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FORUM TRANSCRIPT

Twilio's Acquisition of Zipwhip – Messaging & Customer Engagement Growth Prospects – 15 July 2021

  • Private Equity
  • TMT
  • Global
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Specialist

Former Director, Business Development at Zipwhip Inc

Agenda

  • Zipwhip's operating environment – B2B and B2C messaging demand trends over the next 12-18 months
  • Competitive dynamics vs Podium, Plivo, Birdeye and others
  • Synergy potential for Twilio (NYSE: TWLO) – product integration opportunities and carrier relationship improvements
  • Outlook for H2 2021 and beyond – integration challenges and potential wildcards

Questions

Transcript

1.
What do you think are the 2-3 main drivers of the operating environment for the broader business text messaging industry?

SP (Specialist): I think right now, more than any time that we’ve seen, obviously post-pandemic has been a really big trend on what we’ve seen with people, for instance, trying to staff employees. We’re seeing a huge influx in the staffing, talent acquisition space, because people are having a really difficult time filling jobs. I think that with companies being remote more than ever now, adding some sort of texting platform or text communication stream is more important now than it’s ever been. I just think that we’re getting to the point to where phone calls and e-mails have all become so influxed with those spammy calls, whether it be your car’s extended warranty or just all of the spam that we get via e-mail, I think that it’s finally become a time for a new communication avenue. Obviously, the logical avenue there is texting, for sure. I think that we’re getting to a point with certain generations that don’t like to pick up the phone and make phone calls. They would prefer to communicate via text. That’s the generation that we’re seeing going into the housing market and into the job force, and I think their most preferred method of communication is definitely via SMS.

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2.
What’s the best way to segment the market? Is it toll-free vs single code vs 10-digit number, US vs other regions, A2P [app-to-person] vs P2P [person-to-person] or SMS and traditional messaging vs RCS [Rich Communication Services]?

SP: I think that you’re looking at 10-digit is probably the most preferred method. We’re starting to see a shift, where that short code type of communication is definitely starting to phase out with some new rules and regulations that are going to be somewhat industry-shifting in the business landline texting world. You’re going to see that short code form start to disappear. I’m not extremely well-versed on the international side of things. Where I’m at now, career-wise, we do do some international texting, but I’m probably not well-versed enough to discuss that. I think in my world right now, and what I’ve learnt over the last decade or so, 10-digit US is definitely my wheelhouse. I think that app fatigue is something that we talked about as a real thing. I think that consumers are tired of needing to install apps on their cell phone, whether that’s Facebook Messenger, WhatsApp, Pinger TextFree. There are all of those apps that people, I think, are getting tired of installing and downloading and cluttering their phone with, so I think that the app-to-peer side of things, where the app is, for instance, Zipwhip messaging, a native texting application on a cell phone is the sweet spot right now. I really do believe in app fatigue and I think it’s a real thing, so I think that 10-digit US A2P on the company-to-consumer side is the sweet spot. That’s where I would break down the market.

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3.
It seems growth is probably driven by text volumes and price per message. How have volumes and prices trended over the last few years and how might it evolve over the next 2-3 years?

SP: It definitely started out when I started at Zipwhip and the world wasn’t really introduced to this sort of communication technology. It was definitely a per-user model that I think slowly started to shift more to a volume-based pricing model, and some of that, I do think that again, talking about some of the industry changes that we’re going to experience regulation-wise over the next several months even, that near in the next few months, I think that things are going to shift more to a volume-based pricing model. Then, with how things are growing, they’re growing exponentially on the API integration side of things, and I believe that most of those are done on a volume-based pricing model, so I think that plays into that as well, where we see more Salesforce and HubSpot and Bullhorn starting to slowly integrate with texting providers like a Zipwhip or like a company like TextUs. I think that you’re going to see that breakdown be heavily leaning towards that per- message model instead of the per-user model.

TB (Third Bridge): What are the margin implications there? Did a per-user model insulate any sort of margin compression at the price standpoint? Could there be a lot of price commodity that’s inherent with a consumption model on a YoY basis?

SP: If I understand that question right, I think that your margins on a per-user model are going to be slimmer, just because if you’re charging somebody on a per-user model, you’re not sure the volume that they’re sending, and obviously, when it comes to the provider side of things, that’s where our fees lie, is a volume base. We pay the carriers per message, so we need to make sure that our margins are in line there, so I do think there’s some margin compression if you do it on the user side of things, again, because you’re unaware of how much volume a company is sending. Whereas, if you’re doing it more in a volume-based bucket, you can really track those margins much easier than you can on a user base side of things. Again, I think that’s probably one of the reasons that things are going to start transitioning to more of that volume-based pricing, is because of those margins. It’s a lot of work for a team or a sales team or a billing team to keep track of how many messages each individual company is sending to make sure you’re keeping those margins as high as possible. If you have the ability to give somebody, a company, a bucket of messages to send, it’s much easier to track that way.

