CDP Lytics Bought By DXP Customerstack

 

Almost one month to the day since ActionIQ was bought by Uniphore, another first-generation CDP has been sold to a large customer experience vendor.  This time it's Lytics, founded in 2013, which announced this week that it had been purchased in December by composable CMS and digital experience platform Contentstack.

  

Like ActionIQ, Lytics is a technically advanced product that has kept up with industry trends, making its features available as components, stressing real-time capabilities, and offering a broad range of campaign management and personalization features.  In fact, just last October, Lytics announced integrations with major content management systems and a free self-service offering that built customer profiles and used them to make personalization recommendations available within any content management system.  

But Lytics never achieved the scale needed to support its vision.  The company raised a relatively meager $58 million, with its last round in 2019.  (By contrast, ActionIQ raised $145 million including a $77 million round in 2021.)  Headcount (per LinkedIn) fell from a peak of just over 200 in 2020 to 49 this January.  

The Contentstack combination will provide the resources needed to continue developing Lytics’ vision.  Contentstack has nearly 600 employees, up 24% in the past two years, and $169 million in funding, with their last raise of $80 million in 2022.  They also claim over 500 customers, many of whom can be expected to adopt Lytics technology. 

Indeed, the architectural fit between Lytics and Contentstack appears to be excellent.  Both offer composable products, which should make it easy to integrate Lytics profiles with Contentstack’s personalization engine.  This is exactly the ability that the company touts in its announcement of the acquisition.  While I can’t speak to the technical compatibility between the two systems, the fact that Lytics already had integrations with Drupal and Wordpress suggests exposing Lytics data to Contentstack will be fairly easy.

And what does the deal say about the larger CDP industry?

One observation is that the adoption of a composable approach was not enough to preserve the independence of either Lytics or ActionIQ.  Both those firms were early leaders in offering their systems as components.  Maybe this generated some revenue but it was clearly not enough to turn around their businesses.   I’d guess the price tags for components are too small to really help much, especially compared with the much larger fees these companies were charging for their integrated products.  

The large number of competitors in the component marketplace probably ensures that prices will stay low, which is good for buyers but not so good for vendors.  This doesn’t bode well for “composable CDP” vendors who only sell components, although presumably they have geared their organizations to be profitable while selling relatively low-ticket items.  Note that “composable CDP” vendors like Hightouch and Census have all added multiple components, enabling them to earn more money from each client.  But so long as competition keeps down the price of individual components, the revenue per client will remain low even from clients who buy all the components those vendors have to sell.

It’s likely that the investments that Lytics and ActionIQ made in “componentizing” their products made them more attractive to their ultimate buyers.  But, otherwise, those investments may have harmed their business by consuming resources that could otherwise have been spent on improving their core products. 

A second question is whether these transactions mark the start of the industry consolidation that analysts have been predicting pretty much forever. 

I think not.  Actual consolidation would involve mergers between competing CDP vendors, something that has almost never happened.  (Exceptions have been in Europe, where Spotler combined Datatrics and Squeezley, Splio acquired Tinyclues, and Easyence merged with mediarithmics .  You’ll note these are not exactly household names.)  What we have seen over the years is deals like Lytics/Contentstack, where a larger customer experience vendor buys a CDP to add profile building, and sometimes campaign management, capabilities.  I do expect these sorts of acquisitions to continue, as the growth of personalization and AI makes the need for unified data more pressing.  We’ll also presumably see a few of the small independent CDPs vanish entirely, although this too has been unusual: enough companies need profile-building technology that the intellectual property of even a struggling CDP can usually find a buyer.  In this regard, it’s probably not coincidental that both Lytics and ActionIQ were quite advanced technically, making them particularly appealing.

So, while I don’t see a literal consolidation in the sense of CDP vendors merging with each other, I do expect to see a continued drop in the number of independent CDP vendors.  These will be replaced by customer experience vendors who include a CDP inside their products, the better to support personalization.  To be clear, what will qualify these firms to be considered CDPs is the ability to work with external systems as data sources for unified profiles and as consumers of those profiles.  This data-sharing ability will become more important as the number of customer-facing channels continues to increase and as customers expect consistent, personalized treatments across all of those channels.  Since no single system can expect to manage all channels by itself, it becomes essential even for customer experience products to capture data from external systems and to support personalization across those systems.  That was, and remains, the defining feature of a CDP.