In our popular post on emerging data infrastructure, we highlighted technologies that have led to a new wave of data-stack investments. These stacks represent the culmination of a number of trends in the industry, including the migration from on-prem to cloud; the maturity of new data lake technologies that span both analytical and transactional workloads; and the transition from cumbersome ETL pipelines to the smoother ELT process. In that same post, we predicted the rise of a new class of data applications and products built atop these emerging technologies.
Today, we are observing this shift take off in earnest. It’s especially prevalent among the categories of data applications that aim to solve unique challenges in the marketing sphere: business processes centered around customer experience and satisfaction; marketing practices becoming more personalized and integrated; and high consumer expectations on the timeliness of each engagement.
In this post, we explore one prominent example of this trend: the customer data platform (CDP).
In many ways, the massive growth of investments in customer experience (CX) systems parallels that of data infrastructure, and represents investments being made directly by the customer-facing teams – marketing, sales, and support. Teams in these customer-facing groups, separate from IT, have been building technology infrastructure to support the fast-changing landscape and respond to real world events. The data layer that supports the operational complexity is often a CDP.
Historically, CDPs are magic wands mostly waved by the marketing specialists at large organizations in the name of customer segmentation and identity resolution for more accurate ads. They wanted better targeting and online engagements.
Today, the promise of the CDP is to unify, analyze, and activate customer data, and to break down traditional data, technology, and channel silos within an organization. The platform that was predominantly adopted by marketing teams for targeting and engaging with audiences is now expanded to the entire customer journey, from first touch to post sales. Rather than teams having to manage dozens of data silos that exist in each of their martech applications, CRM, or primary user data stores, the CDP can unify that data, help teams slice and dice audiences, enrich customer profiles, and paint an overall customer profile for the business team to act upon.
Like most analytical application providers, traditional CDP players are early adopters of concepts such as cloud data warehouses and data lakes, but in a “bundled” offering. The aggregated customer data becomes another form of a data silo that lives outside of the cloud data warehouse, which more and more is treated as the ground truth.
The result is that, in the shifts toward a more accessible and self-served modern data stack, marketing and data leaders are faced with a dilemma: Where should we consolidate the customer data, the CDP or the data warehouse? And, more importantly, where does that leave business users who need access to customer data in a fast but trustworthy manner?
The ideal solution to the prior problem is to leverage the general-purpose data infrastructure for the backend, and let business teams use existing functionalities that are offered by the CDP. That way, organizations can minimize switching and infrastructure costs while continuing to benefit the from many of the emerging capabilities offered by the modern data stack:
Composable CDPs are taking advantage of this shift in data infrastructure toward the data cloud and embracing a “warehouse-first” architecture. The goal is to minimize or eliminate data replication and to deploy best-of-breed solutions from different technology providers. The characteristics of a composable CDP are:
Built on the foundation of the modern data stack, the new CDP architecture is a lot more modular and adaptive to enterprises needs. Upon streamlining and consolidating several core data infrastructure blocks, each component is focused on what they are best at and serves a particular group or audience. Let’s dive into these core capabilities.
Data is the foundation of a CDP. Depending on the source of data, collection can happen in several ways:
Key capabilities include:
Once the data has been ingested, it’s crucial to clean and model data correctly to reduce noise for the consequent steps. BI or transformation tools like dbt offer the possibility for data analysts to prepare customer tables in the underlying data warehouses that can be shared by multiple teams. The other benefit of having a shared modeling layer is that it’s relatively easy to uniquely identify each customer and resolve duplicate entities. It also provides a more economical solution for enrichment when there’s one master customer table.
Key capabilities include:
The storage and compute layer acts as the source of truth for the raw customer data, as well as the compute resources necessary to query it. This is the biggest differentiation between a composable CDP and the earlier traditional bundled architectures: In a composable CDP stack, this layer is more than likely provided by cloud data warehouse that’s owned and managed by the organization doing the querying, rather than by a CDP vendor.
While SQL-based analytics workloads remain the most prominent for the current workloads, it’s likely that more clients will embrace machine-learning-powered recommendations and personalization around customer experiences. In that case, infrastructure that is purpose-built for these workloads will need to be integrated into a heterogeneous infrastructure stack, a trend we see captured in the rise of the lakehouse architecture.
Key capabilities include:
The activation layer is where non-technical business teams (i.e., marketing, sales, service, support, etc.) access this unified and modeled customer data. Either an interface is provided for the domain expert to easily construct audiences and derive insights (e.g., ActionIQ), or the data is transferred back through reverse ETL to an end-user application such as Hubspot, Marketo, or Braze to perform the next set of actions.
One challenge to note is that many real-time use cases, such as loyalty-based discounts, require quick actions triggered by a customer event. The whole process happens in seconds before the data hits storage. Reverse ETL solutions (e.g., Census) today are still largely batch processes. This is where traditional CDPs are much better suited to cover a variety of use cases.
Key capabilities include:
As the core pieces of data infrastructure continue to mature, consolidation is happening on the backends toward data warehouses and event-driven architectures. These compostable and adaptive backends enable a new wave of interaction on top of shared data models, which makes the collection, analysis, and dissection of customer data much more tenable and shareable across different teams. More importantly, the same architectural shift enables the automation and engagement layer, from transactional notifications to custom workflows, to be more modular and programmable.
All of which will lead to a delightful and personalized consumer experience!
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Jennifer Li is a partner focused on enterprise investments in data infrastructure and analytics, open source, developer tools and collaboration applications.
Martin Casado is a General Partner at the venture capital firm Andreessen Horowitz where he focuses on enterprise investing.
Tasso Argyros Tasso Argyros is Founder and CEO of ActionIQ.