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4.
Do you think the regulatory developments around the industry could be positive, neutral or negative for Zipwhip? Is there anyone you think it impacts the most negatively?

SP: I don’t think so, no. No, I don’t think that would negatively impact anybody more than anybody else.

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5.
Which one of the many players in this market, including MessageMedia, Podium, EZ Texting and Burst SMS would you highlight as the biggest potential threat vs Zipwhip?

SP: I think if I were a betting man, one of the companies is TextUs. I know that’s not on the list that you had just mentioned. I think that they’re going to be a company that grows very quickly. The amount of features that they have built into the system, whether that’s very deep on more of the company side of things, helping users out, the reporting, the analytics, the data, beats anybody that I’ve seen, including Zipwhip. When I was with Zipwhip, we had a difficult time trying to figure out the data, the analytics and the reporting, which as we continued to grow in this industry and it becomes more and more regular, where more and more companies are adopting some sort of texting solution, I think that being able to track that ROI via the data, the reporting, the analytics on open rates, response rates, deliverability rates, usage, I think that’s going to become more and more important.

I think that right now, a company like TextUs definitely has a head start on that reporting side of things and it continues to get more robust. I think that companies like SimpleTexting, SlickText, EZ Texting, they have their place in the industry. It’s going to be, my idea of their place in the industry is more of an SMB solution, where you might have a mom-and-pop plumber down the street that’s only looking to spend USD 30, USD 40, USD 50 a month because he only has two employees. I think that’s where those companies will fit, but I think when you’re starting to talk about companies like Zipwhip obviously, TextUs, I think those are more of that mid- market/enterprise solution, for sure.

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6.
How easy is it for Zipwhip to catch up on features? Will data reporting and analytics be the most differentiated aspect of the industry? What else differentiates these players?

SP: I think the biggest differentiator right now is definitely that reporting analytics information. I think that deliverability could be another big one. There are some companies that have better deliverability than others, and the reason for that, I’m not 100% sure. I know that, again, I’ll use TextUs as an example, has tools built into their system to really help with deliverability, whether that’s helping reduce redundancies, whether that’s making sure messages aren’t sent as spammy-looking, whether that’s the campaign or the group text being one dump message where they all go out simultaneously vs a little bit of a trickle campaign, so the carriers are seeing that as more of a slow send speed. Yes, I think that if I were to really pinpoint two differentiators, I think that reporting and analytics and then deliverability would be my two biggest differentiating factors there, for sure.

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7.
How might messaging develop on a vertical-specific basis, perhaps where the functionality caters to a specific vertical or industry?

SP: I think that’s something else that we’ll see probably continue to grow, is industry-specific texting. I think a lot of that is going to lean on these industry-specific, whether it be CRMs, talent acquisition systems, HR systems. I think that it’s going to take those industry-specific systems integrating with the platform, but I really do think that industry-specific texting will be something that’s going to be very popular. Obviously, a simple example would be you have a dentist’s office that’s using a dentist-specific system. That system will probably have the ability to send an automatic appointment reminder. If you’re an HR team using it for talent acquisition, you might have milestones throughout the system that text your candidate for that candidate experience throughout the entire onboarding process. I think we’ll see more of those done on an industry- specific system, more so than a company like Zipwhip building that into their overall system, if that makes sense.

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8.
You nuanced between SMB and enterprise. Is the big sticking factor there that companies such as Zipwhip and TextUs are out-priced for an SMB customer? Why else might a company such as EZ Texting be more of an SMB product than an enterprise one?

SP: Again, this is me, I hate assuming, but these are just assumptions because I haven’t hopped into the EZ Texting platform or the SimpleTexting platform, but I’m just using those as examples. I think the TextUses, the Zipwhips are more feature-rich than some of those systems, and that could be off base, but that’s my assumption. What you just mentioned, I do believe in. I think that companies like Zipwhip, like TextUs, like Podium, they’re figuring out, to really circle back to your margin question, I think they have learnt that the smaller SMB opportunities that they may have may not be worth the time and the manpower to really work with those, so I think that the SMB price point will be more towards those smaller EZ Texting, SimpleTexting kinds of companies.

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9.
How do you think about CPaaS [communication platform-as-a-service] players – such as Twilio, MessageBird, Sinch, Bandwidth and Nexmo – as part of the wider ecosystem? Will they increasingly be direct competitors?

