That’s my first reaction to the news that SAP will acquire Qualtrics in a deal valued at $8 billion. It appears that as Qualtrics was preparing for an IPO, SAP swooped in and made an offer that founder/CEO Ryan Smith couldn’t refuse.
The SAP move is part of consolidation trend I predicted last year in my article “Voice of Customer Industry Trends: Consolidation, Disruption, and the Rise of Real-Time Action.” In that article, I identified 12 key players in large enterprises and concluded:
“With the exception of IBM, most could be acquired by either a) a bigger EFM player after an IPO, or b) much larger tech firms active in the CRM market, like Oracle, Salesforce.com, or SAP. Or, possibly a big contact center player like Cisco or Genesys. I think it’s inevitable that as VoC platforms evolve and grow, CRM/CX systems will eventually tightly integrate VoC capabilities. As soon as one of the bigger fish makes a move, the rest will follow.”
It’s nice to be right once in a while. Don’t remind me of the time I predicted Salesforce.com wouldn’t make it. (No, you don’t get a link to that article, you’ll need to hunt for it!).
Anyway, speaking of Salesforce, it’s your move Marc Benioff. I can’t imagine that enterprise software heavyweights like Salesforce – not to mention Adobe, Genesys, Microsoft, or Oracle – will stand by and let SAP capture the high ground. I fearlessly predict two more VoC acquisition in the next year.
Why did this take so long?
The EFM/VoC industry is 20 years old. For the past 10 years, enterprise software companies have shifted their messaging to Customer Experience, yet failed to offer an integrated VoC solution.
Well, that’s not completely true, because Verint acquired Vovici in 2013, and RightNow had a basic survey capability before that (later acquired by Oracle). NICE picked up Satmetrix (one of the true pioneers of VoC) last year. NICE and Verint both book in excess of $1 billion in revenue annually, which seems like a lot to me, but is not in the same league as the tech giants.
The simple answer for the delay: VoC is not a very big market, even when you add Voice of Employee and Market Research. Acquiring one of the larger vendors might add $100 million+ to the top line, not enough to impress investors. Even Qualtrics, which claims $400 million in revenue, is a rounding error on the $23 billion that SAP does annually.
The real value is strategic. As SAP CEO Bill McDermott said:
“SAP already touches 77 percent of the world’s transactions. When you combine our operational data with Qualtrics’ experience data, we will accelerate the XM category with an end-to-end solution with immediate global scale. For Qualtrics, this introduces a dynamic new partner with the belief, passion and scale to bring experience management to millions of customers around the world.”
I highlighted “end-to-end solution” because that’s one key differentiator — the ability for SAP to offer a tightly integrated “CX” solution that includes survey capability. While most large enterprises are using a VoC solution already, the midmarket is more sparsely penetrated. And SAP has more than 60,000 customers of SAP Business One, an ERP suite for SMBs.
My research finds that larger, more customer-centric enterprises are moving beyond surveys to incorporate signals from CRM and other operational data. Why wait for a survey when you can infer customer satisfaction based on the “digital footprints” that customers leave behind? Pre-packaged analytic options for SAP customers could accelerate that trend.
That said, one caution is that SAP business intelligence software (via Business Objects acquisition in 2007) may lack some of the sophistication needed for unstructured text/speech and cross-channel analytics. Qualtrics analytics are, to put it kindly, basic. Companies like Clarabridge, NICE, and Verint have an advantage here… until SAP closes it with (probably) another acquisition or two.
In short, this is good news for the CX industry, however you define it. CRM and ERP players will react and, over the next few years, EFM solutions will stop being a bolt-on focused mainly on surveys. EFM vendors will finally get the exits that their investors want, thanking Qualtrics for setting the bar at 20X revenue. Within five years, I predict we’ll be down to a handful of truly independent EFM vendors.
I asked for reactions to the SAP/Qualtrics deal from my industry contacts. Some edited for space, but otherwise direct quotes or statements.
Medallia has been rumored to be on the brink of an IPO for some time. CMO Sophie Chesters wouldn’t comment on whether SAP made an offer, but her statement echoes the positive sentiment of nearly everyone who responded to my request for comment.
