Vertical AI and the Rise of Embedded CS
Vertical AI and the Rise of Embedded CS
Vertical AI and the Rise of Embedded CS
Vertical AI and the Rise of Embedded CS
Successful customers are the foundation upon which great businesses are built. As AI enables us to build software at an unprecedented pace, the truest competitive moat is knowing your customers.
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Every innovation wave begins with building the foundation—you can think of this as the raw materials coming together in a way that makes everything else possible. In the cloud era, high-end servers emerged in the early 2000s, unlocking a world of scalability and massive data-handling capabilities. At the same time, web development techniques like AJAX allowed websites to update content dynamically without refreshing the entire page—this was the pretext for taking desktop applications and putting them in your internet browser—tada, SaaS!
“In the cloud era, high-end servers emerged in the early 2000s, unlocking a world of scalability and massive data-handling capabilities. ”
Every innovation wave begins with building the foundation—you can think of this as the raw materials coming together in a way that makes everything else possible. In the cloud era, high-end servers emerged in the early 2000s, unlocking a world of scalability and massive data-handling capabilities. At the same time, web development techniques like AJAX allowed websites to update content dynamically without refreshing the entire page—this was the pretext for taking desktop applications and putting them in your internet browser—tada, SaaS!
“In the cloud era, high-end servers emerged in the early 2000s, unlocking a world of scalability and massive data-handling capabilities. ”
Every innovation wave begins with building the foundation—you can think of this as the raw materials coming together in a way that makes everything else possible. In the cloud era, high-end servers emerged in the early 2000s, unlocking a world of scalability and massive data-handling capabilities. At the same time, web development techniques like AJAX allowed websites to update content dynamically without refreshing the entire page—this was the pretext for taking desktop applications and putting them in your internet browser—tada, SaaS!
“In the cloud era, high-end servers emerged in the early 2000s, unlocking a world of scalability and massive data-handling capabilities. ”
The first companies to really take advantage of this foundational shift were Salesforce (1999), NetSuite (1998), and SuccessFactors (2001). These companies offered solutions with broad-based offerings, generally focused on CRM, ERP, and Human Resources. They were primarily horizontal in nature—i.e., any sales team could derive value from Salesforce. Later in the wave of innovation, we began to see more vertical solutions emerge—Mindbody for fitness businesses (2001), Procore for construction businesses (2002), Veeva for life sciences (2007), Clio for law offices (2008), Toast for restaurants (2011), and ServiceTitan for contractors (2012) are all notable examples. Along the way, other technological shifts—such as mobile and fintech infrastructure—created further opportunities for cloud companies to go even more vertical. Generally what you see is that as an innovation matures, the obvious opportunities to build for horizontal markets become exhausted (or at least harder to find product-market fit in), and founders start seeking opportunities in more nuanced spaces. Rather than capturing a broad market, they target smaller markets and stack solutions on top of each other to create enough TAM to build a business around.
“as an innovation matures, the obvious opportunities to build for horizontal markets become exhausted (or at least harder to find product-market fit in), and founders start seeking opportunities in more nuanced spaces.”
The first companies to really take advantage of this foundational shift were Salesforce (1999), NetSuite (1998), and SuccessFactors (2001). These companies offered solutions with broad-based offerings, generally focused on CRM, ERP, and Human Resources. They were primarily horizontal in nature—i.e., any sales team could derive value from Salesforce. Later in the wave of innovation, we began to see more vertical solutions emerge—Mindbody for fitness businesses (2001), Procore for construction businesses (2002), Veeva for life sciences (2007), Clio for law offices (2008), Toast for restaurants (2011), and ServiceTitan for contractors (2012) are all notable examples. Along the way, other technological shifts—such as mobile and fintech infrastructure—created further opportunities for cloud companies to go even more vertical. Generally what you see is that as an innovation matures, the obvious opportunities to build for horizontal markets become exhausted (or at least harder to find product-market fit in), and founders start seeking opportunities in more nuanced spaces. Rather than capturing a broad market, they target smaller markets and stack solutions on top of each other to create enough TAM to build a business around.
