VERTICAL & COMPOUND SOFTWARE

Summary from the TLDR Founders newsletter

Single feature software apps are becoming increasingly easy to build and quickly turn into commodities, especially with the rise of AI tools. However, two types of software continue to thrive: "vertical software," tailored deeply to specific industries (such as Toast, Inc. for restaurants), and "compound software," which combines multiple related features around a shared data platform (like Rippling). Both of these software approaches result in stronger customer loyalty, better pricing power, and higher market valuations. Today, vertical software companies trade at about 53% higher multiples compared to general cloud software providers.