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So much for the slow period for Customer Data Platforms (CDPs). The industry, which saw its slowest funding period in two years over the first half of 2020, just featured its biggest acquisition to date.

Twilio, a customer communications platform provider, acquired CDP provider Segment for $3.2 billion this week in a move designed to enhance Twilio’s customer engagement software suite. It is by far the largest acquisition of a CDP vendor to date and breaks up a dead period: there were only two funding rounds over $10 million and only one acquisition in the first half of this year, according to data from the CDP Institute

Segment's exit is significant. It is the CDP industry’s largest standalone provider (574 employees, $284 million in funding) ahead of Tealium (508, $168M) and Treasure Data (400-plus, $54M), according to CDP Institute numbers from July 2020.

Another Day, Another Move Toward Platform

A prevailing message among big marketing and CX vendors is they recognize there is no all-in-one platform that provides all software solutions for marketers and CX professionals and that they "play well" with third-party software apps. Segment itself promoted a "platform of independents" earlier this year that took a stance against giant CRM vendors, declaring CRM is not enough for managing customer data and creating customer experiences.

Many vendors do want to be all-in-one even if they don't directly say it. Just look at acquisitions from marketing clouds and the billions spent in acquired tech over the past five years, which tell a different story.

The Twilio-Segment acquisition further validates the need for a CDP for vendors like Twilio that want to be the go-to platform in a marketing technology ecosystem rather than an app that gloms onto a centerpiece provider, according to David Raab, founder of the CDP Institute. “All the money's in the platform, because there are a million delivery systems, which are the apps that attach to the platform,” Raab said. “...You want to be orchestrating your customer treatments across channels, so all the decisioning needs to sit inside the platform. And then that just reduces the role of the delivery systems like the email system or the call center system to simply just be a conduit to send messages that are selected and crafted somewhere else."

The result for some of these apps in the ecosystem? Commoditization. "Twilio didn’t want to be commoditized and didn’t want to just be an app on somebody else's platform," Raab said. "…Serving a bunch of channels as an app on somebody else's platform is still not an attractive thing. You want to be the platform, but to be the platform you need to [be a] CDP.”

Related Article: 8 Insights from Acquia's Acquisition of CDP Provider Agilone

Heavy CDP Acquisition Season in 2019

The acquisition comes about a year after a flurry of CDP acquisition activity. Dun & Bradstreet acquired Lattice Engines in June of 2019. Mastercard bought SessionM four months later, and Acquia, a digital experience platform, closed out 2019 with a December acquisition of Agilone.

In that same time period — June to December 2019 — several CDPs acquired companies themselves. Leadspace bought ReachForce in June. Amperity acquired Custora in November. Manthan acquired RichRelevance in the same month, and Smartech Netcore bought Boxx.ai also in November.

Further, the market once solely dominated by pure-play CDPs now also features the arrival of CDPs from Microsoft, Adobe, SAS, Salesforce, Informatica, Oracle and SAP, the latter announcing its CDP just this week.

Ben Bloom, senior director analyst at Gartner for Marketers, said the Twilio-Segment acquisition is another milestone aligned to the Gartner prediction from earlier this year: By 2023, 70% of independent CDP vendors will be acquired by larger marketing technology vendors or will diversify through M&A of their own to enter adjacent categories such as personalization, multichannel marketing, consent management, and/or MDM for customer data.   

“We see the market for CDPs maturing, as reported adoption continues to rise but is not growing as quickly,” Bloom said.

Related Article: Will the CDP Industry See 70% Consolidation by 2023?

Marketing Feeding Into Broad Customer Experience Remit

So where does Twilio-Segment fit in to the larger trends of the CDP market and what is the message to the CDP buyer? “This deal is more unique to Twilio and Segment than it is representative of, or an endorsement of, the general CDP market,” said Joe Stanhope, vice president and principal analyst for Forrester serving B2C marketing professionals. He shared that although Segment went to market as a CDP at times, but Segment is relatively singular within the CDP market for its product capabilities, customer base and general technical approach. Twilio and Segment are very complementary to one another in terms of customers and products, within an approach that aspires to deliver the infrastructure for customer engagement.”

The bigger takeaway from this acquisition, Stanhope said, is that modern marketing and customer experience systems are increasingly dependent on a steady supply of quality, high velocity data. Successful marketing and CX implementations, he said, must incorporate data management and transmission tech and processes. The Twilio-Segment deal is about much more than marketing, or the limited notion of a CDP; it’s about providing the data infrastructure for all of customer engagement, he said.

“Marketing feeds into a broader customer experience remit alongside sales, service, support, ecommerce, etc.,” Stanhope added. “Firms need to develop holistic customer engagement and technology strategies to interact with customers at all phases of the customer lifecycle and in any touchpoint or device.”

Data Assembly at Segment’s Core

Segment is a “data CDP,” that includes systems that will gather customer data from source systems, then link the data to customer identities, and also store the results in a database available to external systems. There are also analytics CDPs, campaign CDPs and delivery CDPs.

