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PHOTO: Wil Stewart

The customer data platform (CDP) market is highly fragmented, with vendors who share a “same core story” struggling to differentiate themselves by targeting specific verticals and use cases. 

This is just one of the findings in new research released today by Real Story Group (RSG), an independent analyst firm that helps buyers select enterprise technology. 

“I think that this was a space in search of a three-letter acronym and it finally found one,” said Tony Byrne, founder and CEO of RSG. “A lot of these guys are doing what you might call marketing data support, or marketing data warehouses or just data integration platforms. And I think it took a while for a core set of capabilities to coalesce and kind of come of age. But when it did, it happened pretty quickly. That’s what's so impressive. There's an enormous amount of customer interest and also investor interest.”

Research by The Customer Data Platform Institute, a vendor-neutral trade organization founded by David Raab, offers some numbers that put Byrne's growth story in perspective: Its latest CDP industry update reported employment in the industry grew by 76 percent over the past year, with $114 million in new funding in the first half of 2018, an increase of 26 percent over the $90 million added during the same period in 2017. 

On the heels of the RSG Customer Data Platform report (subscription required), we caught up with RSG researchers and other CDP industry watchers to discuss the rise of CDPs and where the industry is potentially heading.

What’s the Core CDP Story?

The RSG report uncovered what its researchers called a “core story”: CDP vendors unify the customer data environment and make data more “marketing friendly to manipulate,” according to Byrne. “There's a lot of traditional kind of data management services including being able to ingest data from various sources and do identity resolution which is a really big deal, handling the security around PII, and all that.”

Byrne cited cloud-based architectures, modern API frameworks and innovations in Artificial Intelligence (AI) as three major factors opening the door to vendor entry in CDPs. Secure multi-tenant implementations in the cloud builds a good story around building cloud-native toolsets, and modern API frameworks allow vendors to quickly build all the connectors organizations need, Byrne added. AI innovations help with data ingestion and identity resolution and data cleaning, he added.

Related Article: Customer Data Platforms Shine Where CRMs Fail

CDPs Differentiate by Targeting Verticals and Specific Case Study 

The more interesting trend, the report uncovered, is the different verticals CDPs might target: retail, financial services, banking and insurance are some examples. Some have dialed in on multichannel support like offline direct mail and mobile advertising. Others have focused more on supporting outbound marketing use cases, such as helping to build the right segments for email campaigns, Byrne said. 

“Like anything else there's no vendor who's great across all of these,” Byrne said. “Instead,” he added, “they tend to focus both functionally and in some cases vertically with respect to the industries that they're targeting.” Some CDPs are more sophisticated, more expensive and developer-oriented. Others are more out-of-the-box, less expensive and maybe less extensible.

Related Article: Customer Data Platforms: A Contrarian's View

Big Vendors Play a Role in CDP Emergence

CDPs may have benefitted from gaps left by marketing clouds. Christi Eubanks, managing vice president at Gartner, told CMSWire that big vendors, or marketing clouds, promised seamless multichannel campaign management. However, marketers who bought into these clouds, or used components from different vendors to build their own stack, soon realized it was anything but seamless, according to Eubanks. Marketers, she said, recognized that "segments and audience IDs were living in all sorts of places because these clouds were collections of tools acquired and in various stages of integration, some more successfully than others." 

And what happened? The CDP emerged as the answer to that problem, Eubanks said. She called it a "middleware solution that could stitch together customer data so that you can do people-based marketing, no matter which activation endpoints you’re using."

Editor's Note: Tony Byrne will be sharing more of his thoughts on the CDP landscape and selection process at CMSWire's DX Summit taking place Nov. 12 to Nov. 14 in Chicago. Byrne will present a session titled, "Customer Data Platforms: A Critical Assessment" on Nov. 13.

Vendor: CDPs Break Down Into 3 Broad Groups

One CMO of a CDP provider sees the vendor landscape in three tiers. Darren Guarnaccia, chief marketing officer at Lytics, admitted the current crop of CDP vendors do all appear to be doing the same thing on the surface if you look at what they're all saying. But, he sees CDPs differentiating in three large groups:

Data routers. These are all the tag management vendors that have relabeled themselves CDPs, according to Guarnaccia. They use the word orchestration, but what that really means is shipping data around from tool to tool.  

Vendors that can allow a marketer to build out segments centrally, and share those segments across tools, and possibly even trigger events in downstream tools. “The ability to activate data in channels such as ad platforms, emails tools and websites is important for marketers to execute the near terms use cases they all want,” Guarnaccia said. “You see a lot of personalization vendors in this category as well as first generation CDPs.”  

CDP vendors that have incorporated an experience orchestration and decisioning layer into their product to activate their data across channels using artificial intelligence. Most of the first-generation tools tried to do journey management using rules based approaches, such as marketing automation. “This eventually runs out of gas due to the complexity that accumulates trying to outguess a customer's needs,” he added. “Vendors in this category let marketers set up overall journey structures, but let machine learning figure out what the best offer is for each customer in their given stage and situation and constantly self-optimizes as it goes.”

