Twilio Inc. (TWLO) Earnings Call Transcript & Summary

All right. Thanks, everybody, for joining. So my name is Chris Nasson, Senior Director, Investor Relations team. We're joined in the call today by Jeff Lawson, Co-Founder and CEO of Twilio. I'll briefly provide a brief safe harbor statement, and then we can commence with the Q&A. So during the course of this conversation, we may make forward-looking statements. These statements may involve risks and uncertainties and are subject to a number of factors that may cause actual results to differ materially. A description of these factors can be found in our SEC filings. Note, these forward-looking statements reflect management's opinions as of today, and Twilio does not undertake to update these statements as a result of new information or future events. With that, I'd like to open up for Q&A for Jeff, unless, Jeff, if you want to open with any statements yourself?

Yes, sure. First of all, thank you, everybody, for taking time today to chat with us, and good to connect with folks, especially as we're running out the year, going into the new year. I'll just open up by really pointing back to what we announced at SIGNAL, our customer conference, back in October. Because I really think what we are finally able to put on the table for our customers is the real vision of what our customer engagement platform is. And it really starts with this idea that every company out there that I talked to and I talked to a variety of executives at a wide variety of companies. I mean, pretty much every vertical you can imagine. And every company out there seems to be coming to the same conclusion, which is that -- yes, you look at the digital giants out there, Amazon, Google, Facebook, Apple, and they have such good relationships with all of us because of how we use their services. And they have so much first-party data about us that they use that data incredibly effectively in order to hold our attention, to tailor and personalize every experience we have to our needs. And therefore, they are able to really capture our attention. And every company out there is worried that if Apple, Google, Facebook, et cetera, has this stronghold on our attention, that they then have to pay rent to those giant companies forever. That could be the 30% Apple tax, paying a cut of your revenues to Amazon if that's your channel to sell everything, buying ads on Facebook or Google to continually reacquire your own customers again. And every company out there is basically saying, look, how are we going to actually go back to the basics of business, which is, earn a customer's business, make them happy, make them loyal, make them repeat and happy customers? And the answer to how you do that in the digital economy is by, first of all, looking at how customers use your product, looking at that first-party data, taking everything you know about them and trying to understand how can I better serve them in the future? And then number two, applying that understanding of your customer to every touch point you have. And now with Segment, we're able to, first of all, help companies to understand their customers because they can now take all those signals of all the different applications that customers may use, whether it's web applications, mobile applications, e-commerce systems, et cetera, take all that data and form a profile of the customer. And then use that understanding of the customer and express it in your marketing, and that's where Twilio Engage comes in, allow companies to build expressive journeys based on real-time click stream, volumes of data, and build omnichannel campaigns based on that. But also take that data and using things like your contact center, how do I better serve this customer? Use it in your sales process with Frontline, how do I better serve a customer because I understand them? And use it to personalize assets like websites and mobile apps. And basically, every one of those touch points a company has with its customer, how can I use everything I know about the customer in order to build a better experience? And this is more important than ever because of all the changes that have gone on with privacy. And in fact, companies using their first-party data, not just letting it sit in a log file or throwing it away, but actually intelligently leveraging the first-party data that they get to see about their own customers is becoming more and more and more important. Because the companies who are using that first-party data are in a great position to understand and engage with those customers, send those relevant marketing e-mails or text messages, have a dynamically personalized web or mobile experience. The companies who don't just are increasingly irrelevant, and therefore, reliance on buying ads, which by the way, are less effective than they were ever before. So therefore, this whole active earning -- acquiring your customer, serving them well, paying attention to them and then earning their repeat business over time. I mean, that's the fundamentals of the business. And all the customers I talk to, like that is the thing that is top of mind for them, and we're delivering the platform that enables them to do it. And if a lot of folks asked me like, well, how is this different from, say, CRM? And I think it's an entirely different category. And no one has really cracked this nut yet, because if CRM is about sales people typing in their notes because that's where sales automation started. And that's still really the crux of the story for CRM, is B2B companies. How do they understand their customers? And then B2B, it's an entirely different scale. If the sum of everything you know about your customer is the sum of all the notes that salespeople essentially typed in about the status of the customer and the deal cycles, and that kind of stuff. When I go to Amazon.com, there's nobody filling out an opportunity. What's the probability that Jeff's going to go buy a plunger today? No, this is all data. This is all real-time stream volumes, terabytes and terabytes of data. And no one has really built the ability to take that data and turn it into great customer engagement. And that's what the Twilio customer engagement platform is designed to do. And so we see this opportunity to go help, especially the B2C companies of the world, those companies that are dealing with large customer bases, huge quantities of data. And actually to build the services that allow them to compete for the attention and, therefore, the business of their direct customers. And I think this is the biggest opportunity in software today. And that's why we're so excited to be launching this really the full force of that to -- of Twilio at SIGNAL this year. So with that, why don't I hand it over to -- I'll hand it back to you, Chris, if you want to moderate the Q&A?

Yes. Thank you, Jeff. I appreciate it. We can open it up now for questions.

You want me to -- are you going to moderate or you want me to? I'll go to Mike.

I'm actually asking Hayden to help support. I just lost power due to the storm up in Tahoe right now. And so if investors can raise their hands and then Hayden can call on each individual as we see questions come up.

All right. Hayden, take it away.

Sounds good. Thanks, Chris. [ Mike Sonnenberg ], I see your hands raised. If you want to go ahead?

Great. First of all, Jeff, thanks for your time, I appreciate it. So I listened to you articulately tell the story regarding Segment and it makes total sense to me. I think I've -- we've been excited about the product since you bought it. I guess what I'm wondering is from an investor perspective, is when does it start to really show up in the numbers? Or -- and from a customer perspective, giving us references that we're like aha, that makes sense to me, you have a big customer. That's my wife in the background, running across. But at any rate, that's my question to kind of kick it off.