SP: I think that they have their place. I don’t think that they’re going to be direct competitors. I think that there’s still a lot to be seen with what Twilio does exactly with Zipwhip. I have my thoughts on why they were acquired, but I think that as things stand in this moment, I wouldn’t see a CPaaS player being a huge competitor to a company like, I used Zipwhip as an example, but I don’t see a CPaaS player being a huge competitor to a company that has a UX. I think that a lot of these companies that these software players are engaging with want that system already built. They want that user interface already built. They don’t want to spend developer man hours and dollars building their own user interface. In my time with Zipwhip and with other texting providers, I haven’t run into Twilio or Bandwidth or Nexmo really being a huge competitor. A lot of these companies that you mentioned earlier, Zipwhip, MessageMedia, EZ Texting, TextUs, SlickText, those are the direct competitors to each other. I don’t see the CPaaS players being direct competitors at all.

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10.
Is Zipwhip largely paid for from companies’ marketing budgets or IT budgets? Does that have a role in why you think there’s a lack of desire to put in the developer hours, because it’s a CMO or what have you, because they’re controlling the customer experience and the relationship aspects? How does that play into Twilio’s lower presence?

SP: I think that’s probably a good point. I think that a lot of what I’m dealing with right now, like I touched on earlier, is a lot of companies having internal conversations with their existing employees or outreach with candidates that they’re trying to hire. I think that a lot of the budgets and the dollars that we’re seeing spent are coming directly from an HR department, where they’re not necessarily needing a whole lot of automation and things like that, so I think yes, that’s not a point that I had thought about, but I think that you make a good point there. I think a lot of those dollars in that budget line probably aren’t going to be spent hiring developers to build something out themselves. I think that a hiring manager or a director of HR just wants to be able to plug and play. They want to be able to take their recruiters, for example, get them 10 logins and have their 10 recruiters log in to start using the system. They don’t want to spend any more of their budget building out a system and waiting however long it may take for a developer to build an actual user interface out. I think that they just want something that’s already up and running, they want to spend their dollars on logins or seats or licences or however you want to frame that, and just be off to the races.

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11.
Is the main nuance to consider between Twilio and Zipwhip that Twilio is just an underlying programmable API and lacks a UX? Is there anything else you’d call out that’s very different from a product standpoint?

SP: High level, that’s obviously the biggest underlying difference, but then if you drill down into that a little bit, obviously Twilio, since they don’t have that UX, they don’t have the features that a Zipwhip has, because those features are built on top of the UX, yes, very, very high level, I think that’s the biggest differentiator, is it just being an API play vs an out-of-the-box consumer ready-to-go platform.

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12.
What are your main takeaways for Twilio buying Zipwhip? What do you think are the main strategic benefits on either side?

SP: I think the main strategic benefit on Twilio’s side of things is having access to the toll-free texting. I think that Twilio, I don’t know if it necessarily bothered Twilio, I think that Twilio preferred to not have Zipwhip as a middleman when it came to text-enabling toll-free numbers. I think the biggest play in the acquisition was getting access to that toll-free routing. That’s without me knowing exactly how much time and effort and dollars Twilio is going to put into keeping the Zipwhip user interface and application updated and up and running, so maybe that’s a play as well, but I do think, very high level, the main strategic part of this acquisition was for the rights to those toll-free telephone numbers.

TB: Could it actually be characterised in that sense on a defensive deal, given that Twilio’s business model would have been harmed if a company such as Sinch, Nexmo or Bandwidth came in and purchased Zipwhip instead?

SP: I think so. Obviously, Twilio is a large enough company that I don’t think anything is going to be a real kill shot, but I think that, yes, if Twilio saw the writing on the wall that maybe Bandwidth was going to come in and acquire Zipwhip for the same toll-free reasons, and then Twilio is going to end up having to pay Bandwidth for those rights to the toll-free routes, I think it could be a little bit of a defensive play, for sure, an expensive defensive play, but it could be a defensive play either way.

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13.
You described the deal for Zipwhip as expensive. Why do you think Twilio didn’t try to establish such a bespoke toll-free network itself?

SP: I think that the toll-free play was something that was definitely being worked on for a number of years that I was at Zipwhip. I don’t know exactly how the barrier to relationships and the amount of players that you could have utilising the toll-free networks, I’m not sure exactly how that works. I do know that on a timescale, it definitely took Zipwhip, who, at the time, obviously didn’t have the resources and funds that Twilio has, took a number of years for that to be worked out, so I’m sure that was a bit of barrier of entry, was the time that it took for them to get those relationships built.

