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🔦 Deal in the spotlight - Segment

🔦 Deal in the spotlight - Segment

(by Julius Müller)

Twilio acquires Segment for $3.2B in a key move for an API-first company to capture more of the value chain in managing customer data.

Key facts about Segment and the deal:

  • Value Proposition: Segment collects user events from web & mobile apps and provides a complete data toolkit across the entire enterprise.
  • Founded: September 2011 / HQ: San Francisco, USA  
  • Twilio Acquisition: $3.2B all-stock transaction
  • Latest Funding Round: Series D in Apr 2019 at a $1.5B valuation | Funding: $175M (total $283.7M)
  • Estimated ARR: €130M
  • Notable Investors: Accel, GV (Google Ventures), Meritech Capital Partners, Thrive Capital, e.ventures

Segment is on a mission to “empower every team with good data” through a set of APIs and tools that allow customers to connect various sources of customer data in one data pipeline to facilitate a single view of the customer. In the words of Co-Founder Peter Reinhardt: “Segment is the last analytics integration you’ll ever do”.

🚀 Why you should really care about this deal

  • Twilio has risen from a modest start-up founded in 2008 with APIs that allowed companies to integrate text and voice services into their app into a tech behemoth with close to $48B in market capitalization. The Segment acquisition is the latest act in a series of moves that transition the company from an API-provider to an integrated customer data management platform in multiple verticals when combined with the $2B SendGrid acquisition in 2018 and their own product expansion. We believe this to be a natural progression in the market, as outlined in our market spotlight, and we’ll be looking at other API-first companies to make a similar step. Who will swoop up automation platform Zapier for example to complement their offering? Another candidate would be CRM platform Intercom (interestingly, Twilio apparently was in talks with the company in 2015 for an acquisition - now they might be too big of a fish to fry for them).
  • Segment is a developer-first company. Its acquisition highlights the prevalence of such an approach to building tech-companies. The key to that success is both a deep understanding of their target segment and constant engagement. As Jack Gecawich has argued in a popular blog post a couple of months ago, “If you’re building a developer-first company, […] you need to be obsessive about the developers who are going to build on top of you.” Segment was committed to this from the very beginning and, somewhat expected of a YCombinator-backed company, they were engaging with the community from day one (you might want to check out this early post on the popular HackerNews platformwith an MVP of what has now become a multi-billion dollar company).
  • By the way, we talked about microservice architecture and the API-first companies that facilitate them in our market spotlight. You’ll be interested to know that Segment has shared some strong negative views on the use of microservices in their organization and beyond (where, we reckon, a number of endpoints of communication services are the ones of their now-parent-company). The development will indeed be interesting to observe.

🤔 What you need to believe in

  • Twilio can accelerate Segment’s growth post-acquisition. The success of this deal will depend heavily on how successful Twilio is in cross-selling Segment’s offering to their existing 200k+ customers and thereby accelerating market access for the target’s product. Since Twilio stated that such acceleration is the key investment rationale here, we will be watching the growth of Segment as a business unit of Twilio closely (something that will be easier now that they are part of a public company). We agree with most market observers that Segment is a clearly complementary product to Twilio’s existing offering and it will be interesting how their push into a full-fledged customer data management platform pans out. This could pave the way for other API-first companies to follow suit.

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