What is TWLO's moat?

I own a small, but not insignificant bit of TWLO in my portfolio. even though it’s one of my lower conviction stocks, I’m hanging onto it for now because of their strong growth and big market opportunity. that said, i keep going back and forth about whether i should trim it down even further.

i keep questioning, what is TWLO’s moat? especially for their core API. The selling point i hear a lot is that their API is extremely developer friendly, very easy to implement and their support is excellent.

But what is to stop anyone from coming in any replicating what they do? this site suggests there’s already a lot of up and comers who are doing just that:

https://www.quora.com/What-if-anything-separates-Twilio-from…

so maybe Twilio has the best API for now, but where is the stickiness? New apps can just as easily use another cheaper, communications API without affecting their user experience. And where is the pricing power? an enterprise software like Jira gets deeply embedded in workflows so its hard to displace. A communications API? Is that really that sticky?

And what is the upside of FLEX? the cloud contact center area seems very crowded already. Just playing devil’s advocate for myself, thanks for any insights

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But what is to stop anyone from coming in any replicating what they do? this site suggests there’s already a lot of up and comers who are doing just that:

https://www.quora.com/What-if-anything-separates-Twilio-from…

The top four answers are from 2015 and 2013, two of them from Twilio competitors. How relevant are they in 2019, four and six years later? How are Nexmo and Plivo doing compared to Twilio?

I don’t mean to be critical but research is more than reacting to one article and I’ve seen several posts doing just that.

Denny Schlesinger

Plivo: Estimated Annual Revenue $32M - https://www.owler.com/company/plivo
Nexmo: Estimated Annual Revenue $80M - https://www.owler.com/company/nexmo
Twilio: Estimated Annual Revenue $881.4M - https://www.owler.com/company/twilio

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Fair enough, I didnt realize that article was so old. I did a bit of digging and Vonage’s Nexmo API platform had a revenue run rate of $78 million last quarter, ~$320m annualized, growing 49%.

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Actually, I think it’s relevant question. First off, $TWLO is a 10% holding of mine. Clearly they having amazing growth ---- customers are speaking loud and clear re: their wallet/wallet share and needs that Twilio provides. With that said, what really is Twilio’s moat? What stops two guys in a garage or behemoths from overcoming the TWLO moat. Is it developer mindshare? Is it all the API capability/IP that can’t be duplicated?

Also, I don’t fully get the Flex strategy. One can say it’s an adjunct to being a communications oriented company (Twilio strategy/strength). But, to me, TWLO is now swimming upstream and reaching outside of their core communications/API capability ---- by building end user software. I think it’s a long sales cycle and potentially flawed strategy ---- and waste of time/opportunity cost/energy.

Appreciate hearing the other side of the coin.

Long TWLO. Thank you.

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Here is my take on Twlo.

Do they have a moat, I would say yes but it is a narrow moat. They has a low cost provider moat and they are the first to market and running as fast as they can.

So why would anyone invest in Twlo? Well the Telecommunications industry is being upended. It used to be if you had a small business or call center you had to go to the Telco companies and order lines, T1’s, phones, Key system, pbx, etc. You then had to setup an office and all of this could take months. Now you only have to have a broadband connection, buy your own IP phones, and go with Twlo to set up your business. You can be up and running in weeks, not months. All of the old companies that used to supply the equipment that you needed to setup your business, Nortel, Siemens, Erickson, are either gone or have been consolidated. The small and Medium size business’s no longer need all the infrastructure and cost because Twlo can now give you the same or better service, with out having to do any upgrades on equipment or hire technicians, at a fraction of the cost. So yes Twlo has a moat, and it could be huge if they keep grabbing market share.

Andy

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There’s moats of all different sorts. IMO Twilio has strong defenses. In no particular order I’ll try to identify some of the contributing factors.

First, there’s IP. Telecommunications s/w is arcane and difficult. Used to be that the expertise in this area was very hard to find and very expensive when a company in need of this service was able to recruit an expert. Twilio has elegantly made it available to the average programmer. Learn their APIs, which is not a difficult task and you’re up to speed.

Ease of use is not to be overlooked. Making life easy for the developers enhances productivity and moral. With the IP they have, a competitor may replicate their functionality but making it as friendly as Twilio is not so simple.

They have developer mindshare. This is not trivial. It’s the network effect, the more developers, the more other developers are inclined to learn it and use it. And the more you are likely to see employers advertise specifically for people knowledgeable and experienced with the product. This also expands the resource base via developer forums, conferences and so forth.

They are now (especially with the Sendgrid acquisition) a full service communications provider. And virtually every B2C business of any significance must have some form of customer support. Customer support is dependent on communications. Most businesses will seek to get their IT support from a single vendor if possible. It’s the one butt to kick philosophy. If you get email from company A, messaging from company B and phone from company C, problems can overlap. Who you gonna call? How do you get your problem resolved when the fingers point in different directions? Twilio keeps coming out with new products to address gaps in their overall communications palette. So far as I know, no competitor can match their coverage.

They are known for providing very responsive and high quality support. This is just not so easy to duplicate. Actually providing it is not simple, and gaining a reputation for it is even more difficult.