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14.
Why do you think telcos are so resistant to up-and-comers such as Twilio? Why wouldn’t Twilio be able to do this on its own, given your points around how scaled the business is vs Zipwhip? You’d think it might be able to do it more expediently. Why else might telcos be cautious of Twilio?

SP: I don’t know if it’s necessarily they see them in a cautious lens or not. Obviously, the Twilio integration with Syniverse really helps those relationships as well. When we start talking that direction, that does point maybe towards they do want an already built-out system like Zipwhip has with their user interface, so I’m not sure if carriers are hesitant to build that relationship with Twilio or not. It’s an interesting thing to look at. I’m sure, just like anything, that Twilio probably could have gone out and built those relationships and those partnerships with the wireless carriers. Why they didn’t or why they decided not to, I’m not sure. I know that it’s happening with a bunch of the smaller providers that we had mentioned earlier, that they’re building out those relationships with the carriers, and that tells me that if Twilio really wanted to do it, they probably could. I’m sure there’s some underlying play as to why they made that acquisition that we’ll probably never know.

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15.
What do you think pulling Zipwhip under the umbrella and deleting the go-between does to Twilio’s SMS gross margins?

SP: Dollars and cents, I don’t know. It obviously is going to help those margins, not having to pay a middleman, but when it comes down to the nuts and bolts of it or, like I said, the dollars and cents, I probably can’t speak on exactly what that’s going to do for their margins. I do know that’ll help their margins for sure, having Zipwhip under their umbrella.

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16.
Do you think that a company such as Sinch could reach parity with Twilio from an underlying network standpoint if they were to make a similar acquisition? You mentioned TextUs being the biggest up-and-comer whereas Sinch, a predominantly European-based company, is increasingly becoming more of a US-centric revenue generator.

SP: I think so, to an extent. I’m not as familiar with Sinch as I am with Twilio, so I think that it would probably take some growth. On the two examples, Sinch and TextUs, it would probably take some growth on both sides. I know that TextUs does have a strong international texting capability. It’s just there are some nuances there that are a little outside of my comfort level to speak on. With Sinch being mostly European and then starting to get more state-side, I think that would be a partnership that would make a lot of sense, and I think that’s good for the industry. Any sort of parity or competition, whether it’s Zipwhip, Twilio and TextUs, Sinch, I think that’s great for our industry, and it’s something that’s ultimately going to have to happen. It’s just a matter of who those next two partnerships come from.

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17.
It seems that Twilio’s goal is to roll up as solid an underlying super network as possible, Syniverse and Zipwhip being the most recent examples of that. What else do you think the company wants to do to improve carrier relationships, densify the network or minimise?

SP: I don’t know what else they would do. Syniverse and Zipwhip were two pretty big acquisitions. I’m not sure what other side of the business they need to cover or relationships they need to build that Zipwhip or Syniverse couldn’t bring to Twilio, so I think that their carrier relationship right now is much, much stronger than it was two years ago or 18 months ago.

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18.
Press releases talk about Zipwhip growing north of 400% over the last three years. What do you think are the key drivers behind such a high growth clip?

SP: I think the biggest thing that we saw, growth-wise, was that API, moving to more of an integrations API direction. Obviously, in simple terms, if you can roll your API into an integration, you’re making money without your sales team needing to do anything. You’ve got a company like, I don’t know, I’ll use Salesforce as an example, putting Zipwhip’s name up on their Salesforce Marketplace and really being able to push that company out, so I think that the growth that we saw or that we’ve seen over the last several years, I think it’s just getting started. I think the API integration play is where 90% of that growth probably came from and will continue to come from as well.

TB: Is that something that Zipwhip is getting plugged into the actual Salesforce CRM app, so much as vice versa? Are there any other integrations that you think it should pursue in that vein? If it’s very easy for Zipwhip to just get added onto some of these higher-scale applications, where else can it grow?

SP: It is. I think that there are ways that I’m not really comfortable talking about right now, but you could make it easier to get plugged into these systems, but yes, you’re right. Again, using Salesforce as we all know Salesforce as an example, the ability to go into a contact page on Salesforce, click a button and send a text message directly from that contact page, have your API’s webhooks pull in that activity so it’s always stored in that contact stage in Salesforce, those are the integrations that we’re seeing. I think that where we look and continue to see those integrations is with more of those industry-specific CRMs or ATSs or HR systems, where I think that there are dozens and dozens and dozens of those industry-specific softwares where I think that we’ll continue to see companies like Zipwhip get plugged into.