Well, if you think about it, the coming together of Segment and Twilio -- look, we've got a lot of independent customers. Customers that we have that they don't have or they have that we don't have. We've got customers who happen to be using us both, right? So those are always great. But the actual motion of either us selling Segment into our customers or their customers using Twilio, is largely -- well, 2 things. I think one is the cross-sell. Selling Segment, so that starts with connections and then up through personas and now with Engage sitting on top. Selling Segment into our customer base. That cross-sell motion began at the second half of this year. So we -- the first 6 months of the acquisition was just, hey, let's do basics, we're not going to try and do anything, right? We're just going to get the teams, integrate it or we're going to make the plans, et cetera. At the midpoint of this year is when we said we're going to start doing that cross-sell, we have started it, and I think it's off to a good start. And in the coming years, when we're going to start doing that even in a fuller way. So you'll start to see customers that are like kind of a basic cross-sell motion, which is it's always good to see. But the real point of it isn't just cross-selling their product independent of ours. The real point is like things like Twilio Engage, which takes the best to Twilio, which is messaging and e-mail and data, and delivers them as a product. And that we announced at SIGNAL. We committed to customers that it will be GA early in 2022. And we're on track to do that. And then I think you'll start to see us really pushing Engage as one of the key ways that you really bring together the best of Twilio, the best of Segment. And that's just the beginning. Obviously, we've got many other ideas for places where this data platform will reside at the center of all the communications and customer engagement that companies do. But Engage is the very obvious, like, first step for us because it's the marketer. The marketer has historically been the best customer segment for Segment, no pun intended, because the marketer is very motivated to bring together all the data they have about their customer because they are responsible for targeting customers, for building those journeys and for driving customer behavior based on better understanding of those customers. And so that's really where we started by bringing Engage to market first because that's the -- takes that market motion and takes it to the next level.

And Thomas with our next question.

The vision you pitch is compelling. My question is around how much value will accrue to the developer layer and how much are kind of the marketing software layer? And if I think about Twilio, obviously, historically, you extracted a tremendous amount of value and notification and messaging from that developer layer, right? Is what you're describing now a move up from developer into marketing? And what do we make of Braze and Klaviyo and Attentive and all of these other now marketing companies, some of which are your customers, some of which may use others, but are also addressing this? And are you all now into conflict? Or help me understand a little bit the persona change, potentially, from developer to market, or can you be in both? You have to kind of pick one? And how you see the competitive landscape in what you're describing?

Absolutely. I'm going to reach down from my handy whiteboard here. And what I'm going to do is -- no, I don't want a Sharpie that will be a mistake. I'm going to really draw for you what our strategy is. This is what we talked about inside the company and outside the company as part of what Twilio's core strategy is. Channel myself here so I can show you what I think I'm showing you. So basically, Twilio's strategy is pretty simple, which is we start with APIs. And the idea here is we get developers onboard with our APIs. And we like to say mind blowing APIs developers love and they adopt those APIs. And on top of them, what we've done is we've built out the applications that are really the applications behind why -- like what categories of problems are those developers bringing in our APIs to solve? And most of the things that developers go with our APIs are contact centers, marketing, securities, so account security, and a few others. But those are the major ones. As we said, if you're coming to Twilio for account security solution, well, guess what, we've got Verify and Authy, our security products. If you're coming to us for a contact center, you can build it yourself. And there's a lot of facets to that or you can use Flex. And if you're coming to us for marketing, you can use Engage. And so you really take the things that developers are already tasked with solving to their companies. And you have those developers bring us into their companies. And what we do is we just march up the stack, and this is to our engagement layer. And this is both taking the developer traction that we get at companies early on and turning those relationships into a bigger sell. It's also -- it's a literal moving up in the stack because we're selling more of an application than we are an API. It's also a moving up in the org chart of our customers, because developers often bring us in at a tactical level to solve a problem. And this is a using the relationship they brought us into to go discover what's the bigger problem they're trying to solve. So they really want text messages or do they really want more effective marketing? And so developers are brought in to solve a problem, but then they can bring us in front of the business leader who's actually owning that problem, and we can then show them the full breadth of what we offer. And so that's the -- first of all, that's just the basics of the developers bring us in, and then we have an expanded relationship that we can sell it to. And I think it's very similar to what you see at like an AWS or an Azure. That's why developers bring in those companies to like buy some CPUs or some storage, and then they turn it into a strategic relationship where there's a CIO who's the buyer, but it gets started. I mean it's kind of the classic bottoms-up adoption model. The second thing actually with the marketer. The marketer is interesting, which is the CMO is going to buy the Marketing Cloud, in the same way that the service leader is going to buy the contact center. But again, what we see is that the relationship that we build inside of the companies gives us essentially the foot in the door to go be able to have a credible conversation with those buyers about how Twilio can solve a bigger problem than they may even have associated with us to date. And if you think about it, that's what our sales cycles are going to increasingly turn into, which is expanding the footprint that we have up into these new solutions, but still like within the org chart to the parts of the company where we're already being brought in. And so when I look for the signs of success here, it's like, are the developers bringing us in with a specific use case in mind, and do they sit in the org chart whose task was solving that problem? And when you do, you're like, great. Take me to your leader, basically is the conversation. Because, hey, whatever your tasked to solve, like we may have better ways for you to solve it. And it's like the situations that are maybe like less exciting for us are the ones where it's like an IT group, because they're not the business decision making. They're just implementing. But that's not really been the buyer we've ever really dealt with because at most companies, the developers tend to sit in businesses that are trying to solve a problem, i.e., the product teams, marketing teams, product teams, et cetera. I think I said product teams twice. But it's like the part of the business that is there to go serve customers, that forward-facing part, that's where software developers typically sit, whereas IT that aren't really builders, they sit in the back supporting things. And it's increasingly like back-end systems and stuff like that. And so what I see is all the signs that developers pull us into the right part of the business, where when we go in with a variety of solutions, we're able to then bring that fuller value proposition to the table. Because developers and the leaders that they report to see the full set of challenges they're trying to solve. Yes, we're trying to find better support using new channels. Yes, well, let's look at this digital contact center that Twilio has. Are we trying to engage with customers using a full set of data? And developers are often people who bring in Segment first. And so you got to go in and say, "Okay, well, why are you trying to assemble this fuller picture of your customer?" Oh, we're trying to enrich our customer journey. Well, check out our Journeys product and then check out our Engage product. And so that's really the motion that we have. And so I see it working across our products, even though the buyer you end up with in the contact center versus the marketing arena are going to be different. The commonality is really that the technical folks were there to do the more tactical work on the ground, are the ones who bring Twilio in and then we stop the exploration of why are you bringing this in. Does that make sense, Thomas?

