Twilio's (NYSE:TWLO) communications platform helps businesses better engage with their customers. That may sound trivial, but according to Gallup analytics, an engaged customer represents a 23% premium in revenue and profitability compared to an average customer.

More importantly, effective customer engagement can help brands distinguish themselves from competitors. That's why Twilio's management estimates its addressable market will reach $87 billion by 2023.

Here are four key reasons Twilio will be able to take full advantage of that opportunity.

1. Twilio has competitive advantages as a first-mover

Twilio essentially pioneered the cloud communications platform-as-a-service (CPaaS) industry, making it possible for businesses to easily engage with customers through voice, text, video, and email. Not surprisingly, its success has drawn competition from companies such as Bandwidth (NASDAQ:BAND) and Vonage (NASDAQ:VG). But according to the IDC, Twilio still controls the largest chunk of the CPaaS market, and the capabilities of its platform set it apart from rivals.

Woman looking excitedly at her smartphone while holding a mug.

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In addition to its larger scale, the company is also growing more quickly than Bandwidth or Vonage. Over the last three years, Twilio's revenue rocketed 322% compared to 83% growth for Bandwidth and 24% for Vonage. As a result, Twilio's market share is getting even bigger.

2. Twilio keeps its customers

Since 2017's fourth quarter, Twilio's churn rate has been well below 5%, meaning the company keeps the large majority of its customers. What's more, its dollar-based net expansion rate was well above 100% over that time period, indicating that its customers tend to spend more each year. That combination of long-lasting customer relationships and increasing revenue per customer should remain a powerful growth driver.

3. Twilio is making smart acquisitions

In 2019, Twilio purchased SendGrid for $3 billion, expanding its platform's email capabilities. This means that with just a few lines of code, businesses can create targeted and measurable email marketing campaigns, and automated notifications like password resets and purchase receipts. So far, the acquisition has been immensely successful, adding 84,000 customers to Twilio's platform. And in the first half of 2020, its revenue from email products rose 36%, representing 16% of total revenue. That's a big jump from 0% in 2018.

Recently, Twilio completed its acquisition of Segment for $3.2 billion in stock, and investors have every reason to be optimistic. Segment's market-leading customer data platform allows enterprises to collect, manage, and analyze customer data from websites and mobile apps. This allows them to make data-driven product decisions and create personalized marketing content, both of which improve customer engagement. This ties in perfectly with Twilio's vision of creating the world's leading customer engagement platform, and it should be a strong catalyst: Segment brings more than 5,000 new customers with it, and expands its new owner's market opportunity by $17 billion.

4. Twilio has an effective growth strategy

Twilio's Build Partner program is a core part of its growth strategy. Technology partners like Zendesk integrate its functionality into their own products, and consulting partners like Preficient help their clients design and implement solutions built with Twilio.

Since the program launched in 2018, the number of customers spending more than $100,000 per year on Twilio's platform has jumped 175%, from 526 to 1,445. Moreover, from Q4 2017 to Q2 2020, its share of Global 2000 customers (2,000 of the largest companies in the world) grew by 39% to 359, but its revenue from those customers rose by 650%. And in the first half of fiscal 2020, 70% of the largest Twilio Flex deals involved a partner. All of these metrics indicate the company's growth strategy is working, but it still has opportunities on the horizon.

Recently, Twilio added Deloitte Digital to its list of over 300 consulting partners. Deloitte is trusted by numerous Global 2000 companies to provide strategic insights and solutions, and now, it can help its high-profile clients use Twilio to better engage with their customers. Currently, Twilio counts fewer than 25% of the Global 2000 companies as customers, but this partnership with Deloitte should help boost that figure in the coming years.

A final word

Investors should look for strong customer and revenue growth in the coming quarters. If that fails to materialize, it may be a sign that Twilio is losing its edge in this increasingly competitive market. Additionally, its stock currently trades at 36 times sales -- investors should expect volatility with that kind of price tag.

That being said, global digitization should continue to be a strong tailwind for the company. In order to remain relevant, enterprises will need to prioritize effective customer engagement, and Twilio's platform makes that possible.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.