Twilio CEO Jeff Lawson Shares Why He’s Acquiring Segment For $3.2 Billion

Twilio is making its acquisition of fellow cloud computing company Segment official.

San Francisco-based Twilio announced early on Monday that it had signed a definitive agreement to acquire Segment for $3.2 billion in an all-stock deal. The deal is expected to close in Twilio’s fourth fiscal quarter, the company said.

Forbes first broke the news of the pending acquisition on Friday.

In a joint interview with Forbes on Sunday night, Twilio CEO Jeff Lawson described the deal as the next step for a service that’s spent the last decade-plus “taking communications and breaking it down into building blocks” for developers to reach their own business’ customers.

“Communications was just the entry point for the real opportunity, which has been really providing a comprehensive platform for customer engagement,” Lawson said. “The one thing that’s always been missing from Twilio as we’ve been building up this customer engagement platform is understanding of the end users themselves. We power the communications, but we don’t actually know who the customers are.”

Founded in 2011, Segment was last valued by private investors at $1.5 billion and had emerged as a leading startup in a category of software known as a CDP, or “customer data platform.” Segment will serve as a business unit within Twilio, with cofounder and CEO Peter Reinhardt reporting to Lawson and some features integrating into Twilio over time. “It’s going to accelerate our vision by five to 10 years,” Reinhardt told Forbes in the interview.

Both companies declined to provide Segment’s revenue, noting instead Segment had reached 20,000 customers. But in a presentation prepared for Monday, Twilio noted that Segment had reached 75%-plus non-GAAP gross margins on its subscription sales. RBC Capital Markets analyst Alex Zukin estimated on Sunday that Segment’s annual recurring revenue was set to reach about $100 million by the end of the year.

Segment first got on Twilio’s radar after its public-facing launch in 2012, when Lawson, himself a developer, saw the tool get posted to Y Combinator’s news site Hacker News. He connected with Reinhardt at a dinner hosted by the startup accelerator in San Francisco several years ago. The two continued the conversation at a bar across the street. The possibility of Twilio leveraging Segment’s centralized understanding of a customer across data sources to better communicate with them stuck with Lawson over the following months, he said.

Asked for an example of how companies might leverage Twilio and Segment together, Lawson pointed to call centers and the often disappointing experience of speaking to a representative who takes minutes to pull up the customer’s relevant history. Using Segment, reps connecting via Twilio could know exactly what a customer had bought and when, as well as their last interactions and which channels they preferred to communicate, such as email or text.

Moving forward, Twilio plans to build additional tools on top of Segment’s data platform, Lawson said. The CEO declined to offer specifics, but a natural area in which Twilio might compete more in the future would be sales acceleration, using machine learning to predict which customers to contact with new offers, as well as how and when.

Early reaction to news of the deal appeared positive, as pre-market shares of Twilio were trading up more than 7% as of 7:30 AM ET. “We believe the pairing could result in a game-changing opportunity,” Cowen analyst J. Derrick Wood wrote in a note on Monday ahead of confirmation of the deal.

“We see this unserved market of B2C companies that are all struggling to figure out how to stitch together all this technology,” Lawson said. “It’s actually pretty insane that typically in business, you have to change your business to meet the software you bought to run that business. Instead, we want to change our software to meet the business we’re trying to build.”

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