As the landscape of artificial intelligence (AI) continues to evolve, businesses are witnessing a shift in focus from mere hype to tangible applications that yield real-world benefits. The concept of vertical software-as-a-service (VSaaS) is emerging as a pivotal area for AI startups, indicating a promising path towards product-market fit, measurable return on investment (ROI), and sustainable growth.
In a recent analysis in The European Business Review, Ivan Nikkhoo discusses the ongoing challenges faced by AI startups in the shifting venture capital market, which appears set to persist into 2025. The initial excitement surrounding AI, particularly following the surge in large language models (LLMs), has subsided, leaving many fledgling companies to navigate a more austere financial landscape. Many of these businesses, previously buoyed by accessible funding, are now confronting significant hurdles as they seek to remain viable in the competitive market.
A noteworthy aspect of this trend is the resilience of SaaS businesses, known for maintaining a lower failure rate throughout their growth stages. Data suggests that SaaS investments yield superior returns from the Series A stage onwards, underscoring their appeal to venture capitalists once they demonstrate effective product-market fit and sustainable revenue streams.
Nikkhoo elaborates on the evolution of VSaaS in three key phases: the advent of cloud technology, the integration of financial services via fintech, and currently, the transformative power of AI. This latest phase is particularly significant, as AI begins to revolutionise the capabilities of various sectors. Notably, it is enabling businesses to automate or even replace many repetitive tasks traditionally performed by personnel in areas such as marketing, sales, customer service, and finance. The ability to process and analyse vast amounts of data from different sources presents immense opportunities for businesses to improve efficiency and productivity.
One illustrative example is Operative Intelligence, which has tailored its AI-driven solution specifically for the contact centre sector. CEO Peter Iansek highlights the challenges faced by large organisations in extracting actionable insights from the overwhelming data generated by customer interactions. “Despite pumping huge sums of money into contact centres over the past decade, customer interactions have continued to increase, and customer experience levels have fallen lower and lower, largely because organisations don’t really know why customers are reaching out in the first place. There’s too much data and not enough actionable insight. Fortunately, parsing through huge data volumes, automating analysis and surfacing insights is something that AI is inherently well-suited to,” Iansek explained.
The significance of industry-specific expertise in the development of VSaaS is underscored by Iansek's remarks on the importance of understanding the nuances of the sector. Operative Intelligence attributes its success to the team’s prior experience in the contact centre domain. “What matters in vertical SaaS is the specificity of the problem you’re solving. As former contact centre operators, we’ve experienced our customers’ issues firsthand. Our entire methodology was born from real-world experience,” Iansek stated. This tailored approach allows for a level of credibility and trust that generic AI models simply cannot replicate.
In light of current trends, the future landscape for AI entrepreneurs may hinge on their ability to address specific challenges within targeted industries. Many corporate budget holders now seek out customised AI solutions that can deliver discernible value, rather than generic models devoid of situational context.
The focus moving forward will not solely revolve around developing groundbreaking technologies, but rather on applying these advancements to solve pressing, tangible problems effectively. As this transformation unfolds, it is likely that the highest valuations within the tech industry will increasingly gravitate towards AI startups that succeed in the realm of vertical SaaS—companies that recognise the need for innovation while grounded in real-world application.
Source: Noah Wire Services