Many Chinese fortune cookie paper with prediction

According to recent data from Gartner, most customer data platform (CDP) providers will be scooped up by larger marketing technology (martech) vendors or diversify themselves and enter adjacent martech categories over the next three years.

Gartner reported those findings earlier this month in its Market Guide for Customer Data Platforms. By 2023, 70% of independent CDP vendors will be acquired by larger martech vendors or will diversify through mergers and acquisitions of their own to enter adjacent categories such as personalization, multichannel marketing, consent management, and/or master data management (MDM) for customer data, according to Gartner researchers. "The number of CDP vendors is approaching 100, that we're even aware of. And it just doesn't seem sustainable that every single one of these will be able to grow as an independent entity,” said Ben Bloom, one of the authors of the Gartner CDP report. 

Will Current Market Downturn Be Boon for CDPs?

And of course, there’s the COVID-19 pandemic to factor in. The virus is leading to what may be the worst economic recession in the last 150 years according to some estimates. More than 22 million Americans have applied for unemployment benefits in the last four weeks (13% of the labor force), and The Federal Reserve Bank of Atlanta’s GDPNow Survey reported the median consensus estimate for first-quarter GDP at -4%, according to Forbes. It would be the worst since the Great Recession in the late 2000s.

Gartner’s prediction of major consolidation of the CDP marketplace published this month has to do with technology trends and not recession forecasts related to COVID-19. But the recession's potential effect on the CDP market can’t be overlooked and is something Gartner has been discussing, according to Bloom. “We've definitely been debating internally about what the current kind of market turmoil is going to do to the demand for CDPs,” Bloom said.

“While it's a little bit early to know what the precise impact is going to be, it does seem that some brands are now getting more interested in customer data, because they know that they need to have direct relationships with their consumer audiences, and they need to be able to deliver nuanced set of communications. Some of the batch processes or siloed data are going to become a much bigger pain point for some businesses,” he said.

Related Article: What's Under the Hood of a Customer Data Platform?

Will CDP Vendors Have the Resources to Survive?

CDP buyer momentum isn't exactly slowing down. Some CDPs could make it through the COVID-19 recession simply due to potential big bank accounts from funding rounds, according to Bloom. Tealium, for example, raised $55 million in Series F funding last year and now has raised more than $160 million to date. According to the CDP Institute’s Customer Data Platform Industry Update released in January, the industry funding rose by $236 million over the last six months of 2019 and one round in January 2020 (ActionIQ’s $32 million Jan. 15).

Gartner reports that companies selling CDP technology have received more than $1.8 billion in venture capital investments. Those funding rounds may provide cushions for CDP providers to be able to acquire some smaller enterprises that can’t win enough business, or acquire their customers, over the medium term, according to Bloom.

Another positive sign of some CDPs in the economic downturn? Gartner reported that among those who plan to deploy a CDP in the next two years, 35% have already secured the budget and 43% are in the process of building a business case to secure funding. If faced with a choice for which planned technologies to scrap, according to Gartner, respondents ranked CDPs as the technology they would least likely cut from their planned deployments.

Related Article: Is That New CDP Truly a Customer Data Platform?

Acquisitions, Mergers, Diversification

So why consolidation? Two factors support forthcoming CDP consolidation, according to Bloom:

Acquisitions: Martech Meets CDP

For acquisitions, we’ll likely see a continuation of acquisitions like Acquia’s of AgilOne in December. That example, Bloom said, is a martech vendor that’s “trying to bolster their customer data management capabilities, or their ability to deliver personalization,” he said, adding, “potentially you could see more deals like that.”

The second half of 2019 saw two other major CDP acquisitions, according to the CDP Institute: Dun & Bradstreet bought B2B campaign CDP Lattice Engines in June and will deploy Lattice’s campaign tools and use data that Lattice collects; Mastercard bought B2C loyalty CDP SessionM in October and plans to offer SessionM’s loyalty system to Mastercard merchants, according to CDP Institute findings.

CDPs Do Some M&A on Their Own

The other trend that will support consolidation over the next three years is CDPs themselves will diversify “M&A” of their own and therefore bolster capabilities such as personalization, multichannel marketing, consent management and/or MDM for customer data. One notable move was Radius Intelligence’s merger with Leadspace in 2018, but that merger deal died just three months laterLast year Kabbage acquired Radius Intelligence, and Leadspace still operates independently. Speaking of Leadspace, it represented one CDP player that made an acquisition last year (ReachForce).

In other moves last year, Amperity acquired Custora, Manthan acquired RichRelevance and Smartech Netcore acquired Boxx.ai. It should also be noted that over the last six months ending 2019, Stride, Mintigo and IgnitionOne represented discontinued CDPs, according to the CDP Institute.

The acquisitions by CDP vendors supports the notion of bolstering capabilities. Two years ago, they would more be focused on data orchestration and analytics whereas now they’re adding things like personalization and the ability to actually deliver detailed instructions to execution systems, according to Bloom. “What is potentially possible is that we'll see more CDP vendors explicitly bolster their personalization capabilities,” Bloom added.

Expect More Acquisitions and Exits

CMSWire asked David Raab, founder of the CDP Institute, about Gartner’s forecast that most CDP vendors would be acquired, merged or diversified. He cited his own most recent industry update, which found that 87% of CDP vendors are already in the analytics, campaign and delivery categories. They’ve already migrated in those directions, Raab said. “I do expect more acquisitions and some exits,” Raab told CMSWire. “It doesn’t take a crystal ball to know that the current economic situation is likely to flush out some of the weaker players.”

Tony Byrne, founder of Real Story Group, wrote in December that market consolidation is not a foregone conclusion for CDPs. “The web content and digital experience management (WCM) marketplace has remained fragmented for more than two decades now,” he wrote, adding that “while your CDP vendor could go away, I wouldn't overweight this in your strategic evaluations… Look more closely at other intangibles, like community strength, as an indicator of long-term viability.”