That’s just a few points off the top of my head. I’m sure there are more. I’m very comfortable with Twilio holding 12% of my portfolio. I have a few positions that are larger, but it’s pretty high up in percentage of my investments.

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According to competitor Bandwidth, low-cost provider is not one of Twilio’s value propositions, much less a part of their moat.

https://www.bandwidth.com/twilio-alternative/

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Twilio’s biggest competitor seem to be Bandwidth with Nexmo in the EU.
Bandwidth vs Twillo user reviews on g2.com:
https://www.g2.com/compare/bandwidth-bandwidth-vs-twilio
4.5 out of 5 for Twilio with 242 reviews, 4.6 out of 5 for Bandwidth with 142 reviews.

An article pointing out why Twillo although more expensive than its competitors still
remains a solution for most users.
https://medium.com/@a.jamous/twilio-alternatives-in-2019-f2c…
There is an open source project “Restcomm open source” project
Representing over 5,000,000 lines of code and took estimates 1,554 years of effort according to OpenHub. It is in my opinion the only technology stack out there that provides the freedom and the full capabilities to be a real alternative to twilio from technology point of view. . . . Before you go the Restcomm route you have to realize that it has no prepaid billing and rating engine, you have to build your own billing system using Restcomm APIs and web-hooks or use JDiameter for real-time charging which is not available in the Cloud version of Restcomm yet.

Twilio seems likely to remain on top for most users.

RAM

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According to competitor Bandwidth, low-cost provider is not one of Twilio’s value propositions, much less a part of their moat.

You are looking at this incorrectly. Twlo is the first go to market company. They are not competing against Bandwidth, they are competing against the equipment providers. When you look at the equipment providers and see how much it costs to buy and maintain their equipment compared to Twlo, that is where you see the savings. Bandwidth is trying to make this a commodity product and I think it is to soon for that. Companies want someone that is reliable and has the network to provide them with a reliable network. Later, after this is a more mature industry we might see Bandwidth make inroads but as you can see, by looking at Band growing at 18% revenue, they just are not competition at this time.

https://www.sec.gov/Archives/edgar/data/1514416/000151441619…

Andy

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Another thing I need to say about Bandwidth. Their business model is all wrong. If you look at them they are growing Revenue at 18% but they are profitable and cashflow positive. Look at Twlo, Total Revenue growing at 86% per year, they are not profitable and they are not cashflow positive this quarter. Bandwidth’s market cap is just about 2 billion and Twlo’s market cap is about 18 billion. So I think Band has a nice little business that is being very conservative. Twlo is putting everything into growing customers and snapping up Market share. Once Twlo get’s all these companies onto their network how many are going to leave for a cheaper provider? Maybe the smaller companies but most of the companies that get onto their network are going to stay. Band, if they want to compete, needs to step on the peddle or they will be a niche product that will only sell to smaller companies looking for a cheap solution.

Andy

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This has certainly become a very informative tread! Thanks all!

Denny Schlesinger

looking at Band growing at 18% revenue When in doubt, look at the numbers
Nothing in software stays a monopoly for long. What one coder can write, others can duplicate .Some competition is good for the leader, it keeps them on their toes. What leaders don’t want is effective competition.

You are looking at this incorrectly. Twlo is the first go to market company. They are not competing against Bandwidth, they are competing against the equipment providers. When you look at the equipment providers and see how much it costs to buy and maintain their equipment compared to Twlo, that is where you see the savings. Bandwidth is trying to make this a commodity product and I think it is to soon for that. Companies want someone that is reliable and has the network to provide them with a reliable network. Later, after this is a more mature industry we might see Bandwidth make inroads but as you can see, by looking at Band growing at 18% revenue, they just are not competition at this time.

Another thing I need to say about Bandwidth. Their business model is all wrong. If you look at them they are growing Revenue at 18% but they are profitable and cashflow positive. Look at Twlo, Total Revenue growing at 86% per year, they are not profitable and they are not cashflow positive this quarter. Bandwidth’s market cap is just about 2 billion and Twlo’s market cap is about 18 billion. So I think Band has a nice little business that is being very conservative. Twlo is putting everything into growing customers and snapping up Market share. Once Twlo get’s all these companies onto their network how many are going to leave for a cheaper provider? Maybe the smaller companies but most of the companies that get onto their network are going to stay. Band, if they want to compete, needs to step on the peddle or they will be a niche product that will only sell to smaller companies looking for a cheap solution.

Thanks Andy, what an excellent analysis! It really clarified the situation, for me at least. I appreciate it.

Best,

Saul

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I need to correct this. I was incorrect on this buy your own IP phones,

With Twlo, there wouldn’t be any need for IP phones. I want to thank Bob for correcting me on this and if anyone sees anything I write to be incorrect or plain wrong, please step up and correct me on the boards. It helps us all to better understand our investments.

Andy

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With Twlo, there wouldn’t be any need for IP phones. I want to thank Bob for correcting me on this…

Thank you Andy for championing this insightful thread. I may have offered the correction, but it helped me realize the fact that Flex is a new paradigm for call centers. I was focused on TWLOs business of a developer API for messaging. Thanks to this thread I have a better understanding of the value of Flex.

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