Why Segment is central to Twilio’s path to enterprise software stardom

Given Apple's recent changes to third-party tracking technology and Google's looming changes, the customer data platform provider is poised to play a central role in Twilio's product vision moving forward.

Twilio Inc. Chief Executive Officer Jeff Lawson

The launch of Engage points to the critical role Segment will play in Twilio's future.

Photo: David Paul Morris/Bloomberg via Getty Images

This week at Twilio's annual conference, it's Segment, the company it acquired last year for $3.2 billion, that's poised to take center stage.

Signal kicks off on Wednesday. Alongside Michelle Obama, one of the highlights of the two-day event is bound to be Twilio Engage, a new product that showcases the combined capabilities of the cloud communications provider and Segment, the customer data platform vendor that Twilio bought last November.

While just an early taste of the potential ahead, the launch of Engage points to the critical role Segment will play in Twilio's future. And if CEO Jeff Lawson can successfully navigate the risks that accompany his recent acquisition spree, those moves could propel Twilio into the upper echelons of the enterprise technology industry and help solidify the company as a leader in the fast-growing customer experience market, which is expected to reach $27 billion by 2028.

"We think Twilio is executing on a transformational market opportunity," Macquarie senior analyst Fred Havemeyer told Protocol. "Segment is good technology alignment and something that can enrich Twilio's platform across the board."

Announced in October 2020, the Segment acquisition closed the next month, a lightning-fast timeline that moved with the same urgency that customers of both companies were feeling in their own businesses.

Given the changes in Apple's policies regarding tracking technology that went into effect in April, as well as Google's own looming removal of cookies, the writing was on the wall that third-party data would no longer be a viable foundation for marketing operations. But many organizations were failing to build their own customer data platforms, or CDPs. Overworked IT teams were tasked with the difficult and expensive task of building and managing connections to applications and other information sources around the enterprise in an effort to gather together potentially decades of first-party data into a common repository.

That's where Segment came in. The vendor was one of just a handful with an out-of-the-box CDP, one that could sit on top of a company's complicated IT landscape and serve as a neutral landing spot for all things related to customer data. And while some acquisitions, like Salesforce's purchase of Slack, take the buyers in an entirely new strategic direction, Segment seemed to fit perfectly in Twilio's journey.

"It's going to become part and parcel to their customer strategy," said Wolfe Research managing director Alex Zukin. "For every product that they make that touches a customer, Segment will be the core of that."

Before Segment, if a company wanted to use Twilio to create an automated process that sent an SMS message to an individual when they spent their first $100 at a store, that information would need to be pulled from an external data warehouse, according to Twilio Segment CEO Peter Reinhardt. It was exceedingly difficult to do that quickly, according to industry analysts, and almost certainly required manual intervention on the part of engineers.

Engage was designed to solve those problems.

By combining Twilio's communication products with Segment's ability to pull information in real time from webpages and applications, Engage aims to let companies build hyper-personal marketing campaigns based on both demographic and behavioral information, according to Reinhardt.

"Effectively, there is a highly-optimized data warehouse under the covers that we have spent three years tuning and scaling," he told Protocol.

All about the data

In Reinhardt's view, the product helps level the playing field with tech giants like Amazon, Facebook and Google that use internal tools which noticeably outperform those available in the marketplace.

Amazon, for example, can very clearly target advertisements based on past shopping behavior instead of simple information like the gender of the customer or where he, she or they are located. But most companies don't have Amazon's expertise.

"What actually enables personalization — and what Amazon, Facebook and Google have figured out — is it's actually about the data. And it's about getting the data structured in the right way," he said.

And marketing is likely only the first place where Twilio plans to infuse Segment into its product suite.

Twilio doesn't break out sales for Twilio Flex, the company's contact-center software, but in July Lawson touted it as "one of the fastest-growing SaaS products on the market." Overall, Twilio's revenue grew 67% last quarter to roughly $669 million.

But contact-center software is a sector where many other providers, including AWS, Genesys, Five9, Salesforce and others, also see an opportunity. Linking Segment to Flex could give customer service agents the ability to provide more tailored assistance by surfacing specific information about the person on the other end of the phone. That effort requires a substantial engineering investment, but it could be hard for other vendors to match without the assistance of a native CDP platform that Segment offers.

"That's where Genesys has a challenge: Where does that data live, where does it integrate without that system of record," said Valoir principal Rebecca Wettemann.

Reinhardt declined to say whether such a product was in the works, instead hinting that "we'll have more to talk about there in the future."

"If you look at the overall trajectory of Twilio, it started with communications and now we added the data to make those communications smarter … and now there's the applications starting to come across the top," he said. "There's a lot more work for us to do in bringing Twilio Segment's data to bear in each of those."

It's clear there's a massive runway ahead for Twilio in terms of selling Segment to its existing customer base — and vice versa. But the release of Twilio Engage is just one part of the burgeoning powerhouse company that Lawson is building.

Alongside Segment, Twilio bought toll-free message provider ZipWhip in May for $850 million and ValueFirst in March for an disclosed sum. Back in 2018, it also spent $3 billion to acquire mass email communications provider SendGrid.

Investors and industry analysts appear bullish on Twilio's future. Its stock has soared 253% since January 2020. But a key question remains: Can the company successfully combine its recent purchasing spree into a coherent product suite? And outside of putting the pieces of the puzzle together, meeting that challenge will also require Twilio to sell to many different audiences.

"The opportunity is massive," said Zukin. "The key is: Can they execute in different worlds? In the world of the developer, in the world of the enterprise buyer, the world of the customer, the world of the contact center, there's a lot of different personas that they are trying to manage and scale."

Twilio Engage is a taste of that future. But more will be needed to satisfy both customer needs and Wall Street. And if Twilio pulls off the integration challenge ahead, it could make the company a dominant force in the world of enterprise software.


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