Klaviyo's Data-Driven Marketing Transformation with No-Code

The Enduring Power of Email

Despite predictions of its demise, email remains a dominant communication method.

In 2007, venture capitalist Fred Wilson speculated about what could replace email, suggesting it was nearing obsolescence.

Three years later, he observed that newer messaging platforms were surpassing email in popularity, indicating a potential shift in communication dominance.

However, Wilson continued to invest in email technology, acknowledging its continued relevance.

Marketers' Shifting Expectations

For years, marketers have sought the next groundbreaking communication channel.

Initial hopes centered on platforms like SMS, YouTube, Instagram, Facebook, Snapchat, and TikTok.

Darin Hager, an email marketing manager at Adjust Media, notes that these platforms often proved fleeting, while email consistently maintains daily user engagement.

Email's Continued Growth

Currently, email boasts an estimated user base of four billion individuals and continues to experience steady growth.

The daily volume of non-spam emails sent is estimated to range from 25 billion to over 300 billion messages.

This substantial volume naturally fosters intense competition among email service providers.

Klaviyo's Rise to Prominence

Despite the competitive landscape, Klaviyo has not only entered the market but has also garnered significant enthusiasm and loyalty from marketers.

Hager suggests that using Klaviyo is becoming a benchmark for professionalism in e-commerce.

Emails identified as being sent through platforms like Constant Contact or Mailchimp can sometimes suggest a brand is less sophisticated in its marketing approach.

Understanding Klaviyo's Success

The question arises: how did Klaviyo establish itself as the leading solution for email marketers?

The company’s origins as an e-commerce analytics service provided a crucial foundation.

This background allowed Klaviyo to leverage data more effectively than its competitors when it transitioned into an email service provider.

Key Questions Remain

However, several important questions remain unanswered.

Why is email particularly vital for e-commerce businesses?

What specifically differentiates Klaviyo’s features from those offered by its rivals?

And why were larger, well-funded companies unable to prioritize data-driven strategies earlier?

Looking Ahead

This analysis will address these questions, exploring the impact of COVID-19 on the e-commerce sector.

Furthermore, we will examine the role of newsletters and artificial intelligence in shaping Klaviyo’s future trajectory.

The Enduring Relevance of Email

Email represents a longstanding presence within the technology landscape. Constant Contact, a well-established email service provider (ESP), was established in 1995, became a publicly traded company in 2007, and was later acquired in 2015 for $1 billion. By 2012, when Klaviyo was founded, the market already featured a considerable number of established players.

Considering the proliferation of communication alternatives and the rise of social media over the last twenty years, what explains email’s remarkable persistence?

The technology benefits from two key strengths that have solidified its position as a leading communication method, particularly for e-commerce interactions.

Asynchronous Communication

Firstly, email functions as a fundamentally asynchronous medium. Users determine when to access their email and can efficiently review and categorize their inbox contents. This characteristic makes email exceptionally suitable for managing large volumes of messages, varying in significance from crucial updates to unwanted spam.

Secondly, and crucially, email lacks a single controlling entity. While social networks and messaging applications often begin as open and accessible platforms, their owners frequently implement restrictions, limitations, or fees for marketing communications.

Sending messages via email has remained cost-effective. Despite ongoing efforts to combat spam, major email providers like Google have not hindered the delivery of legitimate marketing messages.

The Rise of Owned Marketing

This openness has fueled the growth of “owned marketing” within e-commerce. Businesses increasingly recognize that no external platform can substitute for an independent online store and a directly managed email list.

While marketers can profit from platforms like Amazon or Facebook, competition on these sites inevitably intensifies. Often, the only way to gain prominence is through increased advertising expenditure.

A brand with its own store and a customer email list possesses an alternative to these rising costs.

Looking back, the co-founders of Klaviyo demonstrated foresight regarding email’s continued importance. Ed Hallen, Klaviyo’s co-founder, observed that email wasn’t considered a particularly innovative field when Klaviyo began.

Consequently, the startup was initially rejected from several Boston-area startup accelerator programs during its application process.

Klaviyo's Competitive Positioning

While Klaviyo demonstrated foresight in its approach, numerous competitors share a similar trajectory.

The email service provider landscape is highly competitive, featuring dozens of companies – a natural consequence of the technology’s 50-year history. Initially, this extensive selection can obscure the factors that differentiate individual businesses.

Kady Srinivasan, currently Klaviyo’s senior vice president of marketing and formerly the head of global growth marketing at Dropbox, notes her initial reaction to Klaviyo was questioning its distinctiveness. She initially perceived it as simply another player in the established email marketing field.

how klaviyo used data and no-code to transform owned marketing

To understand this, it’s essential to examine the evolution of ESPs and the expanding capabilities offered across successive generations.

The first wave of ESPs pioneered the concept of email marketing itself. As the World Wide Web emerged, companies like Constant Contact catered to professionals – doctors, plumbers, and hairdressers – transitioning from traditional Yellow Pages to an online presence. The primary benefit of these early systems was the ability to reliably send emails in large quantities.

