Some have argued that in the future due to commoditization from competition that we be see pricing pressure that will reduce TWLO’s margins. The argument goes that if a big customer like Uber can take business in-house or switch to a TWLO competitor then others may follow. I have argued that Uber is a special case because they have so much business with TWLO that they have an incentive to try to lower costs. In addition, being totally reliant on one vendor for something mission critical is generally not a good business practice. Therefore, I think that Uber is a special case.
In addition, TWLO can be used for all sorts of communication tasks. They’re adding a new feature or capability every 3.5 days. They have 50% of their staff in R&D making the product offering better and more useful for more and more use cases.
Now regarding Uber, the business that’s moving to Uber in-house seems to be lower value business. Here’s Lawson describing how different use cases can have higher importance to a customer: "I mean there’s a number of used cases that play in a company like Uber and the way they look at those use cases and what they value differ based on how use case works as well as where in the world it is. For example, if you’re doing a blast notification, your bulk notification to many thousands of drivers to get out on the road or something like that, you know there’s a different quality of service required than the SMS telling you that your ride is arriving, right. You expect that to be timely, you want it to get there, and it impacts the customer experience if it doesn’t get there on time. Whereas when you’re blasting out many thousands of messages that there’s some that don’t get there, it’s just a different quality of service that you expect from that sort of bulk type used case. And overall, we think there’s a lot of use cases and lot of opportunities inside of Uber and a lot of opportunities both on existing and new use cases and we’re working very effectively with the team there."
One analyst asked about pricing pressure: “One is pricing, you talked about to realign that pricing Uber and one with your bulk messaging, just curious have you had to realign your pricing with your other customers? I realize they’re less. They’re not as big as Uber. And then how would you characterize pricing in general?”
Answer: “yeah continually look at our pricing. So that’s one of the beauties of our business model and customers scale and grow. They know they can give better pricing, so as customers scale and move up, we do offer them a better pricing and that’s a continual process. Regarding the overall pricing, we haven’t seen any major changes to the overall pricing environment.”
Here’s some stuff on competition:
Just it’s been an interesting couple of months with one of your competitors suffering from I believe a 22-hour outage and another one of your competitors seemingly closing its doors to new customers and new projects and meanwhile your new customer additions continue to strengthen. So I’m curious from your perspective, has the competitive environment become a bit less intense or has it changed in any way in recent months? And just also how frequently are you winning new customers who have in fact suffered from poor quality with a competitor and therefore are turning to Twilio?
Here’s Jeff Lawson’s answer which supports that notion that TWLO’s investments in improving their offering is outpacing the competition:
Jeff Lawson: "yes, we do see customers who come to us from other platforms and due to struggle that a vendor might have because either lack of innovation or the availability of their solution. And so customers do come to us and value the things that we’ve invested in that make our platform extremely reliable but also an engine of innovation for them.
Enterprise small now but growing faster than the overall business
Jeff Lawson: “While enterprise relatively speaking is a smaller part of our mix today but growing faster than the overall. And so it’s a segment we’re very excited about. We think the enterprise opportunity is very large when you think about lot of that is with traditional enterprises and products that they bought traditionally. And so we see this as a very large opportunity for both segments, but enterprise is an exciting one that is growing extremely fast for us.”
So here’s the main points as I see them:
Communication facilitated by TWLO can differ in complexity, difficultly, and importance to customers. That’s why TWLO has hundreds of R&D engineers creating new capabilities for customers to use. The more complex and important the communication flow is the more TWLO can charge and the stickier that revenue is. TWLO will lose some of the simpler tasks to companies like Uber but the growth in other customers, the growth in more complex communications will more than make up for the loss in facilitating some simple tasks.
IoT and AI is only going to make communication between devices and devices, people and devices, and people and people more frequent, useful, actionable, important, and dependent upon an increasing number of factors and more information. I think this will drive the total available market will grow enormously.
TWLO is investing heavily in making their offering more and more advanced. Most competitors will not be able to keep up. Some of the commentary suggests that competition is decreasing.