The initial public offering in the United States of Qualtrics has been announced in this press release through SAP News. Though it has been publicised the announcement is qualified by the remark that “A final decision on the IPO and its conditions and timing is pending and subject to market conditions”.
SAP made clear it “intends to remain the majority owner of Qualtrics” and that Qualtrics founder Ryan Smith “intends to be Qualtrics’ largest individual shareholder”. Further on in the press release SAP emphasised that this is not intended to be a “..spinning off or otherwise divesting its majority ownership interest” and that “SAP is fully committed to Experience Management and the Qualtrics XM Platform as a key element of its intelligent enterprise strategy.”
In the SAP 2nd quarterly statement, issued on the 27th of July 2020 SAP SE’s total revenue over the year grew to 6.74 billion Euros (7.9 billion USD), and Qualtrics’ segment revenue was up “34% to €168 million year-over-year”.
Qualtrics summarise the Experience Management platform in the following way:[Qualtrics allows the user to: ] Collect experience data from customers and employees at every meaningful touchpoint. Analyse and understand why things are happening and what to do about it. [And] Automate actions that drive improvement across customer, employee, product and brand experiences.
Customer Experience Management is the process of learning from interactions with customers in order to surpass their expectations in future or to apply those lessons in interactions with other customers.Qualtrics expanded this concept to include information from other sources “bringing together experience and operational data (X+O) to help organizations take action.” The orientation toward providing solutions for centralised decision making is a common strategy between SAP and Qualtrics.
SAP acquired Qualtrics fairly recently on the 11th of November 2018 (just four days before an IPO) for $8 billion under the guidance of a previous chief executive Bill McDermott. This was SAP’s second largest acquisition after Concur in 2014. Commenting in 2018, the Financial Times pointed out that “The all-cash purchase price offered by SAP is a hefty premium to the $2.5bn Qualtrics was valued at in its last private funding round in April 2017… It is also well above the $4.5bn the company could have reached in its IPO planned for this week, if it had priced its shares at the upper end of the $18-$21 a share range it was seeking, according to filings.”
The current CEO Christian Klein is quoted in the recent press release:
“SAP’s acquisition of Qualtrics has been a great success and has outperformed our expectations with 2019 cloud growth in excess of 40 percent, demonstrating very strong performance in the current setup… As Ryan Smith, Zig Serafin and I worked together, we decided that an IPO would 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 will remain Qualtrics’ largest and most important go-to-market and research and development (R&D) partner while giving Qualtrics greater independence to broaden its base by partnering and building out the entire experience management ecosystem.”
Ryan Smith explained his own motivations in the following manner:
“When we launched the Experience Management category, our goal was always to help as many organizations as possible leverage the XM Platform as a system of action…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.” The press release also points out that. “SAP will remain Qualtrics’ closest and most important co-innovation and go-to-market partner.”
For their part, SAP believes this move will “fortify Qualtrics’ ability to capture its full market potential within Experience Management… to increase Qualtrics’ autonomy and enable it to expand its footprint both within SAP’s customer base and beyond.”
The acquisition and subsequent IPO has been described as a win-win for the parties involved. They can say with authority that perceived stabilisation of their market position has led to greater profits and asset value. Given that SAP’s acquisition of Qualtrics is presumably due to their belief that there was some overlap in the services offered at the time, or in the services both groups planned to offer in the future we can describe the process as a negotiated alliance: a situation backed up by the intention of Ryan Smith to retain autonomy through the acquisition period and beyond. This has some parallels to the relationship now in existence between SAP and Siemens which was announced recently.
The current state of affairs can be described using the terminology of game theory and economic theory. The solution provided by both companies to the problem of cutting up and sharing the pieces of the Experience Management market pie (a zero-sum game) is to invite the markets in to contribute to the making of a bigger pie (a non-zero-sum game), thereby producing the win-win. What is glossed over is that the new shareholders will be entitled to a piece of that pie and that it is now the collective responsibility of this unofficial alliance to ensure the new pie is successfully made. One could also argue that these two companies are still in a zero-sum game with others in the Experience Management market: they are just competing as a team for a slice of a much larger pie.