With the arrival of the new millennium, marketers recognized the potential for visually appealing email design, mirroring the evolution of websites. Plain text emails gave way to rich text formats. Mailchimp, founded as a side project in 2001 and becoming a full company in 2007, exemplifies this second generation of ESPs. These services modernized email marketing’s aesthetics and addressed crucial challenges like deliverability, particularly as providers like Gmail (launched in 2004) implemented increasingly sophisticated spam filtering algorithms.

However, some marketing professionals believe the second generation of ESPs also marked a turning point, albeit a problematic one. Many new entrants focused primarily on email design – a feature that proved relatively easy for competitors to replicate.

“New companies could enter the market easily, and competition largely revolved around pricing,” explains Steve Deckert, a former e-commerce entrepreneur now serving as director of business development for the WooCommerce storefront platform. “This led to a considerable price war.”

Klaviyo stands at the forefront of a third generation of ESPs, prioritizing analytics and performance marketing, often utilizing terms like “automated customer experience management.” This group also includes companies such as ActiveCampaign, Listrak, and Bronto, Oracle NetSuite’s offering. Notably, Bronto, a well-established player in this segment, recently ceased operations, potentially benefiting Klaviyo.

A key distinction is that Klaviyo deliberately avoids defining itself as merely an email company. Every employee interviewed emphasized the company’s focus on data collection and processing.

“Fundamentally, we are an analytics engine,” states Conor O’Mahony, Klaviyo advisor and former chief product officer. “This differs from the approach of many vendors in our industry, who typically concentrate on solving marketing problems and building marketing tools.”

Data as the Core Differentiator

Determining the reasons behind Klaviyo’s prominence within the email service provider (ESP) landscape proves challenging, even when categorizing ESPs by generation. Despite the abundance of email marketing companies boasting advanced analytics and automation capabilities, Klaviyo has emerged as a leading choice for e-commerce businesses. Surprisingly, its most frequently utilized features – Campaigns and Flows – are also available from competitors, appearing similar to the untrained observer.

This resemblance stems from the established practices within email marketing. Campaigns represent traditional marketing emails dispatched to customers when a brand has announcements to make. An example is a single email informing recipients of a new seasonal promotion. More complex campaigns may involve a sequence of emails, such as introducing a new product, sharing related recipes, and ultimately presenting a special offer – a strategy known as a drip campaign.

In contrast, Flows represent a more recent innovation in email marketing. Essentially, a Flow is an automated email triggered by a specific customer action. For instance, a visitor abandoning a website without completing a purchase might receive an automated email encouraging them to return. Flows can incorporate multiple, conditional steps; if the customer revisits the site without purchasing, a subsequent email might include a discount offer.

What distinguishes Klaviyo’s Campaigns and Flows? The company asserts its superiority in email design and aesthetics, bolstered by a comprehensive library of email templates. However, the primary differentiator lies in the largely unseen breadth and depth of the data it natively collects and stores. While other ESPs have attempted to bridge the gap, most still function as a layer built upon external data repositories.

Will Critcher, Director of E-commerce at Death Wish Coffee, explains, “Klaviyo’s focus on customer data allows them to provide us with insights and elements not typically found in other ESPs.”

Critcher highlights that Death Wish Coffee’s decision to adopt Klaviyo was significantly influenced by its extensive integrations, enabling data import and export from numerous software applications. For example, Klaviyo email lists can be leveraged to create Facebook Lookalike Audiences, a common marketing tactic for reaching new potential customers.

Although integrations are offered by competitors, Klaviyo’s larger library is a result of its role as a central data warehouse, meticulously gathering every available data point. Recently, when Death Wish Coffee sought specific customer data, they discovered that only Klaviyo possessed it – even Shopify, their e-commerce platform, did not track it. “Many might assume this data is readily available from Shopify, but surprisingly, it isn’t,” Critcher states.

By accumulating and normalizing a greater volume of data, Klaviyo provides the foundation for customers to construct highly targeted marketing segments with ease. Its Flow Builder is designed around this data, featuring an interface where users connect conditional blocks based on user segments. Klaviyo even characterizes Flows as a visual programming interface – a no-code solution for marketers who would otherwise need to write code for data retrieval. Flows are also optimized for speed, allowing for rapid segment creation and performance testing of targeted messages.

“We prioritize enabling our users, and ourselves internally, to conduct as many experiments as possible,” says Andrew Bialecki, CEO and co-founder of Klaviyo.

While initially adopted for its email capabilities, some customers now utilize Klaviyo as a customer relationship management (CRM) tool and data warehouse. Users can access data beyond messaging for tasks like bookkeeping, order history review, or analysis, effectively establishing Klaviyo as a key system of record for their businesses.

