A SUMMARY OF THE BURGEONING OPPORTUNITY FOR VERTICALIZED CUSTOMER ENGAGEMENT
As highlighted in our thesis post, which can be found here, in recent years SaaS buyers have demonstrated strong demand for solutions which can facilitate better optimized communication and engagement with their customers. Demand has been particularly intense among purchasers at B2C companies given the range of customer-facing processes which impact revenue generation and consumer satisfaction including reputation management/ review solicitation, webchat, automated lead management/follow-up, SMS marketing and loyalty management.
This appetite among sales and marketing teams has been one of the primary drivers of success for a wave of vendors – like Podium, Intercom, Front, and Birdeye – who provide offerings which customers love and deliver ROI. Despite these companies’ achievements, however, we believe the market for such solutions is far from saturated and that there is considerable opportunity for additional players to build sizeable businesses. The argument supporting this case is twofold.
First, even if one only considers the United States, the total addressable market is enormous given the pure quantity of B2C companies; thus, the level of greenfield opportunity that remains is substantial and younger vendors will be able to gain market share without having to displace well-capitalized incumbents.
The other dynamic – which we believe equally important to understand – is that the current market-leading incumbents are almost all providing horizontal platforms which are architected to meet the needs of customers across a wide range of industries.
While this approach certainly has benefits – most notably that you can address almost any buyer – it also creates vulnerabilities that startups can and are already attempting to exploit vis-à-vis a focused vertical-specific strategy. For instance, new providers have engineered solutions that have purpose-built workflows unique to their customers’ industry as well as native integrations with the target vertical’s most ubiquitous CRM and back-office systems.
There is very good reason to believe that a vertical-focused strategy will prove fruitful. To start, history demonstrates that there is significant buyer interest in vendors specifically devoted to the needs of a specific industry given the successes of verticalized back-office CRM solutions like ServiceTitan or JobNimbus.
There is no reason to believe similar demand does not exist for customer-facing applications. Second, next generation verticalized go-to-market applications like Klaviyo (ecommerce) have already demonstrated that this model can be effective. In turn, we are starting to see a new band of startups – like Hatch (home services), Swell (dental), Omnisend (ecommerce), and Calldrip (auto) – who are adopting a similar approach to their respective markets.
Certainly, it would be remiss to not acknowledge that there are systemic threats which could ultimately derail such companies from achieving long-term staying power. For instance, verticalized CRM solutions may decide to build customer-facing functionality, and in doing so, offer clients a compelling all-in-one platform that relinquishes the need to manage multiple applications and the challenges of interoperability that can come with it.
Alternatively, startups should be weary of designing offerings which are too narrow in scope – i.e. only addressable to a single type of customer interaction or communication channel – as point solutions are susceptible to higher churn and do not typically create robust barriers that deter the entry of potential competitors. Entrepreneurs and investors alike should devote considerable effort to understanding these risks, but they are by no means insurmountable.
As such, we believe there is a tremendous opportunity for best-in-breed verticalized solutions – which possess excellence both in terms of breadth of use cases served as well as depth of functionality – to create substantial equity value for shareholders over the next decade.