Yes. And then maybe just a quick follow-up then around the competitive landscape and how you differentiate versus the pure marketing? And is there something about your platform that makes you better positioned to win versus some of these others?

Yes. Great question. In the marketing space, just like in the contact center space, there's a rich ecosystem. And you're right, many of those people are our customers, and we continue to support them. And the real -- the vision that we have in the fullness of time, by the way, is that customers can mix and match. They can be like our solutions, our partner solutions, and really build on top of one platform. And I think that's a powerful part of the ecosystem that we're building. In any customer scenario, you might say like, oh, a partner of ours or a just competitor who's not a partner of ours versus what we have. Our competitive advantage, I think, is 2 things. Number one, the fact that we get brought in typically with less friction than a competitive solution. If competitive solutions are just going in with a traditional top-down sales model, and we have the technical folks pulling us in, then we have a head start in being A, a proven entity inside that company, because they may already be using us for notifications for some of their marketing workloads, for some of their sales workloads. And the fact that we have like messaging can generate some nice-sized bills. That's both bad because you get the attention of the CFO, but it's good because people know who you are. And that gets you the meeting. And so we've got a natural advantage of already being in there already being trusted. And if we navigate that conversation, we can elevate it as opposed to a cold call or other forms of outreach along those slides. The second thing that I would say is that both in the data layer and in the communications layer, there are ways in which we can seamlessly bring these parts of the customer journey together in a way that independent siloed solutions cannot. And I think this will end up being a really great way for us to do those cross-sells over time. So for example, when we are brought in to do notifications. Customer -- 10 years ago, it would be rare that you get a text message from a company when your package ships or whatever, right? And now, of course, it's pretty commonplace because customers have brought in Twilio. And if you go into those customers and you say, "Hey, what happens when a customer replies to that text message?" They'll often be like, "Well, I don't know." Nothing happens. It goes nowhere. You get some automated reply back. If you need help, this is unmonitored. If you need help, e-mail elsewhere. It's a horrible experience. So that's a great conversation opener to say, well, guess what, Twilio has Flex for the contact center, has Frontline for your salespeople, we have a variety of ways for you to go handle those replies so that your customers are actually not left in the works, so that they have a good experience, right? And if you're buying different solutions for each of these different parts of the company, you pick it then up with these siloed experiences. And so what I found is that like getting one of these workloads on the platform then opens the conversation to like, well, then how does that bridge into the next experience you're trying to create? And I will tell you, there is a financial services company that I happen to work with as a consumer where they will send you alerts when you're -- when there's wires going out from your account. And I happened to be chatting with the CEO of this company, and I said, "Do you know what happens when you get one of those alerts and you reply to it?" And the CEO said, "Well, I think you just get a great experience talking to one of our financial advisers." I was like, "No, actually, you get an automated message that tells you to e-mail or call." And the CEO was horrified and actually assembled their senior executive staff to come hear about this problem, that demanded to get solved, right? So it's like this is a classic example of when we have one workload being able to bridge it into how it intersects with the next workload, can allow us to go through the org chart and start to stitch things together in a way that siloed solutions struggle to do. The same thing, I would say is true at the data layer. So as we bring and Engage built on top of Segment, and you build in order for a marketing solution to do its work, a growth solution like Engage do its work, you're going to bring in all this click-stream data, all the data about what's pushed on the website and the mobile app, what do they buy and what do they return. And all this data to build those profiles of the customers. And once the marketer builds up that profile, then you get to say, "Hey, guess what? A contact center." A lot of the work of assembling the view of your customers has already been done. So you can light up Flex and actually tap into that data stream. And actually, you can then augment that data stream and the marketer gets value out of that. Or same thing with Frontline or other products, right? And so I think at the data layer, you've got another place where the more of our products that customers adopt the more utility they get adopting other of the solutions as well. So both at the communications layer, sort of how these communications intersect with each other, as well as at the data layer, which is the data that one group is assembling then adds more value to the other parts of the company. These are 2 different ways in which adopting more of Twilio solutions actually benefit our customers versus buying a bunch of independent things, whether those are powered by Twilio or not.

Thanks, Jeff. Jon, if you want to go ahead with the next question?

Yes, I'm going to pull on that thread a little more. As you were answering Thomas' question, I was thinking about the developer persona and just how odd of a character that player can be. In a next-generation company, that player is like sitting like right at the top of the organization, a lot of influence. And then you come in maybe an organization like mine, and he's buried -- he or she's buried somewhere in the organization, doesn't have a lot of power. And so I guess my question is, as you think about the journey that you're going on with Flex and trying to really sort of come at that customer service opportunity through 2 pathways, the head of customer service management and the head -- and maybe a developer, how have you learned to help empower that developer to become your advocate at maybe an organization that maybe isn't as forward leaning. And then how are you taking those learnings over into this Segment opportunity, if you will?

