Lego Blocks, Pickup Trucks, and Why Bloomreach Bought Exponea

Yesterday brought news that CDP Exponea had been purchased by ecommerce recommendation engine Bloomreach. The deal almost exactly parallels last year’s merger between RichRelevance and Manthan, as well the smaller-scale combination of CrossEngage with Gpredictive. It also recalls other recent CDP acquisitions including Acquia buying AgilOne, Chapsvision buying NP6, SAP buying Emarsys, and Wunderkind buying SmarterHQ.

It’s easy (and correct) to see these deals as efforts to assemble comprehensive marketing suites. But it's not just that the buyers want to add a CDP their collection.  These deals all involve CDPs with marketing automation functions (that is, segmentation, message selection, campaigns, personalization, and cross-channel orchestration). CDP Institute labels these as “campaign" or "delivery”; others sometimes refer to them as “activation” or “execution” CDPs. This type of CDP provides the biggest headstart towards building a marketing suite. The drive to build suites clarifies why predictive analytics vendors Bloomreach, RichRelevance, and Gpredictive are such frequent partners: stand-alone predictive tools are missing nearly all the features needed for a full marketing platform, so they have the most to gain from buying a CDP that fills those gaps.

Of course, the biggest CDP acquisition of all, Twilio’s purchase of Segment, doesn’t fit this mold. Segment was more of a pure-play or "data" CDP, limited to assembling and sharing customer profiles. But Twilio isn’t looking to build a marketing suite; their core business is call centers and (after buying SendGrid) email messaging. They have their sights set on providing a communications layer to support all customer-facing operations, including sales and service. Still a suite, but a different kind.

The drive to construct comprehensive marketing suites is interesting because it conflicts with the current notion that marketers don’t want big, integrated products but instead want to create their own collections of components, building some parts with the latest self-service tools and connecting the rest through microservices, open APIs, and other technical wizardry. The pure vision is a distributed, non-hierarchical architecture, modeled roughly on the Internet itself, where any system can connect with any other system. The more practical vision is a platform-centric world where any system can plug into a central platform that provides basic services. In both visions, companies construct their own, highly customized collections of systems that are perfectly tailored to their needs.

Simply put, the vendors assembling these suites are betting that vision is wrong. They believe – based no doubt on what buyers are telling them – that companies still want to buy an integrated product that meets their needs without any assembly required. The purely practical reason is that companies don’t assemble systems for their own sake; they assemble them as tools to do what’s really important, which is to make money (usually by delivering goods and services to customers). Sure, you can build a pickup truck from Lego blocks and you might even do that for fun.  But if you actually need to haul something, you’ll go to a dealer and buy one.

In other words, we still live in a world ruled by Raab's Law, which is “Suites win”. (More formally: In the long run, suites always win the competition between suites and best-of-breed systems.) Platforms don’t change this as much as you’d think, because customers always want the platforms themselves to add more features and make them tightly integrated. It's true that buyers want third-party applications that can extend platform capabilities.  It's also in the platform vendors’ interest to be open to those applications since they add value to the platform at little cost to the platform owner. But there’s a time and effort cost to the user of selecting, connecting, and learning to use each new application, regardless of whether the app is “free” or how easily it connects. Users are very aware of these costs, which is why they want the core platform to offer as many features as possible. Put another way: the value of applications is they enable users to add features a platform lacks; but the more features a platform provides internally, the more value it provides from the start. This pushes platform vendors to add features that save users from the need to install apps. Of course, the art of platform management is knowing which features are popular and standardized enough to be incorporated.

As new features are added, platforms increasingly resemble integrated suites. The significant difference from suites is that platforms offer users the option to replace the platform’s default components with external alternatives. But if the platform builders do their jobs correctly, users will find less need to do that over time.

This is what makes campaign CDPs so attractive to companies attempting to construct a new marketing suite. The marketing features of the CDPs provide a core of functionality that marketers are looking for. In addition, and crucially, the core CDP features make it easier for the suite vendor to integrate components of its own system and also enable the vendor to offer platform-style flexibility by connecting with external systems.

What, then, do these acquisitions tell us about the future of the CDP industry? The first thing to realize is that most CDPs already fall into the campaign and delivery categories (70% of the industry, measured on company count or employment, according to our statistics).  Most of these firms actually started as marketing automation, personalization, or delivery systems and added CDP capabilities later. Some already provide an integrated marketing suite; the others can expand in that direction on their own or through combinations with other products.  

It will be increasingly difficult for this type of CDP to survive without a broad set of marketing functions. Competitive pressures will force them to improve those features while treating core CDP capabilities of building and sharing unified profiles as just one talking point.  We've already seen limit their investment in CDP features and instead partner with other data-oriented CDPs to meet those needs.  (We also expect these firms to increasingly specialize by industry and company size. This makes it easier for them to build connectors to operational systems such as point of sale in retail or reservations in travel, as well as building industry-specific features, hiring industry-expert staff, and fine-tuning delivery and pricing models to meet target price-points.)

The other 30% of the CDP industry are vendors specializing in data management and analytics. We uncreatively call these "data" and "analytics" CDPs.  Many started life as tag managers, data collection, or predictive modeling systems; others were built as CDPs from the begining. As the Twilio/Segment deal illustrated, data CDPs may also be acquisition targets, especially for companies that are aiming to build a corporate-level backbone rather than a marketing suite.  Firms that aren't acquired will be able to remain independent by offering best-of-breed customer data unification services to companies that need and can pay for a best-of-breed solution. These will likely be large enterprises. This type of CDP will increasingly be purchased by IT and data departments, rather than marketing, and will come to look more like IT tools than end-user applications. As such, they’ll find themselves increasingly competing with general purpose data management tools from other software providers and from data management and analytics tools built into the big cloud platforms (Google Cloud, AWS, Azure). So far, the specialized features of the most sophisticated data CDPs are more advanced than what’s available elsewhere. Some of these vendors will continue to innovate and ultimately emerge as strong leaders in this segment. Others will probably withdraw into niches or sell themselves to other companies that want to jumpstart their own CDP offerings.

