On November 11th, 2018, Germany’s database giant SAP announced that they will be acquiring customer sentiment tracker Qualtrics for $8 billion.
According to Robert Enslin, president of the Cloud Business Group at SAP, this is a transformative union that is poised to combine over 1 billion records of experience data along with the operational data from 77% of the World’s transactions touched by SAP.
Qualtrics International Inc. is a data collection and analysis software maker with a revenue expectation of $400 million this year. This Utah-based startup has even reported a net profit margin of just 0.8% in the nine months through September.
SAP had been attracted by the 40% growth rate achieved by Qualtrics, but it’s handing over a massive premium for a company that has been preparing for an initial public offering. Qualtrics CEO Ryan Smith said in a conference call with investors that the IPO was 13 times oversubscribed with the tour not yet complete. They were valuing the firm between $5 billion and $6 billion.
Specializing in experience management, or XM, Qualtrics provides the tools to help companies gather feedback effectively and optimize their products.
The combined force of Qualtrics and SAP would most probably be expanding into customer relationship management (CRM) software, the category solely ruled by Salesforce. This could also spell trouble for SurveyMonkey, the competitor of Qualtrics that went public in September of 2018.
This deal comes with the risk that the high-flying startup could get lost inside one of tech’s largest global multinationals especially since it is one of SAP’s largest acquisitions in recent years.
Reporting revenue of $289.9 million in 2017, Qualtrics went up 52% from the year before. In the statement they released about the acquisition, SAP stated that Qualtrics is expected to exceed $400 million for 2018, with a growth rate remaining more than 40%.
That’s just a minuscule amount for SAP, which reported revenue that surpassed $26 billion in 2017 and even boasts 413,000 business customers. The two leaders hope that Qualtrics will be able to bring its insights for SAP’s vast employee and customer bases without getting hung up. SAP chief executive Bill McDermott said he doesn’t believe there will be any integration risk when connecting the two, and SAP isn’t even looking to combine back offices.
McDermott was attracted to Qualtrics’ culture and their software’s ability to include customer sentiment to the different applications offered by SAP across its suite. He stated that bringing the ‘X data from Qualtrics to the ‘O data,’ the operational data SAP has, can claim the most important category of all. McDermott added, “I think this is the biggest idea in my lifetime, and I can think of no person I’d rather run into the future with than Ryan Smith.”
The Qualtrics Customer Experience Platform
The journey Qualtrics has taken is a familiar one. They built the technology, adapted it for customer usage and converged the platform into an easy to understand package. If broken into its components, it consists of customer, employee, product and brand experience products, which is all built neatly on top of the core Qualtrics research engine.
Qualtrics aims to allow people within a business to gather insights on customer or employee satisfaction, product testing, and brand or pricing research; analyze needs and trends, report back and continuously drive improvement, all within a simple web-based platform.
Ryan Smith and his management team at Qualtrics will be staying on as a distinct business unit which is based in Utah and Seattle within SAP’s cloud practice. Bill McDermott believes the acquisition would be remembered always for companies, their customers and shareholders. He added, “We are chasing the biggest prize in the world: to be the undisputed leader in the most exciting category I’ve seen in my career, called experience management.”
Founded in 1972 and headquartered in Walldorf, Germany, SAP is a technology company developing enterprise application software for companies and industries across miscellaneous sectors.
Offering solutions that cover various lines of businesses, including asset management, finance, human resources, marketing, sales, sourcing and procurement, and sustainability along with research and development, and engineering, SAP provides enterprise application software to various industries.
Founded in 2002, Qualtrics provides a single system of record for all experience related data, also known as X-data™, which allows organizations to manage the four core experiences of business—employee, customer, product, and brand experiences on just one platform.
With over 8,500 enterprises worldwide, more than 75% of the Fortune 100 and 99 of the top 100 U.S. business schools, rely on Qualtrics.