“This is a fantastic validation of the importance of experience management for innovative, progressive brands worldwide. SAP, one of the world’s biggest business software companies has recognized the strategic value of experience management to their future – this can only be great for customers, employees and citizens as more brands, employers and governments take notice.”
Sid Banerjee, Founder and Vice Chairman of Clarabridge, sent me an epistle in which he applauded the mainstreaming of CX and agreed with the SAP/Qualtrics “aspiration.” But, he points out that his firm offers more today for complex multi-channel and natural language processing.
“For 10 years, we have always viewed CX as an omnichannel, customer journey analytics and optimization solution. A Clarabridge solution typically connects call recordings, relationship and touchpoint surveys, digital feedback, ratings and reviews, and CRM notes and cases into Clarabridge’s integrated, big data platform for analysis, alerting and case management, and deploys insights, alerting, and case management to hundreds or even thousands of users across an enterprise. SAP has not traditionally competed against Clarabridge, and Qualtrics has typically provided survey content to Clarabridge – powered solutions – the big question is will we see SAP/Qualtrics as a new competitor to Clarabridge, and if so when? “
Verint sent a statement reflecting similar sentiments of Ryan Hollenbeck (SVP Global Marketing) and Tim Whiting (VP Marketing).
“The market convergence of customer relationship management (CRM) and voice of the customer (VoC) is well underway, and this acquisition as another validation of the evolution and prioritization of customer experience (CX), which many of us have long anticipated. The idea of combining operational and experiential data to enable customers to win with their CX has informed Verint’s customer engagement strategy for many years. As a complement to our core capability of leveraging automation to turn contact center customer feedback and operational data into actionable insights and operational improvement, Verint has assembled a strategy that brings together experiential and operational data from across all channels.
Qualtrics solution partner Walker sees upside, according to VP Marketing Pat Gibbons.
“We’re still trying to learn more about it and of course, what it means for Walker. We’re very optimistic that it will only accelerate the momentum we’ve already seen from our partnership.”
Part of the evolving “XM” industry includes solutions for Customer Success Management (CSM), a hot area especially for B2B SaaS companies. Guy Nirpaz, CEO of SAP partner Totango, thinks SAP’s acquisition of Qualtrics is a bold move.
“SAP’s recent acquisition of Qualtrics is a demonstration of SAP’s big, bold bet on a customer centered approach to their business and SAP is playing to win. SAP’s focus has been in helping their customers connect the dots between data and business results. We operationalize this data and turn it into outcomes. This announcement further validates Totango’s vision for a Customer Centered Economy where every person within a company should be powered by data.”
Dave Fish, market research pro and EFM industry watcher, says it’s an $8 billion bet on the value of integrated systems.
“Beyond SAP being “kind of big deal” in the Ron Burgundy sense, they also just happen to have a pretty good CRM and ERP systems already built. Well shucks! All they need is a nifty snap-on of a CX solution and they are off to the races. Look out SFDC and Dynamics 365! Notwithstanding countless prognostications (including my own), the future of the industry is far from certain. However, two things are very clear to me; 1) I need to start wearing a hat more often and 2) the future of CX is clearly in the integration of CRM and EFM.
Andy MacMillan, CEO of UserTesting, welcomes SAP to the XM space.
“Congrats to the team at Qualtrics, a sister company of ours in the Accel portfolio, on their acquisition today by SAP,” said Andy MacMillan, CEO of UserTesting. “The team at Qualtrics have built an industry leading experience management capability, helping their customers succeed in a time where market leadership and competitive differentiation is increasingly decided on who provides the best customer experience. The acquisition of Qualtrics by SAP further validates the customer experience industry and the value human insights brings to an organization. We look forward to a continued partnership with them in so many of our joint, strategic customers and welcome SAP to the space of experience management.”
Vinod Muthukrishnan, co-founder and CEO of CloudCherry — one of the newer VoC players — thinks the strong will survive M&A activity.
