Have you ever heard of the term “vertical SaaS”? Japanese companies continue to pursue digital transformation (DX), and the adoption of software-as-a-service (SaaS) has been rapidly increasing as a result.

In particular, vertical SaaS solutions tailored to specific industries—such as healthcare and construction—are generating significant excitement among many enterprises. The main factor behind success in vertical SaaS lies in how well it tackles each field’s unique challenges.

In this article, we will explain the basics of vertical SaaS, including its characteristics and features, how it differs from horizontal SaaS, why it is drawing interest in Japan, and conclude with a look at some case studies.

Key takeaways

• Vertical SaaS refers to software designed to solve problems within a defined field, such as those in the healthcare and long-term care areas.
  
• While horizontal SaaS provides broad functionality for a variety of industries, vertical SaaS specializes in specific industries.
  
• One reason vertical SaaS businesses are gaining attention in Japan is that, because their target markets are limited, there is little competition, making it easier to establish dominance.
  
• Expectations for vertical SaaS are particularly high in Japan’s childcare and education sectors.
  
• Stripe Connect helps businesses with complex payment processing needs—such as software platforms and marketplaces—enhance their entire payment workflow, including revenue sharing, fee collection, and international transaction handling.
  

What is vertical SaaS?

Vertical SaaS describes software offerings that are deeply focused on the particular functions required by a given sector. These can include healthcare, construction, and real estate, and solutions have been developed specifically to address distinct industry challenges and improve operational efficiency.

Differences from horizontal SaaS

As the term suggests, “horizontal SaaS” denotes software equipped with broad-use capabilities that resolve common workplace issues for companies in many areas of the industry.

In contrast, vertical SaaS focuses on the needs and functions associated with each vertical, aiming to solve the workflow challenges that underlie each.

Major industries where vertical SaaS has been adopted

Vertical SaaS is being adopted across a variety of industries, but the main areas where it is gaining traction include:

• Construction: Automated creation of schedules, centralized management of construction site information, and sharing of drawings and construction progress
  
• Healthcare and long-term care: Automation of patient intake and appointments, and sharing of electronic health records and medical images (MRI, CT) among healthcare professionals
  
• Logistics: Real-time visualization of inventory and shipping status, paperless shipping documents, schedule management at multiple locations, and route optimization
  
• Real estate: Optimization of real estate leasing brokerage and property management
  
• Retail and food service: Centralized inventory management, simplified reservation and order processing, and automated creation of shift schedules
  
• Agriculture and fishing: Automated creation of daily reports and work logs, visualization of weather and cultivation data, and centralized management of farm machinery, crops, and shipping schedules
  

Features of vertical SaaS

To understand vertical SaaS more deeply, let’s take a look at its main features:

Specialization for industry or business sector

Its defining characteristic is that it focuses on certain industries and business sectors, and its solutions are designed to accommodate the distinct practices and specialized workflows of those industries.

Because vertical SaaS offers unique features that other products cannot replicate, it delivers immediate results in workplaces with niche operations and, once implemented, is expected to remain in use.

Development is difficult

Due to their complexity and high level of specialization, industry-specific obstacles are difficult to resolve, posing a major barrier to improving operational efficiency. Because they address these issues, vertical SaaS solutions tailored to certain markets are garnering significant interest.

However, developing vertical SaaS products that address specialized challenges can be more difficult, as it requires in-depth domain knowledge within the target area, including business practices and technical terminology, as well as compliance with relevant regulations.

Development by well-established companies

Vertical SaaS is often developed and provided by long-established companies with extensive experience in a given domain. This trend is particularly common in highly focused fields with distinct business practices, as creating vertical SaaS requires deep, industry-specific knowledge.

For this reason, such companies with deep roots in their respective fields are better positioned to develop effective approaches to problems particular to their area. They can serve as pioneers in vertical SaaS and become leaders in driving DX throughout the entire sector.

Why vertical SaaS is gaining attention in Japan

There are three reasons why vertical SaaS has been gaining attention in Japan.

Compared to the rest of the world, the country’s adoption of it has been slow. Yet, many Japanese companies have recognized the importance of it, drawing on successful overseas examples. They are now shifting from general-purpose horizontal SaaS to developing software solutions tailored to certain industries and sectors, applying their field expertise.

The market size is small but straightforward to dominate

Although vertical SaaS, which targets specific fields, has a smaller market size than the more generic horizontal SaaS, this actually makes it easier to dominate the space.

Its creation requires substantial domain expertise, resulting in high barriers to entry and limiting the emergence of competitors. In such a niche, with limited competition, it is reasonable to expect to capture over 20% of the market.

The difficulty in entering the market helps eliminate competition

In the case of vertical SaaS, the high barrier to entry caused by the need for industry-specific domain knowledge and system development is offset by the fact the narrow focus effectively blocks latecomer competitors. Providers therefore face less intense competition for market share than those offering horizontal SaaS, supporting more stable operations.

However, in vertical SaaS areas where IT adoption has lagged, such as agriculture and real estate, the need for faster ways to resolve persistent problems is growing. As demand in these sectors rises, the number of new entrants is expected to increase, heightening competitive pressure.

Improved customer loyalty

Greater market control and limited competition can also support customer acquisition. More comprehensive services and deeper specialization help vertical SaaS providers build trust, strengthen customer relationships, and improve long-term retention.

Case studies of vertical SaaS in Japan

To solve industry-specific challenges, vertical SaaS goes beyond the framework of general-purpose systems and has assumed a major role as infrastructure for its respective verticals.

As explained earlier, its interest has grown not just overseas but also domestically, spanning multiple fields such as construction and long-term care. In pursuit of simplifying workflows that vary from one line of work to another, vertical SaaS’s major strength lies in the functionality built expressly to tackle the distinct needs of each market.

While vertical SaaS solutions offer different features depending on their intended users, we’d like to highlight two case studies from the childcare and education sectors, where expectations are rapidly rising in Japan:

BABY JOB

In the childcare industry, there is an urgent need to simplify all business processes related to facility operations. Vertical SaaS is seeing wider use as a response to this need.

For instance, BABY JOB Co., Ltd. is implementing various initiatives to advance DX through vertical SaaS. Key offerings include “Tebura Toen,” a subscription plan that delivers disposable diapers directly to care facilities, and “Dare de mo Kessai,” a cashless payment service that eliminates cash transactions. These tools help reduce the burden on both parents and care operators.

In childcare settings, particularly, there are frequent transactions involving small amounts of cash, such as charges for temporary care, extended care, supplies, and field trip expenses. Many providers have concerns about the fees associated with cash deposits at banks and the security risks of keeping cash on-site.

To respond to these concerns, the platform supports multiple payment methods, including credit cards and QR code transactions. It simplifies collection regardless of the amount and makes payment histories easier to review.

CoDMON

CoDMON, Inc. provides a service of the same name, one of the most widely used vertical SaaS platforms for the childcare and education industry in Japan, that supports care professionals and teachers by simplifying their workflows and improving the quality of care and learning.

CoDMON consolidates more than 20 features—spanning centralized management of documents and records (such as communication logs and health records) to automated billing and collection—into a single system.

The platform also supports several cashless payment options, automatically calculates childcare and meal fees, and issues paperless invoices. These functions reduce administrative work and allow staff to focus on care and schooling.

How Stripe Connect can help

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FAQs

This section covers the frequently asked questions about vertical SaaS.