One happy byproduct of these developments may be a final end to the theological debate over the proper definition of “Customer Data Platform”. As the campaign and delivery CDPs position themselves as marketing suites or platforms, they’re likely to move away from CDP as their primary label. But they’ll still need the world to know that they offer the core CDP capabilities of unified profile creation and sharing. With any luck at all, they’ll handle this by labeling those features as "CDP" when they describe their system capabilities. This should eventually lead to a more consistent use of the CDP term throughout the market and, thus, less confusion over what it means. The data and decision CDPs already define CDP in terms of the same core capabilities. Some of those firms are today pulling away from verbal confusion by labeling themselves as “infrastructure” or “pipeline” customer data platforms. If the narrower definition of CDP reasserts itself, they may come back to adopting the CDP label itself.

Software Has Stopped Eating the World

This August will see the tenth anniversary of Marc Andreessen’s famous claim that software is eating the world. He may have been right at the time but things have now changed: the world is biting back.

I’m not referring to COVID-19, although it’s fitting that it took an all-too-physical virus to prove that a digital bubble of alternate facts could not permanently displace reality. Nor am I juxtaposing the SolarWinds hack with the unexpectedly secure U.S. election, which showed a simple paper trail succeed while the world’s most elite computer security experts failed.

Rather, I’m looking at the most interesting frontiers of tech innovation: self-driving vehicles, green energy, and biosciences top my list. What they have in common is interaction with the physical world. By contrast, recent years haven’t seen radical change in software development. There have certainly been improvements in software, but they’re more about architectures (cloud, micro-services) and self-service interfaces than fundamentally new applications. And while most physical-world innovations are powered by software, the importance of those innovations is that they are changing physical experiences, not that they are replacing them with software-based virtual equivalents.

Even the most important software development of all – artificial intelligence – measures much of its progress by its ability to handle physical-world tasks such as image recognition, autonomous vehicle navigation, and recognizing human emotion. Let’s face it: it’s one thing for a computer to beat you at Go, but quite another for it to beat your dance moves.  Really, what special talent is left for humans to claim as their own?

The shift is well under way in the world of marketing. One of the more surprising developments of the pandemic year was the boom in digital out-of-home advertising, which includes outdoor billboards and indoor signage. The growth seemed odd, given how much time people were forced to spend at home. But the industry marched ahead, spurred in good part by increased ability to track devices as they move through the physical world. It’s a safe bet that out-of-home ads will grow even faster once people can move about more freely.

Indeed, the industries hit hardest by the pandemic – travel and events – also show that virtual experiences are not enough. Whatever their complaints before the pandemic, almost everyone who formerly traveled for business or attended business events is now eager to return to seeing people and places in person. The amount of travel will surely be reduced but it’s now clear that some physical interaction is irreplaceable.

In a similarly ironic way, the pandemic-driven boost to ecommerce has been accompanied by a parallel lesson in the importance of physical delivery. Almost overnight, fulfillment has gone from a boring cost center to a realm of intensive competition, innovation, and even a bit of heroism. Software plays a critical role but it’s a supporting actor in a drama where the excitement is in the streets.

Still closer to home for marketers, we’ve seen a new appreciation for the importance of customer experience, specifically extending past advertising to include product, delivery, service and support. If the obsession of the past decade has been targeted advertising, the obsession of the next decade will be superior service. This ties into other trends that were already under way, including the importance of trust (earned by delivering on promises through fulfillment, not making promises in advertising) and the shift from prospecting with third party data to supporting customers with first party data. Even at the cutting edge, advertising innovation has now shifted to augmented reality, which integrates real-world experiences with advertising, and away from virtual reality, which replaces the real world entirely.

This shift has substantial implications for martech.

- The endless proliferation of martech tools may well continue, especially if the definition of “tools” stretches to include self-built applications. But the importance of tools that only interact with other software will diminish. What will grow will be tools that interact with the real world, and it’s likely those tools will be harder to find and (at least initially) take more skills to use. It’s the difference between building a flight simulator game and an actual aircraft. The stakes are higher when real-world objects are involved and there’s an irreducible level of complexity needed to make things work right.

- As with all technology shifts, the leaders in the old world – the big software companies and audience aggregators like Facebook and Google – won’t necessarily lead in the new world. Reawakened anti-trust enforcement comes at exactly the worst moment for big tech companies needing to pivot. So we can expect more change in the industry landscape than we’ve seen in the past decade.

- New skills will be needed, both to manage martech and to do the marketing itself. The new martech skills will involve learning about new technologies and tighter integration with non-marketing systems, although fundamentals of system selection and management will be largely the same. The marketing skill shift may be more profound, as marketers must master entirely new modes of interaction. But, again, the marketer’s fundamental tasks – to understand customer motivations and build programs that satisfy them – will remain what they always were.

It’s been said that people overestimate short-term change and underestimate long-term change.  The shift from software to physical innovation won’t happen overnight and will never be total. But the pendulum has reversed direction and the world is now starting to eat software. Keep an eye out for that future.