenges of an industry better than horizontal software designed to solve a function," says ECP's Joe Floyd.

Image: Emergence Capital Partners

ECP's industry cloud 'thesis' goes like this: look for a team with cloud and industry expertise that's focused on a deep industry pain point; build that expertise into products that earn the trust of customers, who then trust the provider with their proprietary data; more data allows new problems to be identified, and resulting insights are fed into product improvement and expansion. "Happy customers talk," Floyd notes, "and customer referrals drive an unfair advantage in terms of sales and marketing efficiency." This creates a 'virtuous cycle', with continual product enhancements reinforcing customer trust, boosting revenue and market share, allowing more investment in R&D, and so on.

Here's how that played out for the 'poster child' of the industry cloud.

Veeva Systems, founded in 2007 by Peter Gassner and Matt Wallach, delivers content and data management solutions to the life sciences industry, with customers ranging from leading pharmaceutical companies to biotech startups. Launched with $4 million of funding from ECP, Veeva progressed to an IPO in October 2013 with an opening share price of $20 and a market capitalisation of $2.9 billion. Since then, Veeva's share price has climbed to $169 and its market cap to $25bn.

Image: Veeva Systems

 Back in 2015, Veeva's CEO Peter Gassner told TechRepublic that "We're targeting to be a one billion dollar revenue run-rate company in the calendar year 2020. We have the products we need to achieve that, but we will also make new products to feed the innovation cycle that will continue on past 2020."

The company is currently on track, with revenue for fiscal 2019 totalling $862.2 million -- up from $690.6m in fiscal 2018, an increase of 25% year-over-year. Veeva's guidance for fiscal 2020 (ending 31 January 2020) is for total revenues between $1,025 and $1,030 million.

Data: Veeva Systems / Chart: ZDNet

Veeva's track record shows how successful a well-targeted, well-run industry cloud company can be -- and the potential rewards for a prescient venture capital firm. ECP's portfolio also includes: MedeAnalytics, Augmedix, Doximity and Welltok in healthcare; Project44, Drivewyze and Digital Air Strike in transportation; Top Hat and Civitas in education; along with DroneDeploy (drones), Eversight (pricing and promotions for brands), Restorando (hospitality) and IrisVR (virtual reality for architecture, engineering and construction).

Another venture capital firm with deep interest in industry cloud is New York-based Bowery Capital. Since its founding in 2013, the company has sought to capitalise on the shift to 'internet native' software by identifying and investing in businesses leading this transformation. Bowery Capital  currently has a ten-strong vertical software portfolio: Alchemy (chemicals industry), Block Six Analytics (sports sponsorship), CredSimple (medical credentialing), Fero Labs (ML for the industrial sector), GoExpedi (MRO procurement in industrial sectors), Oncue (booking platform for moving logistics companies), ShiftOne (learning management for restaurant/hospitality/retail firms), SwiftShift (workforce management for the home healthcare industry), Transfix (long-haul freight brokerage automation) and Voxy (e-learning management).

Every year, Bowery Capital profiles and highlights over 500 vertical-focused companies for its Opportunities in Vertical Software report, now on its third edition. Companies are classified into industry sectors that are scored on market size, market growth, competition and opportunities, using a three-point scale (positive/high, intermediate, negative/low). Each sector also gets an overall score on the same scale.

Data: Bowery Capital / Chart: ZDNet

To make the above graph, we assigned a 'positive/high' overall rating three points, 'intermediate' two points and 'negative/low' one point, across the three editions of Bowery Capital's report. This suggests that manufacturing, aerospace/drones, and transport & logistics consistently offer the biggest opportunities for vertical software companies, followed by the insurance and legal sectors.

A notable entrant in the third edition of Opportunities in Vertical Software is the cannabis sector. According to the venture capital firm, 33 US states and the District of Columbia currently have legislation broadly legalising cannabis use in some form, and VCs have spotted an opportunity. "Venture capital investments in the cannabis vertical totaled $409m in 2017, $1.024b in 2018, and $1.265b in the first half of 2019. Software investments have represented only a small fraction of activity: since the beginning of 2017, just over $153mm of venture capital has been invested specifically in cannabis SaaS companies across 27 deals. 2017 to 2018 saw a 35% increase in capital invested in cannabis-focused SaaS companies, and 2019 is on track for a 45% YoY jump." The market for legal cannabis in the US was valued at $11.9 billion in 2018, and by 2025 it's expected to be $26.3b, Bowery Capital said.


This article seeks to give a flavour of the range of vertical SaaS companies that have grown up in the last five years or so. There are many, many more: a few will achieve Veeva levels of success; some will grow steadily, perhaps eventually going public and/or being acquired by a big software player; others will fall by the wayside, for whatever reasons.

As ever, if you're seeking a software partner that fits your firm's vertical market niche, due diligence is the key.

Also See

Top cloud providers 2019: AWS, Microsoft Azure, Google Cloud; IBM makes hybrid move; Salesforce dominates SaaS

Seeking strategic niches in the cloud

Veeva's master plan: Bring cloud data warehouse and then AI to life sciences

Straight up: How the Kentucky bourbon industry is going high tech (TechRepublic)

Technology is changing the cruise industry (TechRepublic)

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