Currently, Klaviyo is introducing new data features, including the utilization of anonymized data from its entire customer base. The first of these, Benchmarks, compares a user’s performance against a cohort of similar businesses on metrics like email open rates and revenue per message, providing valuable competitive insights.

The Impact of COVID-19 on the E-commerce Sector

The COVID-19 pandemic undeniably provided a significant boost to the entire e-commerce industry, resulting in substantial growth for many companies.

In November 2020, Klaviyo garnered considerable attention with a $200 million Series C funding round, spearheaded by Accel, which established the company’s valuation at $4.15 billion. This substantial investment closely followed a $150 million Series B round in April 2019, led by Summit Partners.

Competitive Landscape and Funding

Klaviyo’s competitors have also been actively seeking funding. ActiveCampaign, for example, raised $100 million, and Bluecore secured $50 million within the last year. However, Klaviyo’s combined $350 million in funding over two years indicates a potentially larger share of the e-commerce growth spurred by the pandemic.

The company’s performance during the 2020 Cyber Weekend – encompassing Black Friday and Cyber Monday – further illustrates the pandemic’s influence. Klaviyo’s customers dispatched 4.4 billion emails during those four days, a doubling of volume compared to the previous year.

This activity generated over $1 billion in revenue directly attributed to the Klaviyo platform, as reported by the company.

The Shift in Business Perspective

According to Bialecki, the most noteworthy outcome of the pandemic wasn’t simply growth or increased revenue, but the changing attitudes of traditional brick-and-mortar businesses towards online sales.

“In a physical store, customers are largely anonymous, and businesses often lack detailed knowledge about their shoppers,” Bialecki explains. “The transition to online platforms has changed this dynamic, as businesses can now identify and understand their customers.”

This newfound ability to identify customers allows for the creation of personalized experiences, both in real-time and over the long term.

A Fundamental Change in E-commerce

Experts within the e-commerce sector concur that a significant shift is underway following the pandemic.

“The current situation isn’t merely an acceleration of existing trends; it represents businesses actively choosing to sell online who might not have otherwise considered it,” states Deckert of WooCommerce. “A local brewery near me, known for its craft beer, likely wouldn’t have ventured into online sales without the pandemic, and numerous businesses share a similar story.”

Klaviyo's Evolution: Towards Guided Software and Beyond E-commerce

As the e-commerce landscape experiences rapid expansion, Klaviyo is charting a course that diverges from simply accumulating more data and refining existing marketing tools. The company is now focused on two key strategic shifts for its future development.

The recently introduced benchmarking feature, which allows customers to compare their performance against similar businesses, provides insight into Klaviyo’s future direction. Previously, customers often relied on informal methods – querying peers or searching online forums – to gather performance data, often with uncertain results.

Eric Silberstein, Klaviyo’s vice president of data science, explains, “Prior to this feature’s launch, businesses were largely operating without a clear understanding of their position. While they might have known their own metrics, like a 5-cent cost per acquisition, comparing that to industry standards was difficult without a reliable, scientific basis.”

The addition of benchmarking aligns with Klaviyo’s efforts to attract a broader customer base, including businesses smaller than its current focus on SMBs and mid-market companies. These smaller enterprises, often run by entrepreneurs, typically lack the dedicated time and resources of larger organizations.

Alexandra Edelstein, a Klaviyo group product manager, notes, “We currently offer a wealth of tools for customers to leverage their data, build targeted segments, generate reports, and automate processes. However, many aren’t fully utilizing Klaviyo’s capabilities and feel they could be achieving more.”

Klaviyo’s data science team is prioritizing solutions that save users time and provide actionable recommendations for improving engagement, rather than pursuing trendy AI features. The ultimate goal is to simplify the process and maximize value for its customers.

Looking ahead, Klaviyo envisions becoming a guided software platform – a concept recently described as “best practices as a service” by Danny Crichton of Extra Crunch. Silberstein predicts, “In five years, the expectation will be that software proactively guides users, much like we now consider software installation a relic of the past. This will become a fundamental requirement.”

In addition to its focus on guided software, Klaviyo is exploring expansion into markets outside of e-commerce.

According to Klaviyo co-founder Hallen, “Klaviyo initially excelled at building a robust data engine capable of integrating information from various systems. While the initial applications were primarily focused on e-commerce, and email served as the primary communication channel, the underlying engine is versatile and not limited to that sector.”

Bialecki also suggests potential applications for Klaviyo in areas like supporting influencers and writers.

“Our core question is: how can we enable businesses and individuals to replicate the personalized experiences they offer in one-on-one interactions, but at a massive, internet scale?” says Bialecki. “Platforms like Substack, which empower creators to publish directly to their audience, align with our vision. Could customizing content for specific readers be beneficial? Once a creator has a substantial following, is a uniform message truly effective?”

While these new markets are not currently a primary focus, Bialecki emphasizes that the need to forge personalized emotional connections with customers will be a defining characteristic of marketing in the coming decade, a topic to be explored further in the next installment.