It’s nearly two years since I introduced the concept of a Customer Data Platform, defined as a marketer-controlled system that builds a multi-source customer database and exposes it to external execution systems. You may recall that I listed several sets of products as CDPs: B2B predictive lead scoring and customer success management; campaign management with an integrated customer database; and data management platforms to support online advertising. Systems were included only if their data (or derived data such as model scores) was available to other systems for campaigns and messaging.
All those categories have done well since my original posts on the topic. Established vendors have grown quickly and attracted funding; new vendors have joined the mix, also often with substantial funding. So I suppose I could pat myself on the back for spotting an important trend and let it go at that.
But things aren’t quite so simple. A look at the entire CDP ecosystem uncovers important patterns that are hidden when you look at individual vendors or vendor categories. Here's a summary of what I've seen.
Customer Management Functions
CDPs exist because marketers need to coordinate customer (and prospect) interactions across channels. That coordination involves three basic tasks: gathering and unifying customer data from all sources; using that data to select the best treatment for each interaction; and delivering those treatments through the appropriate channel systems. Each of those three tasks has several subtasks. These layers are illustrated by the following diagram, which includes a unified data layer – the classic CDP.
So far so good, but it’s really just theory. Things get interesting when you look for specific systems that perform the subtasks. It turns out that there are several categories of specialist systems within each subtask, each doing similar or complementary things in slightly different ways. Connecting the logical flow to actual systems is important because looking at real products tells you what the market is saying: that is, what buyers are willing to pay for and where change is concentrated.
The following table shows what I found when I did this analysis. The list of vendors in each section isn't necessarily comprehensive, especially in crowded segments like B2B marketing automation. I should also stress that I’ve only included Decision-layer vendors who also build their own database. This makes them potential CDPs and means they have many Data-layer functions. In a sublimely liberating act of inconsistency, I have NOT limited the Delivery layer to vendors who build their own database. In fact, most do not.
The right-most column on the previous table shows the level and types of investment being made in each vendor class. I haven’t collected precise details but the general patterns are pretty strong. The major observation is that current investment is heavily concentrated on the Decision layer, with interest in predictive modeling and message selection (which could also be labeled as personalization). There’s some investment on the Data layer in data gathering vendors, especially along the lines of acquisitions by big companies (Oracle/Datalogix, D&B/NetProspex, etc.). This is a general sign of maturity. Similarly, most recent investment on the Delivery layer has been acquisitions (IBM/Silverpop, Oracle/Responsys, Teradata/Appoxee, etc.), which is a sharp contrast from the heavy venture capital funding a couple of years back. Again, this shows the relative maturity of the space.
(Caveats: although it doesn’t show up in this analysis, I do still see some interesting investment in marketing automation niches such as app marketing, distributed marketing, and agency systems. I’m also increasingly intrigued at the “tag management” vendors on the Data layer (Tealium, Signal, Ensighten, etc.), which are reinventing themselves as data integration hubs. I didn’t see that one coming.)
It’s tempting to interpret these results are showing that data assembly is a solved problem, allowing marketers to invest Decision systems on the next layer down. But any marketer can tell you, and every survey I’ve seen confirms, that most companies are nowhere near having fully integrated their customer data.
What I think is really going on is that people are investing in Decision systems that build their own multi-source databases, providing both Data and Decision functions in one package. Remember that my original CDP categories included B2B predictive vendors and campaign management vendors who did exactly that. So it seems the proper way to look at things is more along the lines of the following diagram, which shows there are several different ways to solve the customer data integration challenge: you can buy a stand-alone CDP that has only data-level functions; buy a Decision system that also builds an integrated database; or buy a Delivery system that does data, decisions, and execution. As the diagram indicates, most of the Decision vendors do incorporate the CDP functions, while only a few of the Delivery vendors do.
The diagram labels the Data + Decision combination as a “Marketing Platform”. I think this is reasonably consistent with how most people use the term, since the key feature of a “platform” is its ability to integrate with external systems for delivery and other purposes. I’ve labeled the Data + Decision + Delivery combination as an “Integrated Suite” and used question marks to show that not all suites provide a complete Data solution. This is because many suites aren’t very good at bringing in external data or letting external systems access the data they’ve assembled.
As I noted in the previous section, most of the industry funding and excitement is centered on the Decision layer, which is where the Marketing Platforms live. The practical advantage of those systems over Data-only solutions is obvious: Decision systems deliver a revenue generating application while Data-only systems do not.
But think about that for a moment. Each Decision system builds its own multi-source database and each integrates separately with the Delivery systems. Having multiple Decision systems is a nightmare of redundancy:
It seems pretty clear that the better solution is to have a single Decision system controlling everything, which is arguably what most people (and vendors) have in mind when they describe a Marketing Platform. Indeed, this is exactly the direction that most Decision-layer CDPs are headed, by expanding the scope of their products from an initial point solution, such as B2B lead scoring, to encompass other applications. It’s safe to say that the people who built these systems always planned, or at least hoped, to grow in this direction.
Does the growth of Decision-layer CDPs mean that Data-only CDPs will fail? I’ll admit that only a few such systems have appeared in the past two years. But I’m not quite ready to give up on the concept.