“as an innovation matures, the obvious opportunities to build for horizontal markets become exhausted (or at least harder to find product-market fit in), and founders start seeking opportunities in more nuanced spaces.”
The first companies to really take advantage of this foundational shift were Salesforce (1999), NetSuite (1998), and SuccessFactors (2001). These companies offered solutions with broad-based offerings, generally focused on CRM, ERP, and Human Resources. They were primarily horizontal in nature—i.e., any sales team could derive value from Salesforce. Later in the wave of innovation, we began to see more vertical solutions emerge—Mindbody for fitness businesses (2001), Procore for construction businesses (2002), Veeva for life sciences (2007), Clio for law offices (2008), Toast for restaurants (2011), and ServiceTitan for contractors (2012) are all notable examples. Along the way, other technological shifts—such as mobile and fintech infrastructure—created further opportunities for cloud companies to go even more vertical. Generally what you see is that as an innovation matures, the obvious opportunities to build for horizontal markets become exhausted (or at least harder to find product-market fit in), and founders start seeking opportunities in more nuanced spaces. Rather than capturing a broad market, they target smaller markets and stack solutions on top of each other to create enough TAM to build a business around.
“as an innovation matures, the obvious opportunities to build for horizontal markets become exhausted (or at least harder to find product-market fit in), and founders start seeking opportunities in more nuanced spaces.”
The AI wave is unfolding in a pattern similar to previous innovation cycles. In the foundational phase, we’ve seen the rise of Large Language Models (LLMs) like OpenAI’s GPT series, Claude by Anthropic, and Google’s Gemini. These models, along with supporting infrastructure such as NVIDIA GPUs and platforms like Hugging Face, serve as the “raw materials” of this wave, enabling the development of everything that follows. For customer support professionals, we’re already seeing the emergence of the first generation of horizontal platforms designed to support customer teams with broad, horizontal workflows. Examples like Sierra AI, Decagon AI, and MavenAI cater to teams that support almost every vertical; for instance, a United Airlines support team could use the same platform as Rippling to service its customers.
“What is perhaps different about this technology shift is how quickly things are moving and how rapidly we’re transitioning into the later stages of innovation.”
The AI wave is unfolding in a pattern similar to previous innovation cycles. In the foundational phase, we’ve seen the rise of Large Language Models (LLMs) like OpenAI’s GPT series, Claude by Anthropic, and Google’s Gemini. These models, along with supporting infrastructure such as NVIDIA GPUs and platforms like Hugging Face, serve as the “raw materials” of this wave, enabling the development of everything that follows. For customer support professionals, we’re already seeing the emergence of the first generation of horizontal platforms designed to support customer teams with broad, horizontal workflows. Examples like Sierra AI, Decagon AI, and MavenAI cater to teams that support almost every vertical; for instance, a United Airlines support team could use the same platform as Rippling to service its customers.
“What is perhaps different about this technology shift is how quickly things are moving and how rapidly we’re transitioning into the later stages of innovation.”
The AI wave is unfolding in a pattern similar to previous innovation cycles. In the foundational phase, we’ve seen the rise of Large Language Models (LLMs) like OpenAI’s GPT series, Claude by Anthropic, and Google’s Gemini. These models, along with supporting infrastructure such as NVIDIA GPUs and platforms like Hugging Face, serve as the “raw materials” of this wave, enabling the development of everything that follows. For customer support professionals, we’re already seeing the emergence of the first generation of horizontal platforms designed to support customer teams with broad, horizontal workflows. Examples like Sierra AI, Decagon AI, and MavenAI cater to teams that support almost every vertical; for instance, a United Airlines support team could use the same platform as Rippling to service its customers.
“What is perhaps different about this technology shift is how quickly things are moving and how rapidly we’re transitioning into the later stages of innovation.”
