Over the weekend, in a move that surprised many of us in business and tech, German software giants SAP announced their intention to spin out their experience management acquisition Qualtrics and make it public through an IPO. The announcement was deemed particularly notable due to the fact that SAP only acquired the experience management company less than two years ago.
Back in late 2018, a few days before Qualtrics went public, SAP acquired the Utah-based Qualtrics for a cash-only deal of $8Bn. This was one of the biggest cash-only deals at the time, making this announcement all the more surprising and exciting. What does this move tell us about the nature of the Experience Management market? How have circumstances shifted in just a few short years?
It’s worth noting that the partnership between SAP and Qualtrics is far from over. In fact, SAP will retain majority ownership of Qualtrics and the experience management company’s founder, Ryan Smith, will be the firm’s largest stakeholder. Speaking about the move, Smith added, “SAP is an incredible partner with unprecedented global reach, and we couldn't be more excited about continuing the partnership. This will allow us to continue building out the XM ecosystem across a broad array of partners.”
Commenting on the news, SAP CEO Christian Klein said “SAP's acquisition of Qualtrics has been a great success and has outperformed our expectations with 2019 cloud growth in excess of 40%, demonstrating very strong performance in the current setup.” He added that this spin-out will provide the “greatest opportunity for Qualtrics to grow the experience management category, serve its customers, explore its own acquisition strategy, and continue building the best talent.”
SAP’s decision to make Qualtrics public stands to unlock the software company’s value to an unprecedented extent, boosting their autonomy on the scene while continuing to generate revenue for SAP. The massive value potential of Qualtrics has clearly not gone unnoticed.
As Josh Bersin notes in his analysis of the news, Qualtrics technology “has been integrated into nearly all SAP products,” used throughout their HR software SuccessFactors HXM Suite, which has caused massive expansion under which, “the product line continues to grow at over 34% annually, generating $168M revenue in Q2.” What does this spell for future growth? By Bersin’s calculations, “this means the Qualtrics IPO could be worth $20 Billion, roughly 2.5X what SAP paid in late 2018.”
For this reason, SAP’s decision to spin out and make Qualtrics public could stand to bring the two companies the best of both worlds—both financially and strategically.
XM and the pandemic
In some ways, the COVID-19 outbreak has created the perfect storm for Experience Management software to truly come into its own. While customer experience management tools will remain important in the Next Normal, companies will now have to lean on the employee experience management investments more than ever to gauge satisfaction, track performance, facilitate onboarding and provide feedback-to-action.
With remote work and distributed teams looking set to continue into the foreseeable future, cloud-based software such as Qualtrics’ will be an ever more crucial commodity. Even organisations that had never looked into adopting such technologies will now be obliged to invest in these tools. As part of their packages, Qualtrics offers Onboarding Optimization, Pulse-taking options, Training Assessments, Engagement Tools and EmployeeXM for IT.
Similarly, employee well-being and mental health services will now be increasingly delivered remotely through cloud-based softwares. According to a recent Willis Towers Watson survey, almost 80% of APAC companies have promoted Employee Assistance Programme (EAP) and online emotional or mental health services for workers under COVID, while 72% have “prioritised communicating about wellbeing apps to support their workforce in maintaining their physical and emotional wellbeing especially when they work-from-home.” Going forwards, all of these resources will be bolstered by or dependent upon data gathered by EX technologies like Qualtrics.
Under the current circumstances—and with SAP’s continued support, endorsement and access to customers—Qualtrics’ projected growth may surpass even the most optimistic projections. A bold and decisive action from these companies, it remains to be seen how exactly this relationship will continue to play out, and how this decision will influence other big players across the sector.
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