Summary
Ten years after its inception, cloud communications provider Twilio is showing strong momentum. In August it reported Q2 total revenue of $147.8m, up 54% year-over-year. Earlier this year, it reported $399m for the full year 2017, up 44% from 2016. The previous year, it reported total revenue of $277.3m, up 66% from 2015. The company is well positioned with the developer community, with more than two million developers around the world. A key challenge will be maintaining its dominant position as the market opportunity expands beyond developers and digital-native companies and into the enterprise segment. It also faces intense competition from incumbent and emerging communications providers aggressively targeting the enterprise segment.
The 451 Take
Twilio is a pioneer in the cloud communications space and has become the de facto communications PaaS (CPaaS) market leader. In the 10 years since its inception, it has managed to stay ahead of its competition, consistently raising the bar with a comprehensive and innovative portfolio. Twilio faces several challenges – including an intensely competitive landscape and changing market conditions – that will challenge its dominant position in the market and put its product and go-to-market strategies to the test. However, its track record gives the company strong momentum as it enters its second decade.
Context
Twilio is a cloud communications company that provides CPaaS, contact center, IoT and security offerings. The company was founded in 2008 and went public in May 2016. It is based in San Francisco and currently has over 1,100 employees. 451 Research's M&A KnowledgeBase shows Twilio has made four acquisitions: Ytica , a contact center SaaS; Beepsend, an application-to-person messaging provider; videoconferencing WebRTC media server Kurento; and Authy, a two-factor authentication SaaS provider.
451 Research projects the CPaaS market opportunity will continue to grow at a CAGR of 31% over the next five years. Key trends driving market growth include the transition to IP and cloud-based communications, and the growing popularity of embedded communications to improve the end-user experience. Twilio is well positioned to benefit from this opportunity but faces an increasingly competitive landscape. In the last three years, we have seen a surge in M&A activity in the cloud communications space, including several CPaaS-related transactions. These include the acquisition of TokBox by Vonage and Kaleyra's acquisition of Hook Mobile, both announced in August; the acquisition of Flowroute by West Corporation in July; the acquisition of Sipwise by Alcatel-Lucent Enterprise in May; and CLX Communications' acquisition of Unwire Communication in March.
451 Research projects the CPaaS market opportunity will continue to grow at a CAGR of 31% over the next five years. Key trends driving market growth include the transition to IP and cloud-based communications, and the growing popularity of embedded communications to improve the end-user experience. Twilio is well positioned to benefit from this opportunity but faces an increasingly competitive landscape. In the last three years, we have seen a surge in M&A activity in the cloud communications space, including several CPaaS-related transactions. These include the acquisition of TokBox by Vonage and Kaleyra's acquisition of Hook Mobile, both announced in August; the acquisition of Flowroute by West Corporation in July; the acquisition of Sipwise by Alcatel-Lucent Enterprise in May; and CLX Communications' acquisition of Unwire Communication in March.
Strategy
Twilio's growth has been largely tied to digital-native companies such as Uber and WhatsApp. In 2015, its 10 largest customers accounted for 32% of revenue. The company has managed to turn this around, diversifying its sources of revenue. Despite theIn the last two years, Twilio has expanded its focus on the enterprise segment. In September 2016, it announced new capabilities designed to support security, access management and admin requirements for enterprises that are building cloud communications solutions. The Twilio Enterprise Plan includes capabilities such as single sign-on, customizable role-based access control, and segmented billing and platform usage.
Its enterprise strategy also includes revamping its partner program and growing its executive team with enterprise software veterans. Last year, it brought in former Salesforce executive George Hu as COO, and in January it hired CMO Sara Varni, former Salesforce marketing SVP. In June Twilio announced the launch of Twilio Build, its new partner program. Build aims to expand the services in its existing partner program – launched in 2014 – with go-to-market support, certification and training programs. Launch partners in the consulting area include Blacc Spot Media, DVELP,
Products
Twilio has expanded its offering beyond its initial programmable voice and SMS APIs and continues to innovate, having layered in deeper intelligence around its API services, more specific support around customer journeys and additional infrastructure around its global connectivity. Its comprehensive portfolio remains a key strength and differentiator. In March it launched Flex, a cloud-based contact center application platform, and in April it announcedTwilio's portfolio includes a wide range of products in three key areas. The Communications Cloud provides communications APIs with built-in global intelligence, including programmable SMS, video, voice, chat, fax
Competition
Twilio competes with other cloud communications providers that offer development platforms for embedded communications. A key competitor is Vonage, which acquired Nexmo in May 2016 in a deal valued at $230m. Nexmo provides cloud-based messaging and voice APIs that allow developers and enterprises to embed contextual real-time communications into mobile applications, websites and business workflows. In August 2018, Vonage announced its acquisition of video CPaaS provider TokBox in an all-cash deal for an enterprise value of $35m. TokBox develops and operates the OpenTok platform, offering developers a live video API and SDKs that can be integrated into websites and mobile apps.
The competitive landscape includes IntelePeer, a cloud communications provider founded in 2003 and based in San Mateo, California; Raleigh, North Carolina-based Bandwidth, which went public a year ago; Stockholm-based CLX Communications, which acquired CPaaS provider Sinch in 2016; London-based Infobip, which last year announced plans to open offices in San Francisco and New York to further expand its presence in the US; andKaleyra , which recently announced the acquisition of Hook Mobile and its expansion into the US market.
Twilio also competes with providers of cloud-based contact center solutions including Five9, NICE's inContactand 8x8, as well as longtime players Avaya, Cisco and Mitel.
The competitive landscape includes IntelePeer, a cloud communications provider founded in 2003 and based in San Mateo, California; Raleigh, North Carolina-based Bandwidth, which went public a year ago; Stockholm-based CLX Communications, which acquired CPaaS provider Sinch in 2016; London-based Infobip, which last year announced plans to open offices in San Francisco and New York to further expand its presence in the US; and
Twilio also competes with providers of cloud-based contact center solutions including Five9, NICE's inContact
Raul Castanon-Martinez
Senior Analyst, Workforce Collaboration and Communications
Raúl Castañón-Martínez is a senior analyst based in Boston focusing on business communications and collaboration technologies such as enterprise messaging, voice, bots, speech recognition and unified communications. Before 451 Research, he was a product manager at EMOSpeech, analyzing emotion recognition technology.
Jeremy Korn
Research Associate
Jeremy Korn is a Research Associate at 451 Research. He graduated from Brown University with a BA in Biology and East Asian Studies and received
Aaron Sherrill
Senior Analyst
Aaron Sherrill is a Senior Analyst for 451 Research covering emerging trends, innovation