“SAP’s large investment demonstrates the power of customer experience and perception as the strongest leading metrics for business success in today’s economy. This news is exciting for the CX industry as a whole, particularly those few players with the technical capabilities to blend operational data with customer experience data and drive meaningful and actionable insights predictively for companies that directly impact the bottom line. Every industry inevitably faces shake ups through M&A – we’re more than ready for this in the burgeoning CX space as it will allow the strongest players to step forward and fill critical gaps with businesses of all sizes.”
Andrew Joiner, CEO of InMoment, like other seasoned EFM players argues that the future will require advanced data science using more than survey data.
“This acquisition underscores the strong demand for technology that helps companies tap into experience data. Vendors like Qualtrics and Survey Monkey have done a phenomenal job of getting their survey tools into the hands of business users, allowing them to ask customers and employees more and more questions about their experiences. The next-level opportunity for this market is taking survey data like Qualtrics collects, layering in rich digital, conversational and multimedia data, and then applying advanced data science.”
Customer engagement industry analyst Thomas Wieberneit doesn’t really buy into the “XM industry” because experiences can’t be managed. But maybe they can, in which case it’s all about the data!
“The possibilities of directly connecting business transactions to the ‘experience’ in real time are far reaching (might actually lead to me rethinking my statement above). This acquisition ties in very neatly into and strengthens the storyline of C/4HANA (aka the SAP Customer Experience Suite) and the Intelligent Enterprise. The future lies in access and control of data. The relevant business and consumer networks have been acquired, most vendors have access to consumer data, especially Microsoft. Oracle and Salesforce are more on the back foot again – if not outright flat footed.
Scott Webb, president of Avionos, thinks the SAP/Qualtrics deal could signal a shift towards more unified platforms for B2B companies.
“It should be noted that SAP touts 413k customers, the acquisition opens the door for massive growth from Qualtrics’ current 9k. ‘Experience management’ is not going away and SAP’s acquisition of a company that literally claims that as its core business is proof that more major players are finding ways to answer customers’ demands. Demand from B2B customers for unified platforms (don’t want to work with multiple vendors if they can get everything they need in one place) – complete 180 shift from what we’ve seen in the past, as niche players were often better equipped to provide personalized customer offerings.
Sean Kendall, director of customer experience at TetraVX stresses the strategic importance of using operational data.
“Those in CX who understand the discipline always knew its worth to an organization that was willing to embrace it. But SAP just gave CX a price tag that places it well above other ‘standard’ business units any organization budgets around. It is a validation and vindication of CX importance to organizations in today’s consumer-driven services economy. Now [SAP] is taking mountains of operational data – which they and every company worth a damn has – and comparing it to historically lukewarm-received qualitative experience data. And potentially across their portfolio of software to tailor an experience others in the space can’t. It is an extremely bold and impressive move in response to the consumer evolution of the last decade and shows that it isn’t changing anytime soon.”
Sal Visca, CTO of Elastic Path sees the marriage of CX and operational data as key to agile marketing.
“SAP is paying a premium because it sees Qualtrics as having gone way beyond their survey roots to full experience management. SAP has been trying to move from a back-office application company towards offering front-office and full customer experience capabilities. Acquiring Qualtrics allows SAP to combine CX data and operational data, which has the potential to make SAP a more effective tool for marketers and be more competitive in the CRM space. That said, we’ll only see that potential come to fruition if marketers can react quickly to the resulting insights.”
Other reactions? Please leave a comment below!
Bob, great round up of the situation. I agree, that like most of nature we go through period of fragmentation and then consolidation…only to followed my fragmentation by innovators. We are heading down the path of negative entropy at the moment. Thanks for summary and [correct] prognostication.
great summary, Bob. You might underestimate the analytic capabilities of SAP, which have moved far beyond Business Objects.
The race for data, and more importantly: insight, is on. Companies with access to data and the ability to turn it into something actionable will continue to be gobbled up. That might well include some pretty expensive ones (another attempt at Twitter anyone? How about InsideSales?)
Who do you think will make the next move, Bob? Curious if you think Wootric CEO Deepa Subramanian gets it right. Adobe? Salesforce?: https://www.linkedin.com/pulse/qualtrics-sap-what-8b-acquisition-means-cx-arms-race-subramanian/
I think you are right Bob – here is a link to my perspective https://bit.ly/2OM71lx