Twilio's Segment acquisition expected to kickstart more CDP M&A

Twilio is set to acquire customer data platform, Segment, for approximately US$3.2 billion, a deal analysts say reflects the maturity of the CDP space and will be one of many such acquisitions to come.

The transaction announced this week is aimed at accelerating Twilio’s growth with a combined total addressable market of US$79 billion and bringing it closer to becoming a leading global customer engagement platform.

“Data silos destroy great customer experiences,” Twilio co-founder and CEO, Jeff Lawson, said in his announcement of the purchase. “Segment lets developers and companies break down those silos and build a complete picture of their customer. Combined with Twilio's customer engagement platform, we can create more personalised, timely and impactful engagement."

Combining Twilio’s cloud communications service with the customer data platform (CDP) is set to create a customer engagement platform that provides a unified customer view across customer service, marketing, sales, product and analytics.

“By joining forces and applying our customer data platform to Twilio’s engagement cloud, we’ll be able to make the entire customer experience seamless from end-to-end,” said Segment co-founder and CEO, Peter Reinhardt.

IDC research director, marketing and sales technology, Gerry Murray, told CMO the new, combined entity marries powerful customer data analytics with Twilio’s global engagement capabilities.

“Segment is a highly complementary addition to Twilio's solution portfolio and makes the company a triple threat to be reckoned with in the CX cloud arena,” Murray said.

While the US$3.2 billion price tag might seem like a lot to pay for a company that raised just US$175 million in series D funding in 2019 at an estimated US$1.5 billion valuation, Murray said CDPs have proven their worth “in pandemic-accelerated digital transformation, as large enterprises rearchitect their data infrastructures as enterprise services instead of departmental islands”.

Read more: The lowdown on customer data platforms

CDP becomes the customer data standard

Raab Associates founder, David M. Raab, told CMO the acquisition is more evidence of acceptance of the general concept of a CDP as a separate data store dedicated to creating and sharing unified customer profiles. “That may seem trivial, but before CDP, such systems were rare,” Raab said. 

“Instead most companies had separate datastores attached to each channel system and working on with data from that channel."

Raab predicted companies looking to develop a unified customer experience will now follow Twilio’s example and look more closely at purchasing CDP systems or integrating tightly with independent CDPs.

"While the big cloud vendors such as Salesforce, Oracle and Adobe all chose to build their own CDPs, smaller vendors are much more likely to purchase an existing CDP vendor, which would give them a better product sooner and at less cost than if they tried to build it themselves," he continued.

"Marketers and other CDP end users will likely come to expect a CDP as part of the package when they consider a customer engagement suite, increasing demand for CDPs even if it becomes harder for the stand-alone CDP vendors to sell in competition with CDPs that are part of larger suites." 

Segment will become a division of Twilio and the transaction is expected to close during the fourth quarter of Twilio’s fiscal 2020, subject to the satisfaction of customary closing conditions. The boards of directors of Twilio and Segment have each approved the transaction.

In terms of the overall CDP market, IDC expected this to be the first of a number of major merger and acquisition announcements in the next 18 months or more. Murray noted the CDP market is characterised by many sub-US$100M CDP-first and CDP-pivot players, about a third of which grew at greater than 20 per cent in 2019 making attractive growth targets.

“Another third experienced negative growth suggesting that some good technology and talent may be available at eroding valuations for companies with no ambitions for reselling the software but want proprietary capabilities for addressing the innovation debt associated with fragmented first party data,” Murray said.

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