German-based tech giant SAP has been dominating the enterprise software market for years. SAP provides ready-to-use end-to-end solutions for businesses across industries. Enterprises use SAP to manage customer relations and business operations. The company was started in the late 1970s by five IBM engineers who focused on standardizing enterprise resource planning (ERP). Today SAP makes the No. 1 ERP software, which is used by most of the Fortune 500 companies. The company operates in 180 countries with more than 335,000 customers. SAP touches 77 percent of the world’s transactions. This November, the company announced that it will be acquiring Qualtrics, a cloud unicorn. So, what impact will the acquisition have on SAP’s business model? Let’s find out.
An introduction to Qualtrics
Qualtrics is a U.S.-based market-analytics company that provides survey software that can collect and analyze customer experience data. Qualtrics is all about experience management (XM), which is an inevitable part of quality control. Qualtrics is the first platform to measure employee experiences through predictive intelligence. The company has more than 9,000 users worldwide and was ranked No. 6 on the Forbes Cloud 100 list in 2017.
Since its founding in 2002, the company has been producing positive free cash flow. In Q2 2018, the company’s revenue was $97.1 million which grew at a rate of 8.5 percent and hit $105.4 million in Q3. Compared to 2017, the company’s operating cash flow has grown to $52.5 million, just in the first 9 months of 2018. According to Qualtrics’ recent announcement, the company expects its full-year revenue to exceed $400 million and a growth rate of over 40 percent without even counting the synergy of SAP. Given the financial growth of Qualtrics over the years, SAP’s decision to buy the company is indeed a wise choice.
What difference does the acquisition make?
SAP is hugely driven by operational data. The problem with the operational data is that it doesn’t answer certain questions about customer opinions. For example, you cannot understand why a customer feels a certain way about your brand using the operational data. So when you combine the customer experience data (X data) with operational data (O data), you can exactly understand the areas that need some fix. Such clarity in analytics can help you improve every area of your business. SAP was attracted to the ability of Qualtrics to add customer sentiment to the applications across its suite.
SAP and Qualtrics will together expand their customer relationship management (CRM) capabilities. The duo would then compete with companies like Salesforce and Microsoft. SAP CEO Bill McDermott feels that the combination of X data and O data will produce phenomenal results and has also expressed that this acquisition was the biggest idea of his lifetime.
Why experience management is a big deal
Qualtrics’ XM is all about managing the four core experiences of a business. These experiences include customer experience, product experience, brand experience, and employee experience.
1. Customer experience (CX)
Qualtrics CX gives you a wide range of options to interact with your customer, digs deep into the text responses, and converts them into meaningful insights. The platform not only gauges the customer experience scores but also help you understand why your customer feels a certain way about a certain service.
The data collection tools adapt to the feedback on a real-time basis. This will eventually enable you to get straight into the issues that matter. The insights will also help you predict what the customer will do next and act accordingly.
The software democratizes the insights across the organization. Tools like role-based dashboards put the right data in front of every stakeholder. Also, the employees can collaborate using action-planning tools that allow them to tag owners, set deadlines, get guidance etc.
2. Employee experience (EX)
Happy employees are a sign of a healthy organization. Every employee contributes to the company’s growth. Understanding employee experience is critical to bridge training gaps, reduce unwanted attritions, nurture talents, enhance team management and increase efficiency.
Qualtrics EX improves team engagement by providing managers with clear insights into the employee experiences of their reportees. Also, the platform would help you improve onboardings, training, assessments, and every experience across the employee lifecycle.
3. Brand experience (BX)
Creating a good seller persona is as important as creating the brand itself. This is why companies obsess over brand awareness and dump millions into advertisements and promotions. Qualtrics BX enables in-house employees to take full control over the branding strategy rather than depending on third-party marketers and consultants.
The platform comes with a simple interface and easy-to-use tools like drag-and-drop to enable almost any employee to build branding strategy like a pro. The software allows you to test your ads with the right customer segments and optimize them before they go live.
4. Product experience (PX)
Qualtrics PX helps you understand customer needs, measure user experience and prioritize features accordingly. This is important because the market trends are changing at a neck-breaking pace and it is difficult to survive in the market if you don’t keep up.
Qualtrics PX puts the customers at the heart of every decision and helps your product adapt to the market conditions. The platform also enables you to shorten the product development cycles and build a perfect pricing model. You can even compare with the offerings of your competitors and figure out ways to enrich your product with what they lack. Taking customer experience seriously at every point of the product life cycle will not just drive usage and revenue, but loyalty too.
Qualtrics’ initial plans of going public
Survey Monkey is the major competitor of Qualtrics and it went public in September. Qualtrics had plans of going public too. The company even filed with U.S. regulators to sell shares worth 20.5 million at a price of $18-$21 per share in an initial public offering. If the company had gone public, it would have hit a market capitalization of around $4.5 billion. But the plan was scrapped when the company decided to join hands with SAP.
SAP will acquire Qualtrics for $8 billion in cash in 2019. This will be SAP’s second-biggest acquisition in its history. The first one is the $8.3 billion acquisition of Concur (a travel and expenses management firm) in 2014. Also, this is the second biggest acquisition of a SaaS company in the history with the first one being the acquisition of Netsuite by Oracle in 2016.
This is a good deal for Qualtrics in the short term and the company’s co-founders Ryan Smith, Jared Smith, and their father, Scott, will get more than $3 billion for their stake. Also, the family will not lose all its power by selling the company as Ryan Smith would continue to be the CEO even after the acquisition. According to Ryan, this deal would help Qualtrics do tomorrow what it would have done in the next ten years with IPO.
SAP and Qualtrics: A good fit
SAP and Qualtrics seem to share the same belief of equipping themselves by acquiring powerful companies. The companies also have mutual customers like Under Armour. Qualtrics has been reinforcing its strength by acquiring startups like Statwing, Delighted and Tango card. According to CEO McDermott, the duo aims to reshape the way how feedback driven businesses work. He also compared this deal with Facebook’s acquisition of Instagram. If this analogy is true, Qualtrics will matter to SAP way more than what the deal price suggests.
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