What you need to know

• Overall revenues in the CDP sector are on the rise again, as is employment, as the sector grew from US$2.3 to US$2.4 billion in revenue over the last 12 months.
• However, most of the growth comes from new entrants in the market, typically established firms that have added CDP capabilities rather than new entrants.
• The CDP Institute released its latest six-month report into the sector, and the institute leader, David Raab, is clear-eyed about the current state of the market but says there are plenty of growth opportunities.
• Gartner, meanwhile, has expressed a view that the CDP market is peaking, although rival Forrester believes there's plenty of growth still in APAC.

Growth has returned to Customer Data Platform (CDP) markets after a tough 2023, and the sector grew from US$2.3 to US$2.4 billion in revenue, according to a new report by the CDP Institute.

The report revealed employment growth in the CDP sector resumed, up 5 per cent over six months. Twelve vendors were added to its ranks, although the loss of two vendors reduced net growth to 10.

But it's not all rosy. Most of the growth in the CDP sector came about because of the arrival of new entrants in the market. For instance, the 12 new firms added to the report accounted for 743 of the 786 total employment increase and about two-thirds of added funding, the report says. And while they may be new CDP providers, most were established businesses from pre-2019 that added CDP capabilities.

It's still a tough market to raise money in. "There were only two funding rounds over $25 million during the period, plus a $95 million secondary market placement for Capillary Funding went to established firms: All companies were established in 2018 or earlier and only two were receiving their first funding round," the report states.

Likewise, M&A activity remains suppressed. "There were no CDP vendor acquisitions during the period of this report. The European consolidations were the result of CDPs buying other CDPs, not acquisitions by non-CDP vendors. Like the lack of funding, this suggests there was little interest in the CDP industry among investors or strategic acquirers at this time."

According to David Raab, founder of the Customer Data Platform Institute, "The lesson of the report is that the market is stable but not growing as quickly as it was. Even the major firms grew very slowly during the period of this report, which is unusual. I think part of the slowdown is due to changes the report does not capture directly, in particular the growth in companies that build their own version of a CDP rather than purchasing a packaged CDP solution."

While it was clear this was happening, it’s not reflected in the Institute's data, Raab says. "We also don’t have an accurate picture of CDP sales growth for large vendors where the CDP is just a small part of their business, such as Salesforce or Adobe. Those now account for close to half of the market based on our estimates. We suspect the CDP business is growing faster than other parts of those companies but our estimates don’t take that into account."

Raab acknowledges slowdown in the growth of CDP vendors was a surprise. "In the past, those firms have outperformed the industry as a whole. They still grew a little faster than other companies but not as much as they have in the past, he said, suggesting the result probably reflects the general slowdown in much of the tech industry in the past year or two," he continues. 

"But it’s surprising because the CDP industry has done well even when the rest of tech was suffering. On the other hand, we still haven’t seen many firms exit the industry, apart from some small consolidations in Europe. Given the general slowdown in the industry, we would have expected more of a shake-out, but that hasn’t happened."

According to Raab, the dominant platform type is by far CDPs running campaigns and delivering messages: These account for 67% of companies and 76% of employment. 

"This has been the case for a long time but their share does continue to expand. It’s clearly what CDP buyers want, but bear in mind a growing number of companies will build rather than buy their CDP, so it’s not necessarily what the market as a whole wants," he says.

"The nature of packaged CDPs will likely change as more products are introduced by vendors that specialise in particular industries such as financial services, hospitality, telecommunications, automotive and healthcare. Those vendors tend to have products that offer a full range of marketing capabilities, which puts them in the campaign/delivery category. Again, that’s what their customers want, because it minimises the number of different systems they need to purchase and integrate."

A market in flux

There are mixed views in the analyst community about the health of the CDP market. Gartner seems to be leaning into the idea that the overall market is peaking. Forrester meanwhile believes there's plenty of growth left in Asia Pacific. And of course, both of those views can be correct.

Raab says the real picture is complicated, although he believes the bottom line is the market will continue to grow. "There’s no reason to believe the CDP market has 'peaked' if that means sales will now start to decline. These are nearly all SaaS products, so old clients generate a stable stream of revenue. This is unlike traditional licensed software, where a surge of initial purchases is followed by a revenue decline as old clients generate only a small stream of maintenance revenue.

Raab further tells Mi3, "The only way revenue would fall is if companies started to replace CDP systems with some other kind of system, and I see nothing on the horizon that would do that. Any replacement system would still have to do what CDPs do because that need has not gone away. Those replacements would be part of the CDP industry from my point of view.

"When we look at independent software companies like Treasure Data, total employment is about flat, because growth at some companies just about balances shrinking at other companies. I think revenue is probably growing for those firms because many have had layoffs that reflect the general tech industry trend of layoffs even though revenue and profits continue to rise."

In contrast, the CDP parts of companies like Salesforce and Adobe, seem to be growing nicely. "We don’t know for certain because they don’t release actual data. Like the independent vendors, those firms are selling packaged CDPs that build their own database."

And the “composable” CDP market is growing quickly, Raab says.

"I’m pretty sure the big software companies are taking deals from the independent vendors. I’m not sure the 'composable' vendors are taking deals from the other two groups, because I suspect that the companies buying 'composable' tools would have built their own database anyway, so they were never part of the available market for the packaged systems."

The real question for Raab is whether the CDP market will continue to grow as more companies buy their first CDP. "There are some industries and regions where most of the companies that are likely to buy a CDP have probably already bought one. Retail in the US is an example.  But we still see lots of opportunity for growth in much of Europe [particularly Spain and Italy] and in APAC."

He also expects to see industries like healthcare and education invest further in CDPs, saying the number of new clients is growing sharply. 

"Similarly, we see the expansion of the CDP market to serve smaller firms, especially in retail, with products that have lower prices and require fewer technical resources and support than traditional CDPs."