Peter Reinhardt, CEO of San Francisco-based Segment, said in a conference call with investors Oct. 12 that Segment addresses marketing uses cases but differentiates from other CDPs because it focuses more on the developer experience. It was launched as an open source library with a vast majority of the focus on the IT side. Segment’s always been focused on the developer, he added.

Segment has predictive capabilities but its focus has very clearly been on the data assembly side of CDPs, according to Raab. “And that is still what we feel is the common core of all things that are CDPs,” Raab said. “So the takeaway is simply that everybody needs that data assembly, regardless of what else you might already have in place or not.”

Related Article: What's Behind the CRM-Trolling Platform of Independents?

Doubling Down on APIs for the Developer

Segment was both an good headless API/microservices integration tool and CDP, according to R "Ray" Wang, principal analyst and founder of Constellation Research. “This deal is about assembling the largest library of microsevices and API around customer engagement,” Wang said. “What it speaks to is Twilio’s desire to double down on APIs for CX and the developer.”

Standalone CDPs play a role as key components for those companies seeking to build their own capabilities, as Twilio is showing, Wang added. “However,” he said, “out-of-the-box usage will most likely be with one of the larger players and the large digital giants: Google, Amazon, Facebook, etc. Why? Because they have large graph databases.”

Moving Beyond Marketing Problems

Segment has a well-established position and reputation supporting marketing and front-end development teams to understand who customers are, what they’re doing and what they respond to, according to Nicole France, principal analyst and VP of Constellation Research. Twilio, meanwhile, has been facilitating new and better ways of supporting and interacting with customers by anticipating their needs and responding to their preferences.

“In combination,” she said, “the two companies help to bridge one of the most important gaps in customer experience: marketing and customer service. They do more than that, too, but at core, this is already a pretty big gap to address.”

CDPs have been built mainly to solve marketing problems. France called this a “big miss for the rest of the business and for customers alike,” and Twilio and Segment could address a much broader set of uses cases that span all kinds of customer interactions, both inbound and outbound, across the customer relationship and lifecycle.

Unlike the big enterprise software vendors, whose approaches to their CDPs have largely been driven by improving the use of data already within their systems as well as incorporating data from outside them, France added, Twilio and Segment have a different perspective. “They both have had a sort of ‘blank sheet’ approach, pulling data from whatever sources are useful and reliable, to identify/understand customers and to inform interactions with them,” France said.

Related Article: 4 CDP Case Studies: Acquia, Arm Treasure Data, BlueConic, Lytics

Complementary Approaches to Martech

According to Gartner’s Bloom, the Twilio-Segment acquisition also signifies the move to complementary approaches to building marketing technology stacks. While the major marketing clouds have been offering an “integrated suite” approach for years, research into the martech deployed by “genius brands" shows that they are taking a more complementary approach, deploying both point solutions and the larger martech vendors, Bloom noted. Point solutions compose 75% of the stack’s of genius brands in the Gartner study, while Integrated Suite solutions comprised just 18%.

What's Next for Buyers?

CDP buyers need to understand that the data fabric they develop is a critical company asset that enables analytics and customer engagement throughout the customer lifecycle, according to Forrester’s Stanhope. They should be thinking strategically and broadly about these capabilities, he added.

“I believe that this (acquisition) validates the notion that customer data platforms can potentially support a broader set of customer experience capabilities beyond marketing in the long term, and they should aspire to do so,” Stanhope said. “It may also pave the way for more acquisition activity by technology vendors, agencies, services firms, and strategics to shore up their customer experience data infrastructure and capabilities.”

Buyers of CDPs must identify their use cases and map said use cases to the appropriate technology, according to Michael Harrison, managing partner of the Winterberry Group. "In addition," he added, "marketers need to have a data lake to store their data, enabling them to be less reliant on the CDP, so they can pivot if their platform is acquired by a platform that does not align with the brand's overall technology roadmap."

What's Next for CDPs?

So is the CDP market an “everyone’s up for grabs” space in terms of acquisitions? Harrison predicts the market will see "significant compression" over the next year to two. Large-scale players will be obvious acquisition targets by the martech platforms, cloud-storage solutions and potentially service providers such as the holding companies and system integrators. Smaller CDPs will fight over the lower mid-market and will most likely merge to provide more robust offerings or pivot into other categories such as consent management. 

"There are many CDPs that have raised quite a bit of money over the last three to four years and have not demonstrated the necessary growth to sustain their business model," Harrison added. "There will be many more moves in the CDP market. We would not be surprised to see one of the clouds that have attempted to develop their solution to acquire a scaled provider to provide functionality and expertise."

CDPs have become increasingly crowded market and remain an important capability to power any kind of customer interaction capability, France added.

“That said, there will still be a healthy market for the higher-performing stand-alone CDPs. The reality is that not one of these approaches — stand-alone CDPs, marketing suite CDPs, customer data integration platforms, etc. — can address all of the needs and challenges companies have with their customer data. Building a ‘single view of the customer’ is still in the eye of the beholder — and up to them to make happen,” said France.