Why? Well, as Tolstoy never said, all good customer databases look alike, but every decision system is different. This means it’s hard to support all types of decisions within a single product. So it does seem that multiple decision systems will appeal to marketers who have the skills to use them and the scale to justify the added expense. Those marketers would benefit from a Data-layer CDP, which would make it easier to deploy best-of-breed decision tools even when those tools lack data unification functions.
The stumbling block for this approach is still the cost of integrating multiple systems: as the diagram shows, there are still plenty of connections in this model. But there’s at least some hope (although I remain skeptical) that newer technologies will make the integration easier. The other bright spot for the Data-only CDPs is that they should be attractive as partners or acquisitions for Decision and Delivery systems that haven’t built their own CDP functions.
And what about the suites? I’ve said for years that the first law of software market development is “suites win”, precisely because most companies will sacrifice best of breed functionality to avoid the costs of integration. Indeed, the big marketing clouds from Oracle, Salesforce.com, IBM, Adobe, and others all include extensive Delivery layer functions. I think it’s fair to say that while their commitment to being “open platforms” is genuine, they see that as a way of letting clients supplement the core functions the suites provide internally. This is quite different from the idea of a shared Data and Decision platform that specifically avoids offering Delivery services. Still, there’s a very good chance that a suite which can easily integrate supplementary functions will give marketers enough freedom to overcome the problems of lock-in, while still delivering the convenience of pre-integrated core functions. So I’m not quite ready to abandon “suites win” as a rule, although I’m a bit less certain than previously.
It’s fun to handicap the horse race among vendors and categories, but what really matters is the contest itself. All these smart people and money are finally giving marketers the unified customer databases they so desperately need. This removes a fundamental obstacle to the cross-channel integrated marketing that everyone recognizes is increasingly important. So let’s look at the view once we've climbed that mountain.
I’d like to tell you I see a new and perfect world, but what's actually there is more mountains. Once unified databases become available, marketers will face a new set of challenges including:
- more need for predictive models and external data. I only lump those together because they’re already getting a lot of attention. Having a powerful database just makes them even more important.
- new focus on automated content creation and campaign design. Lack of skilled users and adequate content are already huge barriers to effective multi-channel marketing. Removing the database barrier will only make them stand out even more. So we can expect smart people to address them through technology. Indeed, there is already plenty of activity in these areas but I think it’s fair to say that so far none of vendors have had a major impact. This is arguably the next exciting frontier for marketing technology.
- more developments in cross-channel customer tracking. Again, the need for this has been obvious and some major investments have already been made. Cookies are becoming increasingly inadequate as cookie-hostile channels like mobile become more important. Marketers will soon reach a tipping point (or maybe they already have) where they realize they must abandon cookies and move on to other approaches such as device identification or external identity databases. A new standard will eventually emerge, although I can’t even guess what it might be.
- tighter integration between advertising and marketing technology. These two realms are now largely separate with a few exceptions such as retargeting. But as personalized ad messages become increasingly possible, marketers will have ever-greater incentive to target and, ultimately, coordinate messages across channels using shared data. This is highly dependent on the improved customer tracking, so it might have to wait a bit.
- better marketing attribution. If there’s a last stop on the road to marketing Nirvana, attribution might be it. Once marketers have assembled all that data and associated everything with the right customer, they’ll finally be able to deploy advanced analytical methods to really understand the long- and short-term incremental impact of their marketing efforts. Then, and this itself would be heavenly, we’ll never again hear anyone quote John Wanamaker about not knowing which half of his advertising is wasted.
Recommendations for Marketers
Nirvana is still far distant. Marketers face immediate choices in how to spend their time and budgets. The trends I’ve just described do have some immediate practical implications. Here are my suggestions:
- Experiment like crazy. The various Decision-layer vendors currently offer different specialties, such as lead scoring vs. product recommendations vs. churn predictions. Vendors in each area are expanding their scope so there’s a good chance you’ll eventually pick one to do almost everything. To have the best odds of making a good selection, you’ll want to learn about as many vendors as possible in advance. So run tests to build an understanding of the applications, technologies, and corporate culture. The good news is that each approach can probably pay for itself in improved performance, so these tests should be more or less self-financing.
- Keep an eye out for new data. Many of the Decision-layer vendors bring their own data to the party, and evaluating that data is one part of understanding what they offer. But there are also other data sources that are not tied to a Decision system. You’ll want to explore these to understand what value they provide value and whether to make them part of your long-term data foundation.
- Plan for integration. You may not have shared customer data or decisions today, but it’s increasingly likely they’re in your future. So every new marketing system should be evaluated in part on its ability to integrate with other systems. This involves sending data to the central database and reading data from it, as well as integrating with Decision-layer systems for predictive models, rules-based selections, optimization, recommendations, personalization, and more. Even if you’re going to use an integrated suite, you’ll want to assess how easily you can supplement its functions by tying into external products, and what kinds of products are already available for integration.
The stand-alone Customer Data Platform is one solution to the challenge of providing a multi-source, shared marketing database, but it isn't the only option. Whichever solution marketers ultimately find most appealing, they will benefit from gaining control of their data and moving on to new opportunities that database makes possible..