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19.
Does Zipwhip being plugged into new APIs mean a lot of the growth comes from new logo wins vs land and expand? Is it experiencing a massive uplift as soon as it is on a new app, which then wanes over time? Alternatively, is there a lot of consistent growth as APIs are added?

SP: No, it’s definitely what you had just mentioned. It’s definitely you get a big boost initially, and then it wanes off. You might have some trickle in, as new businesses pop up and start to implement that industry- specific software, then you might have that specific company come on board and use that integration. I think that land and expand is going to continue to be something in our industry that’s important, because even these larger companies, your Coca-Colas and Pepsis and Mercedes, are all starting to realise that they need to get on board with texting, so I think that landing companies like that and expanding, I’ll use Coca-Cola as an example, landing that logo and then expanding into each different department that Coca-Cola has to offer is still going to be a large play in the SMS industry.

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20.
Do you think Twilio will be a positive contributor to thinking about more visionary API partners? If you run out of API integrations, then presumably the growth would start to stagnate. How might Twilio partake in trying to maintain recent growth levels?

SP: They’re obviously going to help. Out of just sheer scale and volume, I think that they’ll be helpful. There’s going to probably come a point, and who knows where that happens, where we do slowly start to run out of things to integrate into, and when that’s the case, hopefully it’s a self-sustaining enough industry that it just continues to roll. Companies, whether large or small, companies are going to continue to pop up, just like new people are purchasing cell phones on a daily basis, maybe not at that clip, but I think that we’re going to continue to see growth to a point to where I don’t know when that growth may slow down. To answer your question, clearly a company like Twilio, with the relationships that they have, the scale that they have, I think that they’re going to do nothing but help continue that growth model in the industry.

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21.
Have you thought about a normalised growth rate once Twilio exhausts new API partner opportunities?

SP: I haven’t. That’s a scary thing to think about, just because, I don’t know, I don’t want to say it’s the end of an industry, but it really slows down. I’m not sure where that normal growth will come from once those start to trickle or slow down, but five years ago, if you would have told me that a company like Twilio was going to acquire Zipwhip and that landline texting or business texting was going to continue to grow at the rate that it’s growing now, I would have thought you were crazy, so I’m sure that here, in a few years, there’s going to be something else in our industry that pops up that opens the floodgates again. What that is, I don’t know. I wish I knew, because I would go ahead and open that floodgate right now, but it’s inevitable that something is going to pop up in the next few years that really opens that floodgate again.

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22.
How do you think Twilio is considering e-commerce partnerships, thinking about the rise of e-commerce and the D2C approach to CRM there? Do you think a lot of runway exists?

SP: I think that there’s a lot of room there. It’s funny you mention that, because I was thinking about that e- commerce/Uber model that’s going to continue to get more and more popular, trying to really bottle up how you can implement business landline texting into a model like that, not necessarily with Uber or partnering with Lyft or anything like that, but those models are getting so popular, where you can get these Domino’s Pizza robot cars or whatever bringing your pizza to your house. The way that technology is going, I think that e-commerce play is going to be a play that will be looked at, and I think it’s going to be something that somebody will probably capitalise on. It’s just a matter of trying to figure out the best way to really bottle that up and make that a solid revenue stream. I’m not sure how that’s going to be done. I don’t know if anybody is currently really doing that, but I do think that’s a play that should be looked at, for sure.

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23.
What do you think will prop pricing up, especially given the looming possibility that volumes will be dependent on price if APIs run out? Will this industry inherently face 5-10% pricing compression on a YoY basis, or is there anything that allows Zipwhip to maintain prices with customers? Is it adding enough value proposition to keep price up?

SP: If we’re using Zipwhip as the example, I’m not sure if there’s enough value prop there to keep pricing up. If anything, pricing may stay stagnant. I know there are other companies out there that their mindset is to upgrade, upgrade, upgrade, and I think when you do to that, it’s a little bit easier to have some pliability with your pricing. I think that’s something that we’ll see companies needing to do, upgrade, add features, add this, add that, to make sure that their pricing can at least continue to rise a little bit, but as far as prices dropping over the years, I don’t think that that’ll be an issue that we see, unless the company’s margins lower. If the carrier’s per-message fee drops, then obviously the provider’s fees can drop a little bit as well, but I don’t envision that happening, but I do think that it is going to take companies adding value proposition and adding the reporting and the functionality and the analytics and the data.

