It’s been quite fascinating to watch the Customer Data Platform industry develop over the past few years. So far, we’ve seen two main trends emerge: extension of CDP product scope beyond the core of building the customer database itself and expansion into new industries. Both shed light on what we can expect to happen next.
CDP product scope has a more convoluted history than you might think. When the CDP concept was first defined, it referred to systems that built a customer database to support a specific marketing application such as predictive modeling or campaign management. It took some time for the vendors to realize that the database itself was ultimately more valuable than any one application, because the database was more central to their clients’ needs. At the same time, other people – often marketers who had found through personal experience that unified customer data was rarely available – started by build database-only CDPs, based on the same insight that the value was in the database.
The junction of these two streams is one reason that CDPs have always been so bafflingly diverse: some products started with a footprint that included applications, while others started with the database alone. Another reason is that CDPs also included third stream of vendors: tag managers whose original focus was on building connectors to ingest and distribute data.
But the nature of software products is to expand their functions. A cynic might argue the reason is that companies have developers on staff and need to keep them busy. But a more realistic explanation is that clients are always asking for new features and vendors are eager to oblige. What this means for CDPs is that even vendors who started out simply assembling data or building databases have added applications, typically starting with analytical features such as segmentation, visualization, and predictive modeling, and then moving further towards execution with message selection and experience orchestration. The step after that is message delivery – and, sure enough, we’re starting to see CDPs with email engines as well.
This raises new definitional challenges, since at some point a system that is actively executing customer experiences is clearly more than a CDP. I personally have no problem with this, having argued some time ago that we should distinguish between CDP functions, which can be part of a larger product, and CDP systems, which focus on building a CDP only. We’re seeing an increasing number of products that include CDP functions in a larger package, including offerings from Oracle and Adobe. Think of it as “CDP inside”.
The trick will be for buyers to understand that whether a customer database is a stand-alone product or a component of something bigger, it’s only a CDP if it meets the definition: packaged software that builds a unified persistent customer database that is accessible to other systems. Oddly enough, “accessible to other systems” turns out to be the most critical element, because many vendors build a CDP-style database to support their own applications and don’t share it with others. So, one of my major tasks in the year ahead will be to stress this point to anyone who will listen. The message will be very much along the lines of the original “Intel Inside” campaign: “insist on the real thing – accept no substitutes”. It’s a dauntingly subtle message to convey in a world where attention spans are measured in seconds. I like to think of it as a challenge.
Most early CDPs were deployed at retail and publishing companies. Financial services and travel/hospitality came next, and adoption has recently spread to B2B, healthcare, education, and telco. In itself, this progression isn’t news. But I just recently saw a presentation by CDP vendor Boxever that suggested the sequence was more than random. They pointed out that adoption came earliest in industries with the shortest, most transactional buying cycles, and then spread quite steadily to industries with longer cycles and higher product costs.
This may seem obvious in hindsight, but it’s not the only possible explanation. My previous view was retail and publishing were early adopters because they had such poor systems in place before CDPs, making the incremental benefit higher than in banking and travel, here customer data was already fairly well organized. You could also argue that retail and publishing they’re the industries under the most competitive pressure from online companies, and thus with the greatest need for customer data to deliver personalized experiences. But those explanations always felt a bit contrived and ran into the fact that retail, financial, travel, and telecommunications had always been the leading industries in customer data-driven marketing. So, it always struck me as odd that they were adopting CDP at such different rates.
On the other hand, viewing CDP utility as a function of buying cycle does make sense. Companies with quick, simple transactions have more data points and simpler purchase processes than companies with fewer, longer running, more complicated transactions. This means those companies can more easily derive benefit from a CDP through tactical applications like predictive modeling to select lists or recommend a next offer. The other industries can still benefit from unified customer data but will need deeper analytics to convert their data into value.
A corollary may be that vertical specialists will have higher success rates in these late-adopting industries because their greater complexity requires specialized applications that only industry experts can build and explain. Many of these applications with require tight integration with industry operational systems, such as ticketing in travel, call details in telecommunications, and medical records in health care. B2B might seem an exception but that’s only because its specialized systems are marketing automation and sales automation, which are very familiar to many marketing technologists.
In any event, if the correlation between CDP adoption and buying cycle complexity is valid, it’s a useful tool for assessing how easily CDP vendors can penetrate new marketers. That is surely a helpful thing to have.
While industry history is interesting, the question everyone really cares about is, What happens next? That CDP vendors will continue to expand their footprint is obvious. So is growth into new industries. Less clear is whether stand-alone CDPs will continue to thrive or “CDP inside” solutions will take over.
We are in fact already seeing a movement in the “CDP inside” direction. Leaders include the big marketing clouds and narrower vendors with roots in email and Web site personalization. Acquisitions are one sign that companies are expanding their capabilities and, sure enough, last year saw CDP acquisitions including Datorama, Treasure Data, and several smaller companies (Marketing G2, Datatrics, and Audiens).
So the best bet is that the CDP market will follow the same pattern as other markets, with best-of-breed products slowly replaced by integrated solutions, starting in the mid-market and working up into larger enterprises. At the very high end, CDPs with advanced data management technology may survive and even grow in the short term, but they’ll ultimately be pushed into a corner with dwindling market share. Some other vendors may carve out niches in data connectivity, identity resolution, or other specialized functions within the CDP stack. At the other extreme, vendors with broad functions might find success as integrated solutions, especially if they are specialists in a particular industry. The hardest position to maintain will be a data-focused CDP serving mid-size companies: those firms will face increasingly compelling competition from broad-scope vendors who offer a CDP as part of a larger product.
Whether this is good or bad news depends on where you sit. Late-to-market CDP vendors, especially data-focused firms lacking special technology, may find the window of opportunity has already shut. Companies with broad functions that are adding CDP features shouldn’t have a problem, although they may need to talk more about their applications and less about their internal CDP.
Buyers, on the other hand, stand to benefit from a wider range of systems that offer the core CDP benefits of unified, shareable customer data. What the CDP industry has accomplished is to establish the need for a unified, open customer database as a central component of every company’s marketing technology architecture. Marketers – and others who use customer data – must insist on solutions that fully meet that need in terms of ingesting data from all sources, retaining full detail, and making thr results accessible to all external systems. Ensuring that solutions meet those conditions isn’t easy: it’s hard for even experienced technology buyers to understand what different systems really do. Yet buyers have no choice but to be thorough in their evaluation processes: at most companies today, a proper CDP is a foundation for business success.