Yes. Jonathan, I think the crux of it really comes down to this. When you're engaged in a sales cycle, you can either empower the technical folks to go prove out the hypothesis of like, here's why we're choosing a new solution. Here's the problem we're trying to solve. And with Twilio, you can spin up a free trial of Flex, developers get full access to go customize, play around, inject -- I mean it's a full instance of Flex. I think they get 1,000 hours of free usage or whatever. And that is designed to give them enough time to go build and even deploy at small scale, the things that they're building in order to test out the hypotheses of what they're looking for in their next iteration of this solution. Now compare that to most products and most go-to-market motions where what you need to do is trust the slide deck that the sales person is showing you. And so in 2 worlds, one where I have to trust the salesperson and the slide deck and in another world where actually my own technical team has been able to prove out and build the prototype of the solution we need, which of those things do you think they trust more? Which one do you think derisks the decision more? And so the key indicator for us of success in an account like when we're starting a sales deal for Flex, a really good sign for us is that they've already signed up for that trial and that there's code being written against it. Not because those developers are going to make the decision and tell the head of contact center, "Guess what, I bought a new contact center. You're going to retrain everybody now." No, of course, the head of contact center makes a big strategic decision like that. But it's more about how the developers can actually play their part in derisking that decision and proving out the value they think they're going to get from the solution they're buying is actually going to be there. And I think that's where developers play a role in our adoption cycle that really streamlines and gives us an advantage. And so our goal is to say if a company is considering a new contact center, what we really love to say, hey, look, let's just get your developers hands on. And let's -- the conversation starts with what is that you're trying to solve for in the next-generation contact center that you need? Oh, I hear you said this. Great. Why don't we do a little hackathon with your developers where we go out and build this, if it's this particular flow you're trying to optimize or this particular customer experience you're trying to build. You don't have to trust our sales team, we can actually implement it. And by the way, we can often implement it in a very quick time, in a few days. And I think that's the kind of motion that -- where the developers really come to bear.

Yes. Sorry, just a quick follow-up. Is there enough activity at top of funnel of people playing, experimenting with Flex, with Segment, et cetera, such that you don't need to go shove an uninspired developer to become your advocate for other parts of your product? Like, you've got enough activity of people already doing sort of warm strong SIGNAL stuff in these new areas of growth for you? And you just have to go observe those and go lean into those?

It's a good question. I think most of the activity for something like Flex is driven more by the desire of the business to adopt a new solution. And then sometimes those developers themselves are the ones doing that experimentation because the business might be looking at a few alternatives and the developers say, "Oh, well, we've got an eye on this thing." And other times, it may be after we come in that we recommend, "Hey, you don't have to just trust us and our slide deck, you actually can get hands on. In fact, we'll do a session with you." So it's a little less like messaging or e-mail, which are like the fundamentals of like every application needs messaging and e-mail. So it's like developers just put in their tool belts and they pull us out and they bring us in. I don't think developers need a contact center in their tool belts in the same way they need like messaging and e-mail, which are like primitives. And so I don't think the correct way to think about it is that every developer is excited to have contact center in their tool belts and they're just going to bring us out. But when the business is interested in a new way of engaging with customers, the ability for us to have the developers lead us in or for us to use the developer strategically in that sales cycle is a little more what it's about.

Now over to Danny for our next question.

Yes. Great. Yes, I really appreciated in your most recent earnings call how you sort of rearticulated the mission of the company and unlocking the imagination of builders. And it really does seem like a step function change in terms of the aspirations of the company. I'd love to hear a little bit more about what you've had to do internally as you adjust the organization and reorient the employee base around the new mission of the company.

Yes. Thanks, Danny. It's sort of interesting. Fueling the future of communications was our prior mission statement. And while it felt accurate for what the company did, like our products and services, it never really felt like the thing -- exactly the motivating force behind the company. The thing that I can imagine 100 years from now are people still waking up every day and getting excited about. But it served a purpose and we went with it, but it never quite sat with me like this is really the mission of the company. And so we revisited it again this year. And it took -- it was a lot of brainstorming and a lot of good discussion and all that kind of stuff. But what we really landed on is the thing that gets us excited the most is pointing to what people build using Twilio. And not literally just in the sense of like here's the code they wrote and like here's the thing -- but actually like the outcomes that people are able to unlock because of it. A great example like the things we celebrate. We celebrate the doers at our conference every year. These are the people -- and this sometimes is business executives, sometimes it's the developers and sometimes it's other people. But ultimately, it's the people that say, the world the way it is, we don't accept this, we want to go build something better. That's the spirit that Twilio was founded upon, and that's the spirit that really gets us out of bed in the morning. And so we really anchored the mission of the company on that spirit, not on a particular product. And I actually think that spirit is really representative of like our customer engagement platform. What we're really saying is companies out there they should not be content to be forced fed their future by Amazon, Google, Facebook, et cetera, right? They should be builders too. Just like those tech giants are, every company aspires to be builders. Now some of them are further along in that journey than others, absolutely. But nobody says like, I don't -- we shouldn't actually create our future, right? Like, we should be passive participants in the future of our company or my career or of society, right? Everybody wants to believe aspirationally that they are going to build the future they want to see for their career, for their company, et cetera. And so it taps into, I think, this core fundamental human spirit. And then our job becomes how do we make it so that we find that spirit in all of our customers. in the right spot. The thing that they were really focused on building today is in their marketing arena or in their product arena or in their -- like we get to find the part of the thing that is really motivating them today that they know they need to build in order to unlock their future. And chances are we've got a part of our portfolio that can match what they need. And that's from a business standpoint, it really well aligns like here's what we're building. We're building this platform for companies to be able to go innovate in the part of their business where they feel innovation is going to differentiate themselves and attached to that spirit. And I think -- like, I'm very inspired by like the Nike brand. And if you -- I don't know how many of you read Shoe Dog, the Phil Knight book, but like, it's like the spirit there of athletic potential. And it's like they're -- I can't remember the exact words of their mission, but it's basically to -- I'll just use ours and paraphrase it. But it's like: To unlock the athlete in all of us. And it's like -- and there's an asterisk that says, if you have a body, you're an athlete, right? And I think a lot of the true is for that builder spirt. And when I think about the mission that we're on, I see a lot of parallels to -- it's a mindset, it is aspirational for all people. And even if you are not a great athlete, even if you're sedentary, the people like want to see themselves as like a sedentary person or do they want to see themselves as an aspiring athlete? Sure. So anyway, I think that this mission statement really encapsulates the thing that gets Twilions out of bed in the morning about what motivates us to go build for our customers. And from our customer standpoint, really what is it that they want to believe about themselves, either personally or in their career or in their company that is going to help them unlock a better future for any of those things. So I think it's really well aligning with that. I can see years and years and years of our marketing message and our products and the way we approach what we do, being aligned to this idea of unlocking the imagination of builders. And I think that is really energizing for Twilio. So I don't know if that answers your question, but it's a little bit of the why, why do we go about establishing a new mission statement.