I think it is going to take companies that will do that to continue to be able to inflate those prices a little bit, and I think the thing that we’ve seen so far in the industry is when one company does it and a company that is well-known enough, that when they do it, the other companies can follow as well. Obviously, as an extreme example, if Zipwhip went out and increased their prices by 100%, that’s going to give companies like Podium and TextUs and EZ Texting the ability to raise their prices a little bit as well. I think that there is going to have to be some development in the industry and on these platforms for those prices to continue to rise, but with landline texting, the thing that we see is when a company implements a texting platform as another communication stream, they have to keep that communication stream open, so it’s a very sticky industry. I think that as long as you’re not going out there, astronomically increasing your prices, the companies that are using the platform are just going to have to follow suit, because it’s a communication stream that they cannot turn off now.

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24.
How much do you think security matters to Zipwhip as it increases budgets with enterprise customers? You hit on the spammy aspects. How well-suited is it to avoid DDoS [distributed denial-of-service] attacks or personal information hacking if it were to grow budgets meaningfully?

SP: I don’t see that portion of security being an issue with a personal information breach. I don’t see that being an issue. Obviously, there are some talented, if you want to consider them talented, there are some talented people out there that can bust into just about anything, so I would never say never, but I think on the security side of things with encryption, how information is stored, I think that their security is pretty good, and I think that about a bunch of companies. I think where we could see issues arising at some point is just strictly compliancy, with finserv or medical with their HIPAA compliancies and things like that. Texting isn’t HIPAA compliant in a lot of different ways, so I think that’s always going to be some sort of looming issue until somebody figures out the easiest way to make it a more HIPAA-compliant solution. As far as security and data breaches, again, never say never, but I would say that for this conversion, Zipwhip is in a solid enough place that that shouldn’t be a concern at the front of somebody’s mind.

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25.
Why do you think business texting isn’t a more material portion of CMOs’ advertising budgets? Global ad spend is north of USD 600bn. How scalable do you find that to be, relative to Facebook or Google? Would you expect texting to be an increasing point of interest for D2C interaction at the CMO level?

SP: Yes, for sure. It’s one of those things where you really have to think that this industry is still in its infancy. When I started at Zipwhip in late 2013, our ARR was USD 0. There were no customers. In this sort of space, and again, prior to Zipwhip, I wasn’t in the communication space or the SaaS space or anything like that, so take this with a grain of salt, eight years seems like we’re still in its infancy. We’re still talking to people on a daily basis that don’t know why they need landline texting, so I think as time continues to go on, 3-5 years, 5- 10 years, I think that your average CMO is going to start to really realise that, “Texting is, by far, the most preferred method of communication. It’s my best bet to get a hold of people, to get in front of people, and I’d better allocate X percent of my budget to bringing on board the most updated, feature-rich texting platform that I can.” Again, I only think that we’re not seeing that right now because I think that this industry should still be considered in its infancy stages, for sure.

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26.
Could you suggest an inflection point where budgets start to ramp up? Why wouldn’t it be three vs five vs 10 years from now? Why doesn’t every CMO spend at least 10% or more of their budget on texting?

SP: Sorry, I think it’s just lack of knowledge, or maybe lack of importance right now for a CMO, mixed with a lack of knowledge, and I think that’s what makes it a little bit difficult for a sales team, for example, to get a CMO on the phone and have a legitimate conversation about why it’s such a necessary form of communication and not have it turn into more of just a sales call. I think that it is just a lack of knowledge, and I think that as an acquisition like Twilio and Zipwhip continue to get face time, and you start getting more companies like Coca-Cola that come out and it’s more well-known that they’re using a texting platform, I think that just word of mouth and seeing it happen, just like how big Facebook ads have gotten now, five years ago, the Facebook ads weren’t where they are now, when it was more in its infancy stage. People now see that it works.

It’s just that trickle effect that we see, and I’m thinking that’s what we’ll see with your typical CMO as well. I think that they will start to understand that they’d better allocate 10% of their budget to a communication platform like this. It’s just going to take time and knowledge and, to be completely honest with you, somebody that’s 30 years old right now, that all he or she knows is texting, might become a CMO of a company in 10 years and will bring that knowledge with them. I think that’s where we’re at generationally, that we’ll start to see a shift there as well in the landscape.

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27.
Twilio now owns the CDP [customer data platform] asset Segment. That seems to potentially be more entrenched with the CMO as a decision-maker. Does that help facilitate that discussion a little bit more? Do you think that’ll help accelerate the awareness of the importance of texting?

SP: Yes, I think so. Again, it’s all going to come down to just the knowledge of it, so whatever can be done on Twilio’s side, Zipwhip’s side, any other company’s side that’s going to help raise that knowledge will obviously be beneficial to all of us in the industry. Yes, I do think that all of that will help with the knowledge that I think it’s going to take for us to continue to grow to where we all want to be.

