Decoding the Qualtrics deal: Was the firm a good fit for SAP?

SAP’s acquisition of a majority stake at customer experience (CX) software firm Qualtrics back in 2018 for $8 billion was never a match made in heaven. Both companies remained incongruous to each other’s progress before Qualtrics was sold to Silver Lake and CPP Investments earlier this week, according to experts and analysts.

“Even though Qualtrics is still a market leader and a strong product, it just didn’t fit very well with SAP’s strategy,” said Hyoun Park, principal analyst at research firm Amalgam Insights. “SAP was struggling to integrate Qualtrics sales into its existing environment. It turns out that Qualtrics is not an easy solution to integrate into the standard SAP platform sale as the core Qualtrics audience is removed from the typical enterprise application platform buyers.”

Qualtrics’ integration into SAP became even more difficult post the pandemic, according to Omdia principal analyst Mila D’Antonio.

“Qualtrics is oriented from the contact center and is in a crowded market. I suspect many Qualtrics customers had non-SAP vendors already in place and weren’t interested in displacing them,” D’Antonio said.

Qualtrics and SAP were never a culture fit

SAP could have avoided acquiring Qualtrics back in 2018  for an $8 billion price tag despite the CX market showing signs of growth and opportunity since the two firms were never a natural fit, according to analysts.

“While there was no doubt that CX mattered tremendously, there were a lot of questions about why SAP needed to buy Qualtrics versus retain them as an ecosystem partner along with numerous other popular CX products customers might use,” said Liz Herbert, principal analyst at market research firm Forrester. “Likewise, Qualtrics’ ability to partner with SAP’s competitors became in jeopardy once they were part of SAP.”

The other issue, according to Constellation Research’s Principal Analyst Liz Miller, was that these firms were also not a “culture fit”.

“I think everyone could see that this was not a terrific cultural fit for either organization. This is especially true now that the senior leadership at Qualtrics has blended that ‘mountain cool’ vibe of their founding culture with a new business focus enabled by leaders who spend decades at Microsoft,” Miller said.  

SAP to focus on its core products

SAP’s decision to sell the entirety of its stake in Qualtrics is a result of the company’s strategy pivot to focus on its core offerings, mainly S/4HANA.

“The new criticality for SAP is more focused on harnessing the data that the organization is already capable of aggregating and better connecting that ‘back office’ data from systems like ERP to those ‘front line’ technology tools across sales, service, marketing and commerce,” said Miller.

Qualtrics, according to Herbert, “presented a distraction” for SAP. “The acquisition of Qualtrics presented a distraction from SAP’s multi-billion-euro ERP business which was in the early days of a major shift from the old ECC product to the new S/4HANA product at that time,” Herbert said.

For SAP, Qualtrics was not the only acquisition in the CX space. It has also acquired other CX firms over the past few years, including Emarsys, Gigya, and Callidus. The company is now expected to focus more on these businesses as part of its CX products strategy, according to analysts.

“The sell-off of Qualtrics will allow SAP to focus on innovating Emarsys and its broader CX portfolio and integrating those systems with SAP’s enterprise resource planning,” D’Antonio said. “Such focus would indicate a go-to-market strategy aimed at sales, marketing, and ecommerce, rather than the contact center.”

What does the stake sale mean for CIOs and enterprises?

SAP’s stake sale in Qualtrics is more likely to usher in more innovative CX products in the company’s portfolio and have less to no impact on CIOs or enterprises, analysts said.

“The Qualtrics operation was largely separate from SAP, anyways. If anything, this acquisition should help accelerate Qualtrics product innovation again as now there is no parent company with a conflicting vision against Qualtrics’ role as a surveying, interaction, and experience data collection solution,” said Park.

CIOs are unlikely to feel much effect, according to Bob Parker, senior vice president at market research firm IDC. 

“Post the ownership change, it should be easier for CIOs to integrate the survey tools across the experience related applications (customer, employee, and product) they have in their portfolio along with analytic capabilities that are specific to experience management such as complex conjoint analysis,” Parker said.

However, heavy Qualtrics users are likely to see an increase in connections, APIs and ecosystem partner integrations as the company actively builds out its marketplace and ecosystem beyond SAP, Constellation Research’s Miller said.

What does the new deal mean for Qualtrics?

SAP’s stake sale in Qualtrics comes at the right time for both organizations as they can double down on their core products while leveraging the connections they forged during their time together, analysts said.

“The leadership doesn’t see any change for Qualtrics’ strategy as a result of the acquisition. In fact, they are more focused on their core growth with the XM (experience management) platform by offering a unified strategy across customer support, customer success, and scaling go-to-market through a partner-first strategy,” said Sudhir Rajagopal, research director at IDC.

In addition, CX remains a critical investment area for companies across industries and this should be a growth opportunity for Qualtrics post SAP’s divestiture, according to analysts.  

“Based on the customers I spoke with, there are still a lot of them who still only use their survey functionality, there is a great amount of growth still to unlock in their current customer base,” said Lou Reinemann, research director at IDC. 

Qualtrics has room to expand its data usage to support machine learning and contextual analytics use cases, Park said. The company is already working towards adding machine learning and AI-powered tools to its product portfolio.

Last week, Qualtrics unveiled Frontline Care — an omnichannel analytics and AI-powered tool, designed to aid customer-facing employees understand customers’ needs and actions along their journeys and respond proactively.

“This is notable, as enabling deep, real-time customer insights is the key to solving the omnichannel dilemma and improving CX,” Omdia’s D’Antonio said.

Mergers and Acquisitions, Oracle