Over to Emerson next.

So over the last 12, 18 months, it's been a really active year in sort of the telco supply chain. A lot of the middlemen acquiring companies. So like since making a dozen acquisition. They buy Syniverse, then you make the deal -- they buy IntelliPoint, then you make the deal with Syniverse. And a lot of these middlemen are trying to move more into the API layer. And the marketing message is mostly trying to be cheaper on SMS than having direct connections for higher performance through the carriers. So I'm curious just how you think about the evolution here, whether or not there's any kind of supply chain risk for the super network, and then how to make sure that you maintain that competitive leadership for that part of the market that may not be interested in the higher up the stack functionality.

Yes, absolutely. I mean the thing I would say about it, Emerson, is the -- we are no stranger to this type of competition. Since the company got started, we've had people mostly coming from the carrier-type background with like connectivity is the main thing that they have and us selling it as an alternative to Twilio with a lightweight veneer of software on top of it. And you're right, like the argument is usually -- it's like we're cheaper. And there's like we're closer to the carriers. And when I hear that, it's just like you act more like a telco. Okay, great. And so the way we think about it is our job is to leverage of the variety of folks that are out there. So some of our connections are obviously direct to carriers. Some of them are through other organizations around the world and build an intelligent software layer, that's the super network, that is able to take the full inventory of connections that exist in the carriers of the world, and to put them against each other on a price performance basis. And therefore, to find the best performing networks. And that is, by the way, not a static concept, that is a down to-the-minute concept. So any moment in time, we find the best-performing networks in both cost and performance. And therefore, provide our customers the best service while taking the folks who are close to have the pipes and making them essentially compete for the business. And I think that strategy has worked well. And look, our goal is not to be the carrier here. Our goal is to use software to unlock the value in the network and then go build software on top of it as opposed to really go deep, deep, deep into the carrier plumbing. Now there are cases where we do go to that level. But for the most part, I don't think that's the business we're trying to build. And I think there's other companies out there who are, and we often partner with them, we use them. Yes, they probably aspire to be more like us. And if you looked at the business we're building, I would rather have our business too. But I think that the fact of the matter is the positioning, the marketing, our brand, our product set are all positioning us in a very different way than what the more telco-oriented folks are doing. And I think that allows us that builds our ability to go reach into these accounts and reach up to the C-suite and build this much more strategic platform for our customers than a company who's really solely focused on pipes in the price.

Nick, you're up next.

And I guess, maybe a similar question but from a different angle, and more from the Segment angle. But it's pretty clear sort of your excitement around Engage, particularly at SIGNAL. And part of that stems from the acquisition of Segment. But I guess there's maybe been some people in the investment community that have been a little more skeptical of the recent M&A activity. And so I would love to sort of hear how you approach just the build versus buy versus partner decision matrix when evaluating future opportunities and/or incremental sort of markets to go after and maybe how that's evolved since you started the business?

Absolutely. I mean, I think that we've got a pretty consistent way we think about these things, which is we have a road map of where we see customers pulling us to where we need to go. And when we look at what we need to go build, whether it's the teams we need to build or the technology we need to build, we look at, okay, well, this is how we would think about it. This is how we need to think about building a thing. And if nobody has built it, we say, "Great, that's our job." If somebody has built really what it is we would go do we'd say, well, we can go spend a bunch of time and energy building the team, building the product or competing in the market, 5 years from now, have kind of resolved our leadership in that space or we can buy our way in today. And then jointly, put our efforts towards like what's next in the industry? What's next for customers? Then that's a win-win. And so that's how we tend to look at it. And obviously, you can't build everything nor -- you can't buy everything. It's going to be a combination of both. So we use buy where it's clear that buying our way into a market will be an accelerant upon -- versus building it ourselves. And so I think you look at segment is a great example. Data -- while we have a bunch of data because we store call logs and message logs, all those kind of stuff, we are not known as a data company. We're known as a communications company. And so we can go build the product, we can go build the brand and reposition ourselves and get people thinking about us as a more of a data-oriented company or we could buy the leading CDP. And so to me, when I think about the accelerant that, that provides not just from the team and the technology standpoint, but also from the mind share standpoint, that's a pretty big deal. And so that would tilt us towards a buy in a scenario like that. But there's other scenarios where we do a tremendous amount of. And the other thing I look at is areas where we can really accelerate what we're doing for our customers, so like Zipwhip. They have the exclusive relationships for all toll-free messaging in the United States. That's a really neat position to be in. And by working more closely with them as one company, it means we can accelerate a lot of things that we're doing in the world of toll-free messaging, which I don't know if you've noticed has been taking off quite a bit lately. And so that's a really exciting opportunity. And then there's the things we're building, right? So like Engage, we brought together the Segment team and the Twilio teams and we said -- and the SendGrid teams, by the way, it was a very cross-functional effort among -- or not cross-functional, cross-company, legacy-company, whatever, between Twilio, Segment and SendGrid. It really took all of our forces working together to deliver on a product like that. And I think that's a great way to use our talent and the capabilities that Twilio has in order to deliver on the value proposition for our customers that we clearly see they need.

