In our “Tech Stack” series of articles, successful digital companies show which tools they use. What is striking is that many of the companies, including Snocks, Refurbed and Everdrop, rely on Klaviyo. The platform, which specializes in e-mail and SMS marketing, helps e-commerce companies to activate existing customers again and again. Klaviyo now convinces 75,000 companies with its functions and has a valuation of almost ten billion US dollars. We explain the success.
Not only driven by the pandemic, the e-commerce business is experiencing a boom worldwide. Shopify makes over $1 billion in revenue each quarter (down from under $500 million in early 2020). In this wake, unicorns emerge that focus on the various tool niches for e-commerce companies and build on an existing ecosystem – such as that of Shopify or Amazon. Amazon aggregators have raised over $10 billion in investments since April 2020. Successful Shopify apps are becoming unicorns themselves at breakneck speed.
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The Klaviyo, founded in Boston in 2012 by Andrew Bialecki and Ed Hallen, currently stands out in particular. The company has been profitable since 2015, but has received a major boost from the e-commerce and D2C (direct to consumer) boom of the past two years. Following a $320 million investment round in May 2021, Klaviyo is valued at $9.5 billion. But why do so many companies rely on the services of the email platform?
The solution to the big CRM questions?
The Klaviyo story doesn’t begin with email marketing. The co-founders Bialecki and Hallen met in 2007 at Applied Predictive Technologies (APT). The company analyzes data for large corporations. Here, the two learn how to draw conclusions about their purchasing behavior from customer information. At the same time, Andrew Bialecki also runs an online event calendar for runners. He encounters a problem: he cannot adequately analyze the behavior of the users and therefore cannot offer any individual services.
Klaviyo co-founder Andrew Bialecki
“We had a thesis that a lot of companies have a lot of first-party data that they just don’t use,” Bialecki told Forbes. “If you can collect and analyze these, you could also improve the experience. So he starts with Klaviyo together with Ed Hallen as an analytics company – especially for analyzes of user behavior.
Tailored to D2C companies
But just as the e-commerce industry is evolving, so are the functionalities of the SaaS (Software as a Service) company. In the initial phase, Klaviyo customers focus primarily on marketing and customer acquisition. D2C companies are exploding because they can grow so cheaply on the platforms. But since 2017 at the latest, the business has become more complicated. The cost-per-click (CPC) for ads in Facebook’s newsfeed (long the top choice for D2C companies) increases from an average of 43 cents in 2018 to 64 cents just a year later. This is forcing many fledgling companies that grew up almost entirely on the platforms to find other avenues for revenue growth.
A look at the Klaviyo dashboard
During discussions, the Klaviyo founders found that their customers use the platform’s data to build and optimize their marketing campaigns. That’s why they’re converting Klaviyo piece by piece into a communication platform. Today, Klaviyo acts as a central location for their customer data for many of its customers. On this basis, e-mail and SMS campaigns can be created to generate fresh sales to existing customers. Based on the data on who bought what and when, individually tailored messages can be sent automatically. “We’re giving companies a new playbook,” says co-founder Bialecki. “They get independence and power over the relationship with their customers. Nobody can take that away from them.”
Integration as the key to success
Klaviyo most likely owes the majority of its customers to Shopify. The tool can be easily integrated into the shop via the Shopify app store. And that also works with WooCommerce, Magento, Salesforce Commerce Cloud and other shop systems that are supported. Building on existing ecosystems has brought Klaviyo 75,000 paying customers.
Why the emphasis on “paying”? Like many other young SaaS companies, Klaviyo relies on a freemium model. Small companies can use basic functions free of charge – and send e-mails to 250 contacts, for example. Anyone who builds up a larger distribution list then pays according to the number of contacts. 25,000 is about $400 a month, 100,000 is $1,200. According to their own statement, the tool is now used by more than 265,000 companies of all sizes. Pay 75,000 of them. Customers primarily include D2C brands from the USA and Europe such as Brooklinen and Chubbies, but also established players such as Wilkinson.
In Europe, as described, Snocks, Refurbed and Everdrop are well-known Klaviyo customers. “We started out using Mailchimp for mailings, but Klaviyo just works incredibly well with Shopify. This allows us to customize and automate customer communication very well,” says Everdrop co-founder David Löwe to OMR. “We do all of the customer communication with Klaviyo: We do the shop communication, show other products after the purchase and run the classic newsletter campaigns.” Snocks co-founder Johannes Kliesch has a similar assessment of the tool. “We use Klaviyo for email marketing. This is seamlessly linked to Shopify and makes customer contact much easier for us,” says Kliesch. What he particularly likes about Klaviyo is that customer data can be transferred directly from Shopify in order to send email campaigns to customers and shop visitors.
The competition never sleeps
Klaviyo’s exact annual sales are unknown, but estimates are in the region of $125 million. But perhaps one statistic shows the extent of the growth particularly well. In 2016, e-commerce companies sent 79 million emails through Klaviyo on Black Friday. In 2021 it will be 2.1 billion. At the same time, the market is populated by companies that offer similar services (see OMR Reviews for a good overview). Many small companies start their e-mail strategy with Mailchimp, and the customer engagement platform Emarsys, which has since been taken over by SAP, comes from Austria. And the French company Sendinblue (formerly Newsletter2Go) also finds many customers in Germany. In the US, Attentive and Postscript are major contenders in the Shopify world.
Klaviyo sees its advantage in the central database and the deep integration into the various shop systems. In the future, there is likely to be an even greater focus on collecting and analyzing first-party data for its customers. Apple’s App Tracking Transparency Initiative (ATT) and the death of third-party cookies are not only forcing retailers to deal with it more intensively. Analyzes of when which users are most likely to open and read their e-mails are particularly important. And this is where Klaviyo might have an advantage over other providers simply because of its tradition as an analytics company.