What is perhaps different about this technology shift is how quickly things are moving and how rapidly we’re transitioning into the later stages of innovation. Just a year ago, the value of the app layer of AI—which includes most horizontal and vertical solutions—was hotly debated. At the time, the prevailing sentiment was that these applications were little more than “GPT wrappers” and that the foundational layer would capture the lion’s share of value. My perspective was different, shaped by my career in SaaS and my experience at Motive—a vertical solution whose competitive edge came from deeply understanding the unique needs of the commercial transportation industry. While our technology was best-in-class, what truly set us apart wasn’t always the tech itself but our ability to address a deep stack of challenges for our customers in an integrated, vertical-specific way.
“Technology alone isn’t enough; knowing your customers is where the real competitive advantage lies.”
What is perhaps different about this technology shift is how quickly things are moving and how rapidly we’re transitioning into the later stages of innovation. Just a year ago, the value of the app layer of AI—which includes most horizontal and vertical solutions—was hotly debated. At the time, the prevailing sentiment was that these applications were little more than “GPT wrappers” and that the foundational layer would capture the lion’s share of value. My perspective was different, shaped by my career in SaaS and my experience at Motive—a vertical solution whose competitive edge came from deeply understanding the unique needs of the commercial transportation industry. While our technology was best-in-class, what truly set us apart wasn’t always the tech itself but our ability to address a deep stack of challenges for our customers in an integrated, vertical-specific way.
“Technology alone isn’t enough; knowing your customers is where the real competitive advantage lies.”
What is perhaps different about this technology shift is how quickly things are moving and how rapidly we’re transitioning into the later stages of innovation. Just a year ago, the value of the app layer of AI—which includes most horizontal and vertical solutions—was hotly debated. At the time, the prevailing sentiment was that these applications were little more than “GPT wrappers” and that the foundational layer would capture the lion’s share of value. My perspective was different, shaped by my career in SaaS and my experience at Motive—a vertical solution whose competitive edge came from deeply understanding the unique needs of the commercial transportation industry. While our technology was best-in-class, what truly set us apart wasn’t always the tech itself but our ability to address a deep stack of challenges for our customers in an integrated, vertical-specific way.
“Technology alone isn’t enough; knowing your customers is where the real competitive advantage lies.”
I’ve long believed that no horizontal solution can match the depth of understanding a vertical-focused product brings to its customers. Technology alone isn’t enough; knowing your customers is where the real competitive advantage lies. In past innovation cycles, vertical software has consistently emerged after foundational technologies mature and horizontal applications gain widespread adoption. It is often in vertical solutions where the most value ends up accruing from an investment perspective. Now, the pendulum is swinging toward vertical AI solutions, with clear signs of this shift everywhere. A recent YC podcast even suggested that Vertical AI Could Be 10X Bigger Than SaaS.
Selfishly, what excites me most about this third phase of innovation is how critical Customer Success is for founders who decide to build for customers in these vertical spaces. I recently wrote about the importance of founder-led Customer Success and how the metrics for finding product-market fit—like customer satisfaction and retention—are the same ones that matter most to Customer Success leaders. In the vertical layer, understanding your customers is non-negotiable. ServiceTitan, for example, isn’t celebrated for its technical prowess but rather for its ability to profoundly improve the lives of contractors. That customer-first mindset will also define success in the vertical stage of the AI wave.
“In a world where the pace of innovation is accelerating, the truest competitive moat is knowing your customers better than anyone else.”
I’ve long believed that no horizontal solution can match the depth of understanding a vertical-focused product brings to its customers. Technology alone isn’t enough; knowing your customers is where the real competitive advantage lies. In past innovation cycles, vertical software has consistently emerged after foundational technologies mature and horizontal applications gain widespread adoption. It is often in vertical solutions where the most value ends up accruing from an investment perspective. Now, the pendulum is swinging toward vertical AI solutions, with clear signs of this shift everywhere. A recent YC podcast even suggested that Vertical AI Could Be 10X Bigger Than SaaS.
