Digital advertising and social media have given marketers unprecedented ways to collect customer data, segment personas, and develop personalized campaigns. But that data-driven model is under threat as growing concerns over customer privacy have led to new regulations on how companies can gather and use customer data, such as the EU's General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA).
Major technology providers have instituted their own changes in reaction to global concerns over data privacy. Apple now requires customers to opt-in to any tracking on iOS apps. The biggest change, however, will be in 2023 when Google Chrome, which commands approximately 64% of the browser search market worldwide,¹ will stop allowing third-party cookies – which have been a critical tool for monitoring web usage and gathering customer data.
The impending “death” of the third-party cookie is a huge opportunity for an emerging segment of the SaaS sector – Customer Data Platforms (CDPs), in our view, as businesses have become reliant on data-driven marketing, and customers have come to expect relevant advertising. CDPs integrate first-party customer data from multiple touchpoints and databases, and provide sophisticated analysis tools to help companies understand customer preferences and deliver timely, personalized marketing in compliance with the new data privacy regulations. The segment is already growing fast, and it is about to get a big push forward.
Replacing third-party cookies with first-party data
Third-party cookies track people as they move through the digital world, gathering data on where they go, what they look at, and when and what they purchase. Marketers buy that aggregated data to develop ads targeted to specific groups—say, teenagers looking for sneakers.
With the loss of third-party data, businesses will instead have to rely on information they collect themselves: first-party data. Most businesses already collect ample first-party data through their websites, email, social media accounts, apps, and point-of-sale systems. Businesses also have data from customer relationship management (CRM) systems and data management platforms (DMPs). However, those systems are typically siloed and most companies lack the in-house technical ability to integrate and process that data, create audience personas, and develop action plans.
This is where CDPs offer an elegant solution as cloud-based CDPs can provide the connective technology to integrate these systems and aggregate the data from multiple customer touchpoints. CDPs can provide important intelligence to marketers by analyzing customer behavior, which can then be used to create segmented profiles and AI-generated insights to recommend actions. A CDP can help marketers decide which products to promote to a specific segment based on past purchases, test different discount offers, and choose how best to reach specific customers, such as through email, social media, or online ad placements.
Multiple vendors are targeting the growing CDP opportunity
CDPs are already one of the fastest-growing enterprise software segments. There are at least 151 CDP companies today, up from 84 just three years ago, and CDP revenues are expected to grow from $1.3 billion to $3.2 billion between 2020 to 2025, according to IDC and Bloomberg Intelligence. Yet the market remains highly fragmented, creating opportunities for a range of pure-play CDP vendors and incumbent SaaS platforms that are adding CDP features to their offerings, in our view.
We believe the current leader among standalone CDPs is Twilio, a messaging and communication software company that acquired Segment in 2020 and now has 10% share of the overall CDP market. Combining Segment’s data aggregation and analysis capabilities with Twilio’s messaging platform (which includes channels for SMS, email, WhatsApp and Facebook Messenger) gives enterprises insights about their customers, which can be used for more-targeted outreach through various messaging channels.
With a collective $4.26 billion in venture investment backing CDPs at the end of 2021, nearly a dozen more emerging players have shown meaningful traction in the market. Two leading companies are Treasure Data and Bloomreach, which have made significant inroads into the CDP market recently.
The recent growth of the CDP market has also inspired legacy SaaS companies to move aggressively into the CDP space, either by building their own platforms or through acquisitions. In 2019, Salesforce developed an in-house CDP to integrate with its CRM system. Adobe, Microsoft and Oracle have also added CDP capabilities, giving enterprises multiple options for a fully integrated software suite that includes a CDP.
SaaS companies that target the SMB market have not overlooked the CDP opportunity. Companies such as HubSpot and Intuit – which offer end-to-end platforms for marketing and finance, respectively – are adding CDP-like features that help their customers analyze and act on their customer data.
With so much activity in the CDP market, companies can choose to add a best-in-breed CDP to their software mix or select fully-integrated suites, depending on their existing technology stack and their needs. With less than a year to go before the death of the third-party cookie, we believe 2022 looks to be a breakout year for CDPs.
[1] Source: Statcounter: https://gs.statcounter.com/browser-market-share#monthly-202110-202110-bar