Current State of the CDP Industry: Expert Interview


I recently conducted an interviewOpens a new window with Derek SlagerOpens a new window , co-founder and CTO at AmperityOpens a new window , a Seattle-based customer data management company, asking for expert advice on the steps marketers can take to find the right CDP.

I found his expertise and insights so useful, I thought I would be remiss not to get his views on the current state of the CDP industry and its evolution.

Enjoy part two of our Q&A.

As Salesforce, Adobe and Oracle join major players soon to unveil their CDPs, shouldn’t the CDP marketOpens a new window finally settle on standard functions and capabilities? 

Derek: The idea of a standard set of functions and capabilities is certainly appealing as it has the potential to reduce confusion and make it easier to evaluate and buy a CDP. When we think about setting clear boundaries for defining a CDP, however, we must be careful not to set them in such a way that restricts the potential for flexibility or further development.

There’s a reason for the current variation in CDP functionality: Businesses have very different needs.

Consider a CDP that’s tailored to the needs of a young start-up. This company may only have a single database, while its needs are likely focused on simple connections between systems and basic activation functionality.

Contrast that with a CDP that’s tailored for a large, multi-brand enterprise, where the CDP must have extremely powerful capabilities for unifying and managing large datasets.

In each case, the capability required of the CDP itself, and the way it interacts with the tools around it, vary. An early stage organization with a small team may desire some amount of built-in insights and analytics capability, while an at-scale enterprise may simply want the CDP to provide unified data for their existing analytics environment.

Overall, it’s going to take time to clarify the CDP category, and I think we’ll probably see sub-categories emerge, if not a split in the sector to reflect the differences in the tools. I expect Salesforce, Adobe, and Oracle initially will add to the confusion as they try to map their offerings to the market.

Ultimately, the CDPs that drive value will be the winners, and customers should judge the sector and its players by that standard.

Are there specific functions and capabilities you would want to see established across the industry?

I’d like to see all of the players in the space embrace responsible management of privacy-friendly, first-party data.

Different organizations will approach this differently, but at the end of the day, there needs to be an industry-wide responsiveness to the overwhelming consumer demand for a transparent and direct relationship with the brands they love. Different organizations will demand different functions and capabilities, but all organizations should seek to honor their customers’ desires regarding the use of their data, and to use that data to drive differentiated customer experience.

You would be surprised how many colleagues I’ve spoken with who don’t fully grasp the difference between using first- and third-party dataOpens a new window . How differently do you think marketers should approach the use of these datasets? How can CDPs help? 

Helping marketers maximize what they can leverage from their first-party data is the core value proposition of a CDP. I encourage customers to expect related capabilities as a minimum from vendors.

Speaking bluntly, we’re well past the point of “peak third-party.” Customers are spending more to acquire and use third-party data, but getting worse results than before. Customer acquisition costs are rising as a result, and privacy regulations like GDPR and CCPA will ensure that this trend continues.

Part of the reason for the confusion is that the challenges of unifying first-party data comprehensively — especially in a complex organization — have influenced marketers to spend a disproportionate amount of time, attention, and budget on third-party data.

Unfortunately, even in the best cases, this all but guarantees that marketers will struggle to differentiate their business and their customer experience as they effectively will just be using (and contributing to) a dataset controlled by another entity. Plus, the incentives that drive these data-owning entities are different from those that drive the organizations and the users on either side of the data exchange.

Marketers should use first-party data for primary functions such as building customer identities, personalization and targeting. Third-party data, meanwhile, should be seen as supplemental because it’s a less dependable asset over time.

Most of the customers we talk to actually do understand the fundamental difference between first- and third-party data, the struggle is in understanding how to truly leverage first-party data for great business results. The CDP category is well aligned here, and the CDPs that help their customers drive value and differentiate their consumer experience will see rapid growth.

I’ve seen many ‘experts’ boast that CDPs are only scratching the surface of their potentialOpens a new window . What do you see as their major game-changing innovations?

I agree with this. I think CDPs will have reached their potential when customer experience has finally caught up with consumer expectation. And we are still in the early phases of that journey.

This, of course, isn’t just about the tools and technology — it’s equally important that organizations learn the right ways to implement these systems in order to provide their customers with personalized experiences. This involves transformation of people and process in support of this disruptive technology.

CDPs are making waves in the marketing world because this is a sector that hasn’t before had any real access to customer data. Therefore, the first effort for these platforms has been to give marketers access to that information.

But marketing isn’t the only application for unified, 360-degree customer views and feedback. At Amperity, for instance, our data products are available to all teams — IT, analysts, customer support, business — in order to empower everybody within an organization.

The real innovation, though, will occur when brands become truly customer-centric and can put their customers at the center of everything they do, allowing for a single, shared understanding of customers across the company. When this happens, we can expect a ripple effect throughout an organization to innovate and optimize in all kinds of new and unprecedented ways, forming a flywheel of understanding, optimization and innovation.

What are the biggest obstacles — and the single biggest — holding back CDP developers? 

Too often we hear stories of disappointment because a CDP failed to deliver on its promised value. By far, the most common issue is a premature focus on deriving insights and then taking action using bad or incomplete data. This is understandable — who wouldn’t want to skip to the end of the process? But the reality is that there are no shortcuts. Truly leveraging all your data requires comprehensively unifying it and frankly, most CDPs are completely failing to do so.

However, that’s not to suggest insights and actions are not important core functions of a CDP. Undoubtedly they are. But they can’t provide value if they’re fueled with bad data. As I mentioned in part one of this Q&A, it’s garbage in, garbage out — even when there’s a sophisticated predictive insight on the way out!

What do you identify as the primary difference between CDPs and DMPs?Opens a new window  How do you think marketers can bring these technologies together to make the most of what both have to offer? Is it an issue of a CDP vs. DMP marketing war, or rather an integration issue?

This relates directly to the confusion around first- and third-party data. Ultimately, DMPs are uniquely focused on third-party data, and enabling its use to optimize ad placement. A good CDP should help a customer build a comprehensive database with a complete 360-degree consumer understanding, deriving insights and taking actions across all channels.

A DMP may be a channel that CDP orchestrates to, but there is no real-world case where they should be considered competition. In cases where they are, those tools are likely mis-categorized.

I would encourage brands to explore this through the eyes of the consumer. How might they describe the gaps in your customer experience? If your goal is to serve them and optimize their experience, how many of those gaps can be solved by placing ads in front of them?

In most cases, consumer frustration stems from a brand’s inability to leverage the data they already have from those consumers to drive personalized, customer-centric experiences, and a great CDP should enable an organization to improve dramatically in this dimension.