Selfishly, what excites me most about this third phase of innovation is how critical Customer Success is for founders who decide to build for customers in these vertical spaces. I recently wrote about the importance of founder-led Customer Success and how the metrics for finding product-market fit—like customer satisfaction and retention—are the same ones that matter most to Customer Success leaders. In the vertical layer, understanding your customers is non-negotiable. ServiceTitan, for example, isn’t celebrated for its technical prowess but rather for its ability to profoundly improve the lives of contractors. That customer-first mindset will also define success in the vertical stage of the AI wave.
“In a world where the pace of innovation is accelerating, the truest competitive moat is knowing your customers better than anyone else.”
I’ve long believed that no horizontal solution can match the depth of understanding a vertical-focused product brings to its customers. Technology alone isn’t enough; knowing your customers is where the real competitive advantage lies. In past innovation cycles, vertical software has consistently emerged after foundational technologies mature and horizontal applications gain widespread adoption. It is often in vertical solutions where the most value ends up accruing from an investment perspective. Now, the pendulum is swinging toward vertical AI solutions, with clear signs of this shift everywhere. A recent YC podcast even suggested that Vertical AI Could Be 10X Bigger Than SaaS.
Selfishly, what excites me most about this third phase of innovation is how critical Customer Success is for founders who decide to build for customers in these vertical spaces. I recently wrote about the importance of founder-led Customer Success and how the metrics for finding product-market fit—like customer satisfaction and retention—are the same ones that matter most to Customer Success leaders. In the vertical layer, understanding your customers is non-negotiable. ServiceTitan, for example, isn’t celebrated for its technical prowess but rather for its ability to profoundly improve the lives of contractors. That customer-first mindset will also define success in the vertical stage of the AI wave.
“In a world where the pace of innovation is accelerating, the truest competitive moat is knowing your customers better than anyone else.”
While everything in AI seems new, I often find myself thinking about it through age-old principles. For entrepreneurs—and those who invest in them—there remains a timeless truth: Can I build it? Does anyone want it? And will it make money? Nowhere is this truer than in the vertical layer. A quote I heard this week perfectly captures this sentiment. Apoorva Mehta, Founder and CEO of Instacart, said: “You have to be very close to your customers; you need to know your customers better than anyone. That’s why a company wins.”
The playing field will evolve, but successful customers remain the constant foundation upon which great businesses are built. In a world where the pace of innovation is accelerating, the truest competitive moat is knowing your customers better than anyone else. Particularly as we move into the vertical phase of a technology shift, deeply understanding customer challenges and delivering tailored solutions that reflect this knowledge is what will ultimately set founders and companies apart.
While everything in AI seems new, I often find myself thinking about it through age-old principles. For entrepreneurs—and those who invest in them—there remains a timeless truth: Can I build it? Does anyone want it? And will it make money? Nowhere is this truer than in the vertical layer. A quote I heard this week perfectly captures this sentiment. Apoorva Mehta, Founder and CEO of Instacart, said: “You have to be very close to your customers; you need to know your customers better than anyone. That’s why a company wins.”
The playing field will evolve, but successful customers remain the constant foundation upon which great businesses are built. In a world where the pace of innovation is accelerating, the truest competitive moat is knowing your customers better than anyone else. Particularly as we move into the vertical phase of a technology shift, deeply understanding customer challenges and delivering tailored solutions that reflect this knowledge is what will ultimately set founders and companies apart.
While everything in AI seems new, I often find myself thinking about it through age-old principles. For entrepreneurs—and those who invest in them—there remains a timeless truth: Can I build it? Does anyone want it? And will it make money? Nowhere is this truer than in the vertical layer. A quote I heard this week perfectly captures this sentiment. Apoorva Mehta, Founder and CEO of Instacart, said: “You have to be very close to your customers; you need to know your customers better than anyone. That’s why a company wins.”
The playing field will evolve, but successful customers remain the constant foundation upon which great businesses are built. In a world where the pace of innovation is accelerating, the truest competitive moat is knowing your customers better than anyone else. Particularly as we move into the vertical phase of a technology shift, deeply understanding customer challenges and delivering tailored solutions that reflect this knowledge is what will ultimately set founders and companies apart.
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