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Why did SAP spend $8B on Qualtrics?


2018-11-16

At an eye-watering multiple of more than 21 times revenue, this is one of SAP's biggest acquisitions ever. What does it mean for SAP customers?

With barely $400 million in annual revenue, Qualtrics was hardly a household name prior to it's acquisition by SAP.

The company provides SaaS solutions to collect and analyze data based on customer experience, brand experience, employee experience and product experience.

So at first glance, it seems like a grown-up version of SurveyMonkey. So why is it worth $8 billion to SAP?

There seem to be three obvious intersections where SAP solutions could fit quite nicely and be extended by the Qualtrics portfolio:

  • CRM for customer engaagement
  • Hybris marketing for brand/product engagement
  • SuccessFactors for employee engagement

It's not much of a stretch to see how having a tightly-integrated customer and employee survey/feedback mechanism could provide valuable information and insights. This is something that is arguably lacking in the SAP solution portfolio today.

In some respects this feels like a defensive play to prevent a unicorn from falling into the hands of competitors, or worse (as in the case of SalesForce) them becoming so large and successful that they become a threatening competitor themselves. McDermott had a chance to buy SalesForce in the early days after their IPO but baulked at the price. No doubt he doesn't want to make the same mistake again, hence the eye-watering multiple of over 21 times revenue. It's a number that would make an any accountant cringe, but no doubt in the backs of the minds of the board of SAP, the missed opportunity with Salesforce will be used for internal justification.

The acquisition makes a lot of sense for SAP and will make a great addition to the portfolio. It will be used as yet another differentiating factor in the world of enterprise software where ERP has become boring, and customers are looking for the next sexy cloud app to show off to their CEO's.

Time will tell whether this will turn out to be a brilliant investment decision, as in Hybris, or a total dud, like Sybase.

It's definitely going to boost the C/4HANA, Hybris, and SuccessFactors product lines, but at $8 billion, it's going to be hard to see any sort of immediate financial justification, at least in the next few years.

If nothing else, customers will notice a lot fewer customer surveys from SAP using SurveyMonkey.