Related Article: Are Customer Data Platforms and GDPR at Odds?

Buyers Need to Understand What CDP Vendors Do

Raab of the CDP Institute told CMSWire vendors are currently putting a lot of effort into explaining use cases. “Different products do have different strengths,” Raab added, “but it’s still confusing because CDPs often support the same use case in different ways.” 

Some CDP vendors will offer predictive model building while others simply provide data to external predictive modeling tools. “It’s really up to the buyer to be diligent in understanding what different products do,” Raab said.

Will CDP Vendors Consolidate?

So what's next? If they look the same on the surface, will CDP vendors be appealing for acquisition? The industry hasn’t seen many mergers and acquisitions yet, though that may change given Salesforce's recent acquisition of Dataroma for $800 million. SAP acquired Gigya for $350 million in Sept. 2017. Though neither are technically CDPs, they both served as answers to CDPs, according to Gartner's Eubanks. Eubanks went on to note actions by IBM, with its Universal Behavior Exchange, and Adobe, with both its Experience Data Model and Cloud Platform Launch, which strive to provide the same functionality as a CDP. 

RSG researchers expect more M&A activity in this space. Large vendors will seek to round out their suites: Byrne cited Adobe, Oracle, IBM and Salesforce as “jumping on the bandwagon” for CDPs. However, RSG does not expect major consolidation or reduction in the number of CDP vendors in the near term. "We expect ... they may snap up some of these smaller guys, but there's also new vendors joining the market all the time. So I don't expect the number of vendors to go down," said Byrne.

Raab shared his take on the possibility of consolidation: "I don’t expect too many acquisitions by the big vendors because few of the CDP vendors are large enough for them to find interesting. Then again, there are only a few big cloud vendors anyway. There’s definitely a threat that the big vendors will plug the gap that the independent CDPs are now filling, whether via acquisition or internal development."

Raab said that even if the big vendors position the CDP as something else — for example, an analytics solution — marketers will “still use the CDP as a CDP because they have such a strong need for the core database.” “Marketers are always good,” Raab continued, “at adapting technology to their purposes once it’s installed, even if the vendors don’t intend them to.”

Related Article: Marry Customer Data Platforms and Master Data Management for Your Customer Data Needs

Still Room for Smaller CDP Vendors to Compete

John Nash, chief marketing and strategy officer at RedPoint Global, a CDP vendor had a more bullish view of the M&A prospects: "They’ll be acquiring CDPs to address a complete lack of a data capability within their own platforms,” Nash said. “The big vendors will be using a CDP acquisition as a checkbox to say, ‘We now have a data capability!’ Except they will still not be able to do what a true CDP enables — enterprise-wide, real-time decisions. This is because they lack the ability to process all data available to an enterprise, and lack connectivity to all touchpoints, particularly real-time interactions.”

Nash said smaller CDP vendors will still be able to compete if they have truly differentiated capabilities. The ones that include a performance profile that enables enterprise-wide, real-time decisions will absolutely compete in the market against the monoliths. 

“The CDP market will continue to see a flurry of M&A activity where quality companies will be consolidated with some of the big players,” Nash predicted. “However, there aren’t enough high-quality CDPs in the market to anticipate a major consolidation in the near future.”  

Marketing Clouds and Where DMPs Fit

Gartner's Eubanks doesn't see marketing clouds acquiring CDPs and then turning them into something else. She sees them delivering on their roadmap promises and plans, most of which were laid out before CDPs arrived. Most, she said, acquired data management platforms (DMPs) — Oracle's acquisition in 2014 of BlueKai is one example. Oracle has combined the DMP technology with analytics, expanding the definition and use of the DMP to encompass much of what a CDP does as well. 

"This isn’t unexpected at all," Eubanks said. "DMPs and CDPs have a lot in common. And it is no surprise that several of the firms with the largest investments in AI (Einstein, Leonardo, Sensei, Watson) see the value in harmonizing profile data across systems — algorithmic campaign management is only feasible with the underlying data to support it. It’s also not surprising that these vendors have been hesitant to embrace the 'CDP' packaging. They see customer data management as a means to an end, rather than the marquee product."

Related Article: 12 Considerations When Implementing Customer Data Platforms into DXPs

Looking Ahead for CDPs: A 'Choked' Market 

When CDP functionality becomes part of the core feature set of these marketing clouds, it will choke the market, Eubanks predicted. "We saw this happen with a related category, TMS (tag management systems) when Adobe and Google began to bundle free versions with analytics," she added. Coincidentally, the last remaining TMS vendors have begun to call themselves CDPs. But for this to happen marketing clouds will need to embrace one of the core tenets of the CDP — openness."

There will, of course, always be marketers who prefer a more flexible, federated approach as an alternative to the integrated suite or cloud, Eubanks said. "There will always be marketers with simpler use cases and smaller budgets," she added. "So I think there will always be space for a variety of vendors to serve their needs, even if the term 'CDP' doesn’t make it to the plateau."