What Happens When Everyone Has a CDP?

October 22 was a landmark day for the CDP industry.  We reported three significant announcements:

• Mastercard bought CDP and loyalty vendor SessionM which will power Mastercard services for its merchant clients
• Teradata launched its own CDP offering, Vantage CX, which will anchor Teradata’s marketing software product line
• Tealium partnered with marketing agency Wunderman Thompson, which will use Tealium AudienceStream to manage customer data for agency clients.

Each announcement follows a string of similar previous developments.

SessionM/Mastercard: most CDP acquisitions have been made by companies that are not primarily marketing software vendors. Arm (microprocessor technology) bought Treasure Data; Dun & Bradstreet (B2B data sales) bought Lattice Engines; Kabbage (small business finance) bought Radius; Anaplan (business planning) bought Mintigo; Informatica (data management) bought Allsight; Equifax (credit bureau) bought Datalicious. The exception that proves the rule is Salesforce’s purchase of Datorama, which it uses for marketing performance measurement, not as a CDP.

I believe the reason for these deals is that the buyers want to offer services that depend on unified customer data, but find it’s easier and cheaper to buy the necessary technology than to develop it internally. Note that it's truly a build/buy choice: many of the buyers already have extensive customer data management operations, so they probably could have built the systems for themselves.  They simply realized that buying was the better option.

The implications of this are substantial.  Competitors of the acquiring firms will feel pressure to offer similar services that help their clients deploy customer data.  Such services can be important tools for retaining clients, since switching customer database providers is painful at best. For CDP vendors, these deals are a promising exit path from a crowded industry which will only become more competeitive (see below).  For marketers, these deals mean their companies gain new options for access to a CDP.  This is especially true for small and mid-size businesses that might lack the resources to buy and integrate a CDP on their own.

Teradata: major marketing software vendors have chosen to build their own CDPs rather than buying one. This list includes Salesforce, Adobe, Oracle, Microsoft, IBM, SAP (sort of) and SAS (although they don’t use the term).  Their decisions to build their own CDPs are a bit perplexing, given that most have made many other acquisitions to fill gaps in their product lines.  My best guess is they like to buy companies that give them a substantial position in a new market, and even the largest of the pure-play CDP vendors are too small to catch their fancy. It might also be that building a CDP looked simple to them, so they all decided there’s not much reason to purchase a CDP for technology alone. The time it has taken them to deliver proper CDPs suggests it may have been harder than they thought.

The marketing software vendors’ delay in delivering CDPs has given other vendors opportunities that might not have existed had the marketing software companies moved more quickly. But with the marketing software vendors products now finally reaching the market, that era is ending. This will make life more difficult for the independent CDP vendors.  I still expect many of the independents will survive by developing systems tailored to particular industries, regions, or client sizes.

Wunderman Thompson: many ad agencies have decided to partner with a CDP vendor rather than purchasing one outright. The analysis gets a little confusing here because the big ad holding companies have been purchasing data-based marketing agencies: Dentsu bought Merkle, IPG bought Acxiom, Publicis bought Epsilon. But those agencies have themselves generally resold marketing technology rather than building or buying their own. This is probably a good choice: although they have considerable skill working with customer data, they have limited software development capacity. So it makes more sense for them to rent technology from others.

Assuming they continue to work with other vendors' technologies, the agencies represent a market for CDP vendors that won’t go away. If anything, it’s likely to grow as more agencies offer customer data-based services. But agencies have special needs and are often very cost-sensitive. So only a handful of CDP vendors are likely to get much benefit.

These three lines of development all point in the same direction. The path leads to a world where unified, sharable customer data is available to nearly every organization: that is, a world where every company has a CDP.  Nirvana, you say?  Yes, possibly, for CDP users.  But remember that CDP might be a stand-alone system, part of a marketing software suite, embedded in operational systems, or provided as part of an agency’s service. So it's not necessarily great news for CDP sellers.  

The broad availability of CDP functions affects users in other ways. When CDP functionality was available only from specialist vendors, the choice of a CDP was based on finding the best system (or, more precisely, the system that best fit each buyer’s particular requirements). But when CDPs are baked into larger software and service offerings, the quality of the embedded CDP is one of many considerations in selecting a vendor. In fact, the CDP itself may be invisible, as buyers base their choice on which vendor can best meet their business needs. If the potential vendor can meet those needs, its CDP must be adequate. If the potential vendor isn’t a good fit, it really doesn’t matter whether the fault lies with their CDP or some other component.

Note that there will be exceptions to this new rule. Large enterprises are likely to assemble their own collection of best-of-breed components, including a stand-alone CDP to integrate data from disparate sources. Mid-size firms who don't want to commit to one comprehensive marketing suite may prefer broad-scope CDPs that combine centralized data, analytic and personalization functions while integrating with external delivery systems.

What doesn’t change are the needs for users to define their requirements, to accurately assess which vendors will meet them, and to deploy their choice effectively. These tasks are closely related: you can’t define requirements, assess alternatives, or deploy effectively without understanding what the CDP needs to do. So education and training of CDP users will remain important regardless of how CDPs are purchased or delivered.

Another way to look at it is this: CDP has been cruising through the Gartner Hype Cycle for the past four years. Each hype cycle stage implies a common customer question*.  Here's what we’ve seen for CDP:

• at the start, when the technology is unfamiliar, the question was: What’s a CDP?
• during the peak of inflated expectations, people had some understanding of the concept, so their question became: Do I need a CDP?
• as CDP enters the final stages of disillusionment, enlightenment, and productivity, people accept that they probably need a CDP and ask the next logical question: How do I best use my CDP?

Of course, different markets and individual users are at different stages in their own CDP journey, so we still get all three questions. But it’s clear that the third question – often phrased in requests for use cases, best practices, and maturity models – is becoming the most important. I’ve no doubt that the industry will provide more answers.

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*This is my interpretation, not Gartner’s.