Please go to the next question.

I want to ask about bidirectional, that opportunity, because I think it's really exciting, and you're already starting to enable it with your apps like Engage, Flex and Frontline. But what's really exciting to me is the breadth of use cases for bidirectional that aren't talked about as much, right? We're seeing a lot of companies in the private markets built on top of Twilio using bidirectional messaging for really cool use cases like text-based recruiting and onboarding, right? That's totally outside of the customer service and marketing use cases. And I think that's what's exciting because I think Twilio's position as a builder product enables those use cases that out-of-the-box solutions can't. So I'm hoping -- can you give us some examples of more bleeding edge use cases of customers using bidirectional messaging outside of the traditional use cases to really help illustrate that opportunity? And then help us paint a picture of what bidirectional might look like for you in terms of volumes over the next 5 to 10 years. You're already collecting all this data from customers replying to their companies, and getting these automated messages. So I'm sure Twilio now with Conversations unlocks a ton of that opportunity.

Yes, absolutely. Thank you, [ Zara ]. I think there are -- we've only scratched the surface, right? I don't remember the exact number, but it's in the range of like low double digits of messages that are replies versus messages that are outbound. And that's for Twilio, that's also for the industry. And that just shows you that the number of opportunities that are because if every one of those outbound messages is reply-able, you can create a conversation with the company -- with the organization. Like, you think about the ultimate goal of most of these organizations is to actually be engaging with customers. So if I can reply -- if I can handle or reply to that message, that is such a better way to earn a customer's loyalty than having to go buy more ads on Facebook or Google, to go reacquire my own customer. And so the question is, how do you do it? And it's been like a new domain for most companies because there's been companies out there like Twilio, that will let you send a message. But replying is like a, well -- allowing that reply is like, well, okay, I need a human to answer it, or I need a bot that's very sophisticated to answer it. And both of those take development. And that's where we've put a lot of energy because we look at it, if we can get it up to 50% of our messages are replies, then you create dialogue, which is ultimately better for customers because they're getting answers. It's better for companies and building those relationships. Imagine a friend who whenever you texted them, they never replied to you. It wouldn't be a friendship for very long. And I think that's what companies are doing to their customers. And so that is a big software investment, whether it's in Twilio. There's also great stuff happening in our ecosystem, companies like Front in the private space or a number of those are doing really cool stuff. And I think that, that is just over the course of the next 5 to 10 years, I think bidirectional messaging will become a much bigger part of the experience that we have with every company. And I think it will be considered an extraordinarily bad experience if you try to go -- if a company tries to talk to you and they won't let you talk back to them. I just think that will be like going to a website in 2000 where they say mail us a check and we'll send you your order. You're like, how is that even -- no, like, there's no way I'm dealing with you if you don't take credit cards. I think it will be a similar thing where just the norms of the Internet evolve. As far as those cool use cases, I mean, you named some of them already. I mean some nonobvious ones like we powered contact tracing for half of the U.S. population last year. because they used Flex to do contact tracing, and a lot of that was via text messaging. I love the client-telling examples of like, hey, I need -- I'm looking for a new pair of pants, and I can just go browse online or I can talk to an adviser at such and such clothing retailer to go help me walk through like what is it I'm looking for? They can look at my purchase history, they can make recommendations to me, and I can do that whole thing via text message. Another example that I love -- and yes, you're correct in saying there's a bunch of ISVs building on top of Twilio, who are reaching into categories and verticals that we would not ordinarily see if we didn't have a great partner ecosystem as we have. And one of those examples is the automotive industry, where we've got several companies who are essentially CRM for auto dealers. And what they do is they build a whole suite of software, like run your auto dealer on top of our software. And they'll do a whole bunch of services. Well, one of the things they've done is incorporate Twilio into it. And last year, I actually bought a car entirely over text message. And this was powered by one of the ISVs in the automotive space on top of Twilio. And I saw an ad, I knew I was looking for a certain kind of car. I found the ad online, it was in Los Angeles actually, of all places. And the ad said like, call us, fill out this form, and we'll call you, or text us. And I'm like, of those 3 options, the one that seems least likely, like I have to talk to a car dealer, is texting. And I'm like, I would love to not have to talk to a car dealer. So I texted. And of course, over the course of like a week, I went back and forth with this car dealer, price, features, blah, blah, blah, can you deliver it to me? And sure enough, I ended up buying a car entirely over text message. In fact, I never talked to a single human being at that car dealer until they drove the car up in front of my house and I signed the paperwork and they drove off. And I'm like, that's pretty cool. And that was all powered by an ISV built on top of Twilio. So you see a number of these sort of verticalized cases of like CRM, people powering a specific industry. We see that in salons and spas and yoga studios and like there's a bunch of verticals along those lines that have incorporated Twilio into it. And I see that some of those are using 2-way in a really truly interesting way. So anyway, those are some of that just off the top of the head, some of the use cases that come to mind that really is facilitating commerce, obviously, support is the obvious one that you probably think of often. But I think that when you think about I'm making a big ticket purchase, there's a whole category of things there, whether that's insurance, homes, cars, you name it. And then I think there's a whole category of automation that is still largely untapped, right? The bots solving customer service problems, low cost and at scale, we are still at the infancy of that. And I think that every company wants to try to sell like you think about companies operating at consumer Internet scale and can they staff human teams to go answer every question? No, it's not cost effective. One customer service direction might destroy the lifetime profit of that customer for some of these companies. So they need automated ways to answer those questions. And so I think from the 2-way perspective, that is still very much a big opportunity that is unsolved in the industry yet. It's like the state of ML is almost there but not quite still.