TB: Do you think there’s any antitrust implications if Zipwhip is the exclusive owner of the toll-free network? Is toll-free a big enough market to be assessed from an antitrust standpoint?

SP: I’m not sure. Yes, that’s probably not a question that I’m going to be able to answer for you.

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28.
Could you go through a few verticals demonstrating the various customer use cases, how they would typically implement Zipwhip and how the land-and-expand story would actually work?

SP: I can start from the smaller side of things. One of our biggest vertical wins when I was with Zipwhip, my team won the insurance industry or that vertical, so your Allstate, Farmers, Nationwide, State Farm, and it’s a very simple use case. If my insurance agent needs a copy of my driver’s licence, instead of finding a fax machine or finding a scanner, scanning my ID, uploading it to my computer, sending that e-mail, I can just snap a picture of my ID that I have in my pocket with my phone that I have in my pocket and send that to my Allstate agent. If I’m in a fender bender, I can immediately get out of my car, take the phone out of my pocket, snap pictures and immediately send those to my insurance agent. I don’t have to e-mail those. It’s an incredibly sticky, incredibly fast and efficient way to get a hold of that insurance agent and vice versa.

We also worked with a lot of auto dealers, so let’s say a service department. Even sales teams were big ones, but a service department, if I have my pick-up truck getting worked on and the guy working on my truck gets underneath it and realises, “Hey, you need a new,” I don’t know, we’ll just use air filter as an example, he can take a picture of the air filter, which is a terrible example, but take a picture of the air filter, send it to me and say, “Your air filter is garbage. It’s going to be an additional USD 99 for us to throw in a new air filter. Do you want us to do it?” I can send him back a yes or a no. It’s the ability for the end user, the customer to be able to communicate, wherever they are. I think we saw there, for a little while, that an auto dealer is a good example, because they all use those chatbots. I think a lot of people thought that chatbots were going to be the next big thing, but a chatbot ties you to your computer. I can’t get up and go cook my 10-year-old and my eight-year- old lunch if I’m sitting at the computer, waiting for the chatbot to respond to me. I can do that if I have that same person in my pocket on my cell phone. Those are two big use cases in the auto industry and the insurance industry.

I’ve obviously talked on staffing. Talent acquisition is another big one. If you can go through that entire candidate experience with somebody, where it’s interview reminders, job fair reminders, onboarding, open enrolment reminders, 401(k) reminders, it’s just the easiest form of communication, because you know that that person has you in their pocket on their cell phone. Again, it’s extremely sticky that a lot of these companies are doing existing landline numbers, because it’s a real branding experience for that company to be able to text John Doe down the road and have John Doe down the road now save Lithia Ford in his cell phone because he’s having some conversation with a sales guy at Lithia Ford. Now, Lithia Ford’s phone number is built into this guy’s cell phone, and we all know now, with how cell phones are, even if we change carriers, all of our contacts carry over with us. To have that branding experience automatically built into the texting platform is very valuable as well.

TB: On the land-and-expand side, is it mostly just a function of your customers growing as a business and more customers utilising the service through them?

SP: Yes, that’s some of it. Other parts of it may be, and I’ll give you some more examples, one of it may be a company’s HR department is the department that signs on with Zipwhip. They have four users that are using the system, so then the expand can happen a couple of ways. That department could hire two more people and they add those two people on, so now, instead of four, you have six licences, or it could be that department, let’s say it’s your HR department, goes to your director of inside sales and says, “We’re texting these candidates. We’re having an unbelievably huge response rate. You should probably talk to this guy.” Then, before you know it, you have the HR department as well as the sales department, and then the sales guy goes and talks to the marketing guy, and then you have the marketing team on board. A lot of it is very compartmentalised between departments. It’s pretty rare that we’d see a company come on and your CMO would say, “I want licences for our sales team, our marketing team, our HR team.” Typically, they’re only getting their team signed up or their department signed up with a platform, but as they continue to talk to each other internally, that’s where that expand really starts to happen.

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29.
How penetrated is Zipwhip around contact centres? How much of a boost could come from Zipwhip being integrated seamlessly with Twilio’s Flex contact centre solution?

SP: I’m not sure. I’m not familiar with Twilio’s contact centre solution. I could probably BS my way around it, but without being completely familiar with them, I’m not 100% sure.

TB: What are your thoughts on the contact centre vertical as a market opportunity? There are tens of millions of contact centre agents that are interacting with clients on a customer service basis all the time. Is that a good plug and play to boost consumption?

