The News: Twilio has concluded its Segment operational review and remains committed to achieving its overarching customer engagement platform strategy and its Segment roadmap, according to an announcement from the company on March 5. Twilio said it plans to continue leveraging AI to improve time-to-value for customers, as well as embedding Segment across the Twilio Communications platform.
The company also noted that in addition to Unified Profiles in Flex, Twilio will ship two additional products in 2024 that embed Segment Customer Profiles into Communications products helping customers obtain the benefits of data + comms + AI. Twilio also hired Thomas Wyatt (previously the chief product and strategy officer for People.ai) as the new Segment BU president. Thomas will report directly to CEO Khozema Shipchandler and will be responsible for driving product innovation, go-to-market execution, and overall success of the Segment business. You can read the release announcing the strategy here.
Twilio Remains Committed to Segment, Despite External Pressure
Analyst Insight: Twilio has been under significant pressure since late 2023, with activist investors Anson Funds and Legion Capital actively calling for the company to divest assets to bolster shareholder value, with the company’s Segment CDP business clearly in the crosshairs. Even after installing Khozema Shipchandler to replace outgoing founding CEO Jeff Lawson, the company’s board felt it was necessary to undertake what it called “an extensive operational review” of the asset to determine whether Segment still had strategic value for the company.
That review has been completed, and Twilio appears to be committed to fully integrating Segment across the company’s product lines. Twilio indicated that it plants to prioritize the following elements:
- Operational rigor and cost discipline by rationalizing investments to right-size Segment’s cost base and focusing on areas expected to drive the highest impact;
- Dedicating focus to areas that improve time to value for customers including improving onboarding through AI and automation and delivering additional features to enhance data warehouse interoperability; and
- Innovation velocity by delivering three products in 2024 that natively embed Segment into Communications, while also capitalizing on CustomerAI momentum.
Why Twilio Needed to Keep Segment
Keeping Segment may not make investors happy in the short term. According to its Q4 2023 financial numbers, the business unit generated $75 million during the quarter, up 4% from a $73 million year-over-year, but also saw its gross margin fall by 80 basis points to 74.4% and posted a non-GAAP operating margin of -24.6%. Those numbers are clearly not what the company would like to see from the unit, and it’s not surprising that investors might want to consider jettisoning a unit that, on first glance, doesn’t make a ton of sense for a company that built its business around delivering communication APIs.
However, its clear to me that Twilio is making the right choice, given the changing landscape of how organizations are looking at the value of data and CDPs. Organizations are increasingly relying on data-driven insights to improve customer experiences across multiple touchpoints and applications, and need a CDP to ensure that the information collected can be harmonized and unified into a single source of truth, a feature provided via Segment’s Golden Profiles.
Further, as organizations continue to leverage generative, predictive, and analytics-based AI, ensuring that data is accessible and actionable across all points of engagement will be paramount to their success. Whether these organizations use Twilio’s communications or engagement platforms or those provided by other vendors, a robust CDP will be required to ensure first-party personalization and engagement data is properly captured, stored, and made available to the applications that require it.
Clearly, Twilio’s challenges around Segment have led to significant scrutiny by the press, technology analysts, and the financial community. I suspect that the company would not have chosen to double-down on Segment unless it truly believed that the ship could be righted. A far simpler course of action would’ve been to simply dump the business unit and bask in a short-term stock price bump.
However, I believe company executives realized that far greater value could be realized by refocusing their efforts on driving greater adoption of their CDP via tighter integration across their portfolio of products – the company says it will deliver three Communications products that natively embed Segment – as well as focusing on improving the features set and capabilities of the product to take advantage of the increased reliance on data and AI by organizations.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
Twilio Q4 2023 Revenue Grows 5% YoY, Beating Targets
Twilio Announces Management Change to Quell Investor Discontent
Twilio Unveils a Robust Lineup of CustomerAI-Powered Solutions
Author Information
Keith Kirkpatrick is VP & Research Director, Enterprise Software & Digital Workflows for The Futurum Group. Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
