Vertical AI Surpasses Legacy SaaS

In recent years, the convergence of vertical SaaS (SaaS specialized for specific industries or sectors) and AI has been creating business opportunities on a scale never seen before. Traditionally, vertical SaaS was perceived as a "tool for streamlining core operations," but by leveraging AI, we are beginning to see the potential for service domains and value-added offerings themselves to more than double.

For example, from an investor's perspective, we are seeing cases where "AI-Enabled Services" are entering industries previously thought to be "finished once the core business system is installed," adding nearly 80% to the ACV (Annual Contract Value). In other words, it has the impact of effectively doubling the market after the core SaaS has been implemented.

Case 1: The Expansion of the Legal Industry as Shown by Litify and EvenUp

• Litify
  A workflow system that comprehensively supports law firms in the personal injury sector. It is a "core" vertical SaaS that can manage and operate almost all of a firm's primary business activities. For law firms, it is truly the heart of their operations and has become an indispensable presence.

• EvenUp
  A service that further penetrates law firms already using Litify and uses AI to automate the creation of "demand letters" for settlement negotiations. It significantly improves productivity by enabling the instant generation of documents that paralegals and attorneys previously spent a lot of time creating.
  Moreover, EvenUp commands an ACV that reaches approximately 80% of Litify—a surprising figure. Because this is not merely "additional software" but closer to replacing high-cost tasks previously performed by humans, it is easy to maintain a high price point.

Why is the existing SaaS (Litify) not being replaced?

• The value provided is completely different between a "core SaaS that supports overall operations" and an "AI-based service for specific processes"

• While integrating strongly with existing systems, it replaces "tasks that rely on human resources"

• The benchmark for price comparison is not software versus software, but "labor costs versus AI services"

Due to these factors, AI-enabled services like EvenUp are being established as significant new expenditure items.

Three AI Utilization Models

It is said that there are broadly three types of business models for vertical AI as follows.

1. Co-pilot
   A role that supports existing business personnel, enhancing data analysis, document creation, risk assessment, and more.

   • Example: Supporting risk assessment for insurance underwriters, such as Sixfold.

   • Characterized by improving efficiency and accuracy without completely replacing humans.

2. Agent
   A mechanism for so-called "automated response" that handles external interactions, inquiry responses, and sales calls typically performed by humans.

   • Example: Automating incoming call handling and scheduling, such as Same Day (a voice-based inbound agent for home services).

   • Contributes to business expansion by enabling 24/7 support without increasing staff headcount.

3. AI-Enabled Services
   These services use AI to productize tasks that were originally outsourced to humans (such as document creation, audio transcription, and professional report generation).

   • Examples: the aforementioned EvenUp (automated settlement negotiation letter creation), Same Day, and Abridge, which will be introduced later.

   • Since outsourcing expenses and human costs can be directly transferred, it is often possible to set higher unit prices.

Case 2: The "magic" that Abridge brings to the medical field

• Abridge is a service that uses AI to almost entirely replace the task of automatically recording and summarizing a doctor's voice conversations and entering them into an Electronic Medical Record (EMR).

• It significantly reduces the documentation and data entry work that doctors and medical staff originally had to perform, creating an environment where they can focus on patient interaction and diagnosis.

• It is truly a "magical" solution that reduces the time doctors spend on administrative tasks that do not directly generate revenue, while also bringing benefits to hospital revenue management.

The challenges medical institutions faced were "lack of time and human resources" and "data accuracy." Abridge is highly regarded by many doctors and hospitals because it simultaneously improves the quality and productivity of medical care through voice recognition and AI summarization.

Case 3: Rilla and the new value of voice data

• In industries centered on "in-person or telephone voice information," such as field sales, it has long been difficult to accumulate valuable conversation data as text.

• Rilla provides a solution that analyzes and summarizes this voice communication in real-time and with high accuracy, converting it into text data.

• This allows for an accurate understanding of what conversations took place on the sales floor, enabling advanced analysis of customer needs and feedback.

• By converting what was previously qualitative 'customer dialogue' into structured data, companies can gain new insights and productivity.

Why can high growth and profit margins be achieved even with 'services'?

1. Replacement of human costs

AI-enabled services can achieve higher profit margins than traditional service businesses by replacing labor costs with software.

• In traditional outsourcing or BPO, costs increase as more people are added.

• Because AI is the main driver, high scalability is maintained.

2. Process automation as a differentiator

Rather than 'merely providing labor,' the core lies in 'models' + 'industry-specific workflow design,' making it easier to acquire uniqueness that existing service companies cannot easily imitate.

• Incorporating vast amounts of domain knowledge (legal, medical, insurance, construction, etc.)

• Need to highly manage recognition accuracy and the quality of the final output

3. A threat to incumbents (existing SaaS providers)?

At first glance, there is a concern that 'existing vertical SaaS providers will easily add AI features,' but it has become clear that it is not that simple.

• The 'core' of vertical SaaS is the management and operation of the entire workflow, not necessarily focusing on the advanced automation of specific processes.

• Emerging AI-driven services replace the 'deepest parts' of human tasks, so the business model itself is different.

• In reality, they are complementary, and there are many cases where coexistence progresses through integration, collaboration, and sometimes acquisition.

The wave of multimodality

Looking ahead to the next year, it is expected that AI that handles multiple modalities simultaneously—such as voice, text, images, and video—will become more widespread. Human work naturally involves parallel processing of various information such as vision, hearing, and language, and AI is also becoming capable of similar comprehensive judgment.

• Voice data + text analysis → Rilla new insights like this

• Video analysis + document creation → Automated reporting for construction sites and production lines

• Text generation + voice response → Transforming call centers into AI agents

Multimodal AI has the potential to rapidly replace areas that were previously outside the scope of traditional software. This is the driving force behind the creation of new vertical AI businesses in many industries.

Until now, vertical SaaS has existed to move core business operations to the cloud and improve efficiency. However, as AI evolves, a movement is beginning to expand the service domain itself exponentially. In particular, "AI-enabled services" are transcending the traditional classification of "is it software or is it a service?" and are opening up new markets with high growth and high profit margins.

Furthermore, in the future, more complex human tasks will be automated and optimized by multimodal AI, further expanding the possibilities of vertical SaaS. A diverse ecosystem will be formed, including not only competition with incumbents but also partnerships and acquisitions, which will transform our familiar business areas into more advanced and efficient forms.

The New Era of Vertical SaaS x AI-- A year from now, the very definition of services may have changed at a speed that exceeds our imagination. That is precisely why now is the most exciting and opportunity-filled time.