Thanks, Jeff. Over to Bryce next.

Jeff, it's good to see you. A different sort of line of questioning, but I'm curious, if you kind of were to do a 360-degree sort of assessment of Twilio, heading into 2022, you thought about sort of the external factors, demand environment, competition, and then your internal kind of product velocity, go-to-market organization, I'm curious kind of where the kind of factors you'd think you were sort of executing at a very high level at? And then where, in your candidate assessment, you think needs sort of some work. And I maybe ask this in a little bit of the context of you guys coming off an earnings report where maybe the growth was a little kind of softer than maybe folks on this call, at least were very bullish on the company expected. And obviously, George, who is highly admired, sort of leaving the company as well. So just curious on your assessment of the company heading into next year.

Yes. Thanks, Bryce. Good question. I would say, look, I think our -- the growth of our core products continues to be second to none. And like that's the thing that has been -- like we've got really powerful products in the bag that continue growing at pretty record-breaking pace. And so while we're layering software on top, it is also the challenge, if you will, that our core products are growing as fast as they are. In some ways, it's classic innovators dilemma stuff, but it's also a lot of folks have asked. In fact, I think we talked about it a little bit earlier of like, well, when are some of the software products going to poke through and raise the gross margin? And like, I get it. We want that to happen. It's just with the scale products that we have growing as fast as they are, it's kind of a good problem to have. And so that's why I'd say like the state of the business is we are layering software products. We're really happy with where Flex is at. We're really happy with introducing Engage. Obviously, it's too early. It's not even really in customers' hands yet until it goes -- until we hit the new year. But I think it's a great product, and I think our execution there has been very good. And I also am really excited. I know there's some swirl around George, and George is a fantastic executive. But this was also a very thoughtfully executed transition. And I know there was some feedback after the earnings call that it was like, "Oh, I felt like it was like he just quit today or something like that." I'm like, it couldn't be furthest from the truth. I think maybe the lawyers were too involved in the drafting of our earnings statements because of the nature of named officers and all that kind of stuff. But sorry, [ Murray ], I know she's been turning on the call. I'm not blaming you. But the matter of how we did that transition was very thoughtful, because a while ago, George indicated to me that he thought that one day he'd want to be a -- go into the bigger role, right? There's only one bigger role from COO, and I'm like, well, I'm not going anywhere. So -- we started executing a thoughtful contingency plan for the day when that might happen. That included promoting Marc Boroditsky into the Chief Revenue Officer role, giving him more responsibility as well as bringing him on to the E-team over a year ago. As well as starting to transition COO responsibilities over to Khozema and putting more of the operational responsibilities of the company in his plate. So that when the day came that it was time to make that announcement, we had a revenue leader and a COO, an operational leader, ready to go that we've been investing in for a while. So I feel really good about that transition. I also feel tremendously good about Eyal Manor joining the company as our Chief Product Officer. And Eyal is a tremendously thoughtful leader, has seen scale in terms of he led engineering for YouTube. He was like the founding engineering leader of the Google Ad Exchange. And most recently, he led all of product R&D and basically full business ownership over about half of Google Cloud, including their whole Kubernetes multi-cloud strategy, which from everything I have seen from the outside has been the lifeblood of Google Cloud. Like, it's a thing that has gotten their foot in the door because they were losing big time to Microsoft and Amazon. And -- when they all started on the initiative 6 years ago, he basically came up with this strategy of like, well, we need to be the multi-cloud company because if we're the uni-cloud company, then we're third. And so I've seen them execute incredibly well as a product leader, as an engineering leader and as a thoughtful executive. And so I'm really excited by the team we have at the table going into 2022. And if I think about things we need to up level, I think there's been a little -- like, we've grown a lot in terms of people during the pandemic. We've more than doubled the headcount in the time that we've all been basically working from home. And that's challenging for a company. And I'm sure you've seen it many of your firms, I'm sure you've seen it in other companies that you follow, just from a cultural standpoint, from a building human connection standpoint, like when I look around, I see human relationships are afraid. And people who should be on the same team starting to feel like we're on different teams. And that's a challenge. And so we're making a big effort to try to get people together. So we're starting at the executive level trying to get out of our habits of, oh, yes, we just wake up and walk downstairs every day to like, no, we get out. We go to the office. We get out. We are doing offsites. And to the extent we can do that, of course, safely. In order to do that, people have to be vaccinated and -- yes, we recently did a leadership summit and we did daily rapid testing and things like that. Made people feel very comfortable even amid Omicron, that it was safe. But to me, that's the big challenge we have going into 2022. And I think that's why you see the great resignation happening just generally, which is people feel -- look, Zoom meetings are transactional. You join a meeting for an agenda, you leave. And there's no -- there's not a lot of humanity in that. And I think that's what everybody is struggling with. And I think solving that for Twilio, and I think a lot of companies are in this boat. Helping teams be on the same page, helping them to come together and helping them to like get that spirit of like we're all doing -- we're doing a human thing together. We're not just attending Zoom meetings. I think that's the big opportunity and the challenge that companies have to overcome because even the distributed companies before the pandemic, there's a handful of companies that were distributed, those companies would regularly get people together. That was a part of what made those cultures work. The fact that a lot of companies have really not been able to get their teams together for almost 2 years now, I mean, that just means, as human beings, we're starved of connection. And that becomes an institutional problem if folks can't solve it.

