Twilio isn’t selling Segment. What does this mean for the CDP market?
Twilio isn’t selling Segment and announced share buybacks. What does this mean for the CDP market?
On Tuesday, Twilio announced it had completed an operational review of Segment and that it would retain the Segment business. The Board also approved an additional $2bn in share buybacks on top of the $1bn previously approved in 2023.
Before I answer the titular question, let’s review some ancient (by CDP standards) and modern history of the Twilio / Segment relationship.
On Nov. 2, 2020, Twilio announced the Segment acquisition:. $3.2bn in Class A TWLO stock, which closed that day at $292.13 per share (trading at publication in the high $50 per share range, roughly an 80% decline). By comparison, over the same time frame, the Nasdaq is up 36.8% and the S&P is up 46.4%.
When Jerome Powell turned the lights on at the bar and the ZIRP tab closed, many growth companies took a beating; few have delivered worse value to shareholders since than Twilio.
When announcing the acquisition, Twilio Co-Founder and then-CEO Jeff Lawson made it clear that the Segment acquisition was to be a part of a broader strategy for Twilio Engage:
“Nearly every company is focused on acquiring, retaining, and growing their customer relationships through digital engagement. However, the biggest impediment to great digital engagement is the data silos that prevent companies from truly understanding their customers. With the addition of Segment, Twilio's Customer Engagement Platform now enables companies to both understand their customer and engage with them digitally -- the combination is key to building great digital experiences."
At the time, it seemed Twilio was making a push to compete with the customer engagement and marketing clouds, but as a kind of developer-first alternative. It’s also important to note that less than a year prior, Twilio acquired Sendgrid, a developer-first ESP (email service provider) or MTA (message transfer agent), depending on your level of industry hardo-ness. The puzzle pieces were coming together to form an undulating sea and a crepuscular sky, with only a big gap remaining on the horizon.
What Twilio missed with Segment
The answer to this question comes down to a few important market trends that have shaped the CDP space over the past few years.
- In this puzzle analogy, the middle of the landscape is the most important (and Twilio Engage failed to deliver)
- The CDP market clarified into different subcategories (and Segment lost its subcategory)
The missing messy middle
In the acquisition press release, Twilio listed 6 capabilities they believed the acquisition would deliver for their clients:
- Unparalleled insight into the way customers interact across channels to create a single, unified view of the customer journey.
- The ability to break down data silos to help businesses make their customer engagement more personalized, timely, and impactful across channels.
- Access to the world’s leading cloud communications platform to more effectively manage customer communications including SMS, Messaging, Voice, Video, Email, Internet of Things (IoT), and more.
- A flexible API that allows developers to connect sources of customer data, such as web or mobile apps, with analytics tools, without having to write new code.
- A steady supply of quality, high-velocity first-party data that easily integrates into existing systems.
- A single platform with views for the marketer, the contact center agent, the product teams and the developers that reveal data-driven insights to serve their individual needs.
By “missing the middle” I mean two things. First, the solution needs to deliver on the capabilities teams need to power their customer experience (i.e. in between data collection and message delivery), and second, the tool needs to be usable by the people who power the customer experience, whether that’s CRM team or end-user marketing and marketing operations teams.
While Segment has been a category leader in data collection and enabling developers to establish an events routing infrastructure, for example, this does not necessarily deliver for clients a “single, unified view of the customer journey.” Such requires complex identity resolution, data modeling, and a UI such that a non-technical CRM person can use it.
Segment is a strong data infrastructure CDP, but was probably the wrong type of CDP to use in achieving the overall vision of Twilio Engage.
CDP category evolution
As businesses, especially businesses within Segment’s ideal customer profile, undertook a data warehouse-centric approach to data management, Segment missed the wave.
Developers, data teams, and the technical teams that support marketers over the past several years have begun a shift toward data warehouse centralization, often referred to as the “modern data stack” that Segment couldn’t pivot quickly enough to capitalize on. The beneficiaries of this have been former Segment engineers who left to found Hightouch and other reverse ETL/composable CDP vendors who fill the capability gaps Segment was once great at, but in a data warehouse-centric way.
In Twilio’s operational review press release, the comment that addressing “Segment’s recent challenges” will require “delivering additional features to enhance data warehouse interoperability” is an admission of this.
What this means for the CDP category
At this point, the poor horse has had enough. Composable CDPs are here to stay and Segment will likely deliver something to the market (per their comments) not unlike Blackberry deciding to ditch the keyboard finally.
With a significant customer base, it’s possible to see a Composable Segment gaining market traction and regaining market share in the rETL category.
It’s also entirely possible, and potentially more likely, that it does not.
In a recent press release, Twilio mentions several times the importance of Segment as a differentiator for Communications customers and that a key point of focus going forward will be increasing “innovation velocity by delivering three products in 2024 that natively embed Segment into Communications, while also capitalizing on CustomerAI momentum.”
So it seems Twilio may be doubling down on their failed Twilio Engage strategy and pushing Segment more as a value-add to their Communications customers than as a standalone product.
Either way, the board has put their money where their mouth is and this next frontier will be critical for Twilio (which will also have to deal with activist pressure to split up the businesses).
To this day, Segment represents the only real strategic exit for a CDP vendor in the history of the category.
I bet that the all-in-one developer cloud vision that Twilio Engage promised is not going to be achieved (including by Twilio if that wasn’t clear at this point). The problems developers and data teams want to solve are too different from the problems CRM and marketing teams want to solve.
Salesforce, as an example, is coming at this from the other angle (as a tool used by marketers that solves only marketing problems but is positioned as a Data Cloud) and failing equally as hard from the developer’s POV.
So then what happens to the “messy middle” of CDPs that marketing teams use to solve data problems? As the category splits along ideological lines, there will continue to be winners and losers, and in light of an improved macro environment, this next frontier will put us all to the test.
