The best vertical software companies do more than digitize work. They deeply understand how their customers operate, which gives them a distinct advantage. AI raises the stakes on that advantage.
In this video, FTV Capital Partner Rob Anderson explains why vertical software companies are uniquely positioned to win with AI.
As the cost and complexity of coding continues to decline, differentiation will depend less on who can simply ship features fastest and more on who truly understands the problem being solved. Companies with deep domain expertise, data that’s difficult to replicate and established distribution channels have a real opportunity to turn AI into a meaningful extension of an already-strong competitive position, rather than a disruptive threat to it.
Full Video Transcript
In vertical software, AI is more a powerful opportunity than it is a threat. We’re seeing leading vertical software companies leverage really four primary moats around deep domain expertise, verticalized product workflows, established customers, and proprietary data.
Vertical software companies are using AI across their organizations to drive productivity and efficiency — functional areas from engineering to customer support, to sales and marketing. Yet over the next few years, the greatest ROI will be seen in building products faster, in days not months, more effectively with fewer bugs and greater resiliency, and with greater impact — more value to customers.
We’ll see three-year product roadmaps collapse to six or nine months as engineering is no longer the bottleneck to build great products. The constraint really becomes the right product ideas and customers to validate. All these companies will command premium valuations as they drive greater workflow automation and begin — for the first time — to actually eat into labor budgets, not just IT budgets like they have historically.
The next wave of great vertical software companies across restaurant technology, landscaping, and nonprofits will have the magical combination of embracing AI internally across their organizations and embedding AI externally in their products.