Thanks, Jeff. Sebastian, if you want to, please go ahead with your question?

I was hoping you could help me understand a little bit how to think about how closely tied Segment and Engage are. But obviously, when you announced Engage, I think you kind of called it a combination of your digital channels and the CDP, which obviously suggests they're very closely related. But should we think about that as a customer needs to kind of commit to Segment first, and they need to commit to even buying a CDP first and that has to be Segment in order for Engage to really work? Like, how critical is the success of Segment for the success of Engage and some of the other software products you're building?

It's interesting because I think about it as a gradation of concerns from transactional notifications that can be done over e-mail or messaging. Those are pretty straightforward. Then into the more batch and blast, so simplistic marketing use cases, where it's like I've got a -- I want to send this message to my 100,000 subscribers, up to dynamic growth marketing, which is everyone is on their own journey, informed by tremendous amounts of data. And each one of those ones unlocks more essentially like complexity, but also more value. But because we carry all 3 of those workloads, right, we can march companies up from a variety of different places. So there are companies who start with Twilio for their transaction notifications. And honestly, there's a lot of companies that have come to us -- sorry, my door bell has been ringing for the last minute, you can hear that. There are companies who come to us say, well, Twilio, can you just do the mass text for us? And it has a -- because you kind of -- when you start to wade into those waters, there's a lot of things you have to go do. And so we've kind of always said, no, like we don't do that. We've got customers to do that. We've got ISVs to do that. And now we have that capability. So it allows us to take customers where like, oh, I can send more than one-off, I can move into mass and then I can move into smart? We've got a journey along those lines. The second journey you have is the company who's already said, "Hey, look, we need smarter marketing, therefore, we're investing into CDP." We land them at Segment, and then we merge them up. Okay, so what are you trying to do? Oh, you're trying to really add more channels. Well, guess what? We've got e-mail, we've got messaging, we've got more coming in Engage. And we can merge them up our stack this way. So I think you can start with messaging or e-mail transactionally and move them up the slope to more sophisticated solutions. I think you can start with the data layer and merge them up to stack towards more of a solution. And then I also -- we're taking our marketing campaigns product, which was a part of SendGrid. So SendGrid had a marketing campaign for its product, which is a simple batch and blast product, for e-mail. And that product is now also a part of the story. So we can take customers who are like -- and that's like a self-service adopted product. It is sold, but it's mostly self-service. A customer can come on and say, okay, if self-service. I just need to send my monthly newsletter. Great, I'm on board. That's like a male-chimp-style feature set. And then from there, go and say, oh, now I want to make this thing smarter. Okay. Now I can invest in the data side to make a smarter solution to move up into there. So we've got a number of different ways depending on where customers are starting, whether it's transactional notifications, batch and blast, across channels or the smart thing, and move them up into Engage. And I think that's what's really interesting. And as we bring the product to market in the coming months and start executing these go-to-market motions. I think we'll figure out which ones are the best performing and most promising motions. We have a number of options there. And I think they all have a lot of merit, but we'll see it. Usually, it turns out that some of them are performing better than others and you just double down on those. That's what we do.

So I know we're coming up on time. But Jeff, maybe if you have -- if you can go over for a minute. We have one last question, if that works?

Yes, sure thing.

Michael, go ahead.

Yes. This was great. Maybe just thinking more about the evolution of messaging over the next 5, 10 years. It's clear that sort of as a response to the success of WhatsApp, that a lot of the carriers in Google have coalesced around RCS as sort of a new alternative to SMS. Maybe more so on the peer-to-peer side, but also on the A2P side. And so I'd love to just get your perspective on how Twilio is positioned in that trend. And anything you can share with us about the time line or perhaps just from a supply chain perspective, with Google acting more as the aggregator. Where does Twilio fit into that relationship?

Yes. Great question. I don't know if you know, the cross-carrier initiative for RCS was led by a guy named Doug Garland, who now works at Twilio. And so he's brought a lot of these relationships, a lot of that contacts with him. Look, I think it continues to be a very dynamic environment. A few years ago, we had a lot of companies coming to us saying, we're really interested in RCS. We start to ask them like why? And they're like, we're not sure. We're just sort of about it. We think we're supposed to be interested in it. And so the value proposition has been vague but exciting, which is like do more over messaging. We have this problem of the carriers have to support it, the handsets have to support it. And even Google doesn't control all the handsets. And so you've got a very fragmented ecosystem. Over here, you've got Apple Business Chat, which is also as a proprietary-only for Apple world, but also a very constrained set of use cases. It is mostly -- it's all customer initiated. Discovery is a little wonky still. So they're figuring it out over there. Google and the carrier customer figuring it out over here, you've got WhatsApp over here, right? So it's a very dynamic ecosystem. And Instagram just announced their messaging. And so I think what you see is most companies, honestly, aren't sure what to make of it yet, I think that to the extent SMS with the whole transition to 10DLC, which then is like a prerequisite to, I think, success in RCS world, and other worlds. It's like -- it's just a messy transition. And therefore, we're in a good position to take the workloads today that work over SMS and to give our customers maximum future optionality. And yes, we're working with the Google folks. And we're working with -- we're in talks with everybody, as you might imagine. It's just the question is, are these channels ready for revenue yet? Or are they mostly marketing and PR vehicles? And we just kind of treat them as such. We prioritize them as such, based on customers' need, readiness for productization and for basically what our customers are telling us they need. So if that makes sense. I mean, it's kind of a non-answer because RCS has lot of PR, if you will, in a lot of ways, but it's also -- like we do think there's a [ day ] there. It's just a slow rollout. That's the challenge.

All right. We're up on time. Really appreciate everybody joining and your time and continued support. And have a happy holidays.

Yes. Thank you, everybody, for taking the time. Great to see you all. Happy holidays.