SP: Yes, sorry. I think that could be a huge play. I think that with some of the regulations and changes that we have coming to the industry over the next couple of months or few months, and without knowing exactly what those regulations are going to look like, I think that contact centres might have a difficult time. If some of these regulations start to require opt-ins, I think that there could be some issues there, but yes, any sort of contact centre, customer support centre, I think those are great use cases. I think there are great use cases built into those, because again, I don’t want to sit down at my computer and chat with somebody tied to my computer. If I can have that same customer service conversation on the go, that’s what people want and that’s where we’re really seeing the growth in the industry. I think, yes, those kinds of companies have a great place in the industry, depending on what happens with these new updated rules and regulations that we’re going to inevitably see coming here pretty soon.

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30.
How much developer tooling already exists for Zipwhip vs being an out-of-the-box product? Is much developer tooling used for the more tech-savvy customers? Could that occur more over the next few years?

SP: Right now, it’s definitely out of the box. I think that’s a big factor for why people move towards a Zipwhip, is because of the out-of-the-box experience. I do think that as companies like Zipwhip move more into enterprise companies like your Coca-Colas or your Mercedes, I think those companies obviously have those development dollars to spend. They have those developers most likely on payroll already, unless they’re doing it third-party, so I think as we continue to grow and as the industry continues to grow into more and more of an enterprise solution, I think that we will see a company like Twilio really succeed, because those companies have those developer dollars that they can really build a UX like that company wants it built. They can build it around their specific workflow, they can build it around their specific customer base.

I think that as we continue to grow into larger opportunities and larger companies, I think that we will see more development man hours and dollars being spent to develop a very specific user experience. Right now, even if you go into that mid-market area where it’s a company that has, I don’t know, we’ll call it 50-500 employees, it may not be big enough to really spend a lot of development man hours to build a UX. Whereas, once you start moving into those very high-level, again, Coca-Cola, Mercedes, Adidas, companies like that, I think that they’ve got the development people on staff already. They’re comfortable using those man hours and those dollars to develop something that fits their workflow best.

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31.
Could you outline the state of switching costs in this market? If a customer is entrenched with Zipwhip, how easy would it be to move to a competitor? What does that mean for average customer stickiness?

SP: The cost, dollars and cents wise, I look at it a little bit differently than just normal dollars and cents. I think the biggest cost of switching is time lost, because it’s not like a customer of Zipwhip can just cancel with Zipwhip and then sign up with TextUs and have it done immediately. If Zipwhip has the texting rights to that telephone number, the customer needs to have Zipwhip release those rights, which could take a little bit of time, and then a company like TextUs needs to wait for those rights to clear, and then TextUs has to text- enable that number, which can take a couple of hours. If you have a company that is really utilising texting and it’s a large part of their communication flow, and they lose, I don’t know, 6-8 hours of that texting capability, that’s dollars out the door. I think that’s the biggest cost of switching, is that time lost.

As the industry continues to grow, maybe that becomes more of a streamlined process, but right now, it is pretty antiquated. The customer needs to call Zipwhip, for example, and say, “I need to cancel. Please release the rights to my texting or my number so I can go to another provider.” It takes the Zipwhip support team time to get back to that individual that says it’ll be released shortly. Everybody is in limbo, waiting for that number to be released. Once we hear that number is released, another company goes in and text-enables that number, so it definitely is sticky, but I think the inconvenience part of it is what makes it the most sticky. You’re going to have to have some pretty upset people to really go out and lose that amount of time to switch, so I think that once you’re really entrenched in a platform, unless you’re very unhappy with it for some reason, most likely you’re going to stay with that platform, because that loss of time is a big cost.

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32.
What technology are you monitoring as a potential disruptor to Zipwhip, whether it’s RCS or any impact from 5G?

SP: I don’t envision anything necessarily. I think RCS could actually probably be helpful, just given some of the technologies that it brings to the is-typing technology and things like that, where it’s going to be very similar to what we see with iMessage right now, but across every network. I think that’ll be helpful. 5G, I don’t see an issue with 5G. I think the only risk, I guess you’d consider it a technology risk, is just pure market saturation. I do think that there’s room for a few really big players in the industry, the Zipwhips, the TextUs, along with maybe one other, but I think that we continue to see a lot of market saturation with some of the smaller players as well. I think that could be some of the biggest risk, is just that pure saturation.

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33.
Why do you think there hasn’t been larger-scale consolidation, given there are so many different adjacencies vying for the lead in customer experience, considering Microsoft vs Salesforce vs Five9 vs RingCentral vs Twilio? How might the broader industries converge in the longer term?

SP: I don’t know why we haven’t seen that yet, again, unless it’s just the infancy comment that I had made. I think eventually you’re probably going to see some of that consolidation. I can’t give you a solid answer as to why we haven’t seen that yet, though.

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