Twilio buys into CDP market with $3.2 billion Segment acquisition

Communications platform vendor Twilio today confirmed that it is buying Segment, the leading pureplay vendor in the emerging customer data platform (CDP) space. The move will create a new challenger to incumbent customer relationship and engagement vendors including Salesforce, Adobe and Microsoft when the all-stock transaction closes later this year.

CDP has become the buzzword-du-jour in marketing technology (martech) circles — much to the dismay of my colleague Jon Reed who named it most tedious acronym of 2019 — but it aims to solve a very real problem for enterprises seeking to build digital engagement with customers.

Over the past decade, brands have invested in many different technologies and offerings to get closer to their customers, and as a result their customer data today sits in a complex landscape of disconnected silos. Even when an enterprise has stayed loyal to a single vendor's suite of sales and marketing tools — the aforesaid Salesforce, Adobe and Microsoft, or perhaps Oracle, SAP and others — the fabled '360-degree view' of the customer has eluded them as digital engagement channels have proliferated. All these vendors have acknowledged this failing by each launching their own CDP initiatives in the past few years, whether individually in the case of Salesforce, or, for Adobe, Microsoft, SAP and others, based on the jointly supported Open Data Initiative.

Segment collects and validates customer data

Segment has approached the problem from a different tack, acting as a neutral repository for data collected from every customer touch point, which then validates its accuracy and compliance and structures it into unified customer profiles. In a nascent and highly fragmented market, an IDC report recently rated Segment as the clear leader, with twice the market share of its nearest rival. A further differentiation, its co-Founder and CEO Peter Reinhardt said today, is that whereas many in the sector start from a marketing-first workflow, Segment has always focused on solving data and infrastructure problems for developers who can then build the tools that marketers and customer support teams need. That developer focus is one that it shares with Twilio, he adds:

The way that we approached the customer data platform market was much more by focusing on the developer and the developer experience. We launched an open source library, and the vast majority of our buyers are actually folks on the engineering or IT side, or folks who report jointly into IT or engineering.

There's actually a lot of philosophical, spiritual, joint go-to-market alignment between Twilio and Segment. We've actually looked up to Twilio for many years in terms of how they’ve approached developer evangelism.

That focus on developers — on "unlocking the builder gene" as Twilio Chief Customer Officer Glenn Weinstein put it to us two weeks ago at the time of the vendor's annual customer conference — is how the combined Twilio and Segment aims to carve out space against the larger incumbent vendors. As Twilio Co-founder and CEO Jeff Lawson said today:

We help companies take their investments in the myriad apps that they've bought and actually take the data that exists in silos for most companies. They bought a bunch of apps, typically SaaS apps, to power their business. They may have an app for marketing, they may have an app for sales, and they may have an app for customer support. They have myriad apps across the enterprise and it's the data silos that result from having bought all those apps that is the enemy of great customer engagement ...

We want to empower developers with the best infrastructure, [to] break down what historically have been monolithic systems into more flexible, agile building blocks, and enable those developers to adopt them with ease so that they can get started very easily, and then, as they expand, allow us to share in their success.

Combining Segment with Twilio Flex and AI

Questioned by Wall St analysts about the deal today, Lawson agreed that there are immediate use cases in combining Segment's data with Twilio's SendGrid email platform, acquired two years ago. But he was keen to talk up more sophisticated use cases, in particular combining Segment with the Twilio Flex contact center platform and using machine learning to analyze customer data and propose the best action:

Which channel to use? What message to send? Which will actually result in more repeat purchases or more customer satisfaction? These are all places where data coming from myriad places can help companies make better decisions and automated systems and machine learning systems [can] drive better outcomes. That occurs across many of the touch points, not just marketing or not just contact center, but really it’s everywhere.

Another theme in Lawson's comments today was the transition from traditional enterprise applications to a more adaptable, API-centric architecture that allows enterprises to custom-build their own customer engagement platforms. He explains:

As I've noted in the past, the hodgepodge of systems and monolithic apps that companies use to engage with their customers is one of the biggest pain points that companies, especially B2C companies, face ...

The combination of Segment and Twilio means that we will be able to help any business make their customer engagement across every channel more personalized, timely, and impactful ... We believe that it's just the start of the opportunity to bring data and communications together under great APIs to transform how customers build better, more integrated and more relevant engagement across the board.

He also emphasized that the trend towards building custom API-based engagement platforms has been boosted by events this year:

I think this is essentially a net-new market, because what we've seen is that B2C companies in particular, as they go about building, they have needed essentially a set of products and services that haven't traditionally existed. This is an underserved market because it's been emerging over the past decade — and, by the way, accelerated because of COVID — how companies need to use digital technologies in order to provide great digital experiences.

My take

Bringing Segment's aggregated data into Twilio's API-centric platform sounds like a winning combination. The traditional approach of consolidating data across multiple applications has been running out of steam for a while. New serverless infrastructures — what I have started calling tierless architectures — bypass the convoluted structures of traditional applications and focus on delivering data and actions where they're needed.

What makes this timely is the jolt of COVID-19, highlighting the importance of digital engagement and the need to adapt quickly to new circumstances. At the beginning of this year, a three- to five-year roadmap for converging customer data was grudgingly acceptable. Nine months later, it's out of the question. Many enterprises will still want to put their trust in the incumbent vendors to deliver a platform that solves their problems. Those who can't afford to wait will increasingly be tempted by the more rapid, self-managed option that Twilio plus Segment will soon be able to offer.