What SAP’s $8bn acquisition of Qualtrics means for the future of SaaS

12 Nov 2018

Qualtrics co-founder Ryan Smith in Dublin in 2013. Image: Qualtrics

Combining experience management with ERP, CRM and HR has plenty of SaaS appeal for SAP.

German tech giant SAP has acquired US software player Qualtrics for $8bn in cash, opening up an exciting new paradigm in the future of software-as-a-service (SaaS).

The move shows interesting things are happening in the enterprise software space and comes just a few weeks after IBM acquired Linux software giant Red Hat for $34bn. This was understood to be the second-largest ever acquisition of a SaaS player after Oracle bought Netsuite for $9.3bn two years ago.

‘The combination of Qualtrics and SAP reaffirms experience management as the groundbreaking new frontier for the technology industry’

SAP will pay all cash to acquire Qualtrics shares and has secured $7bn in financing to cover acquisition costs. The deal is expected to close in the first half of 2019 and has been approved by the boards of directors of both companies.

Experience counts in the cloud business

Qualtrics, a leading player in the experience management (XM) segment, creates a system of record for experience data. It allows organisations to manage what it calls the four core experiences of business: customer, product, employee and brand experience. All of this can be managed on the firm’s one platform.

“We continually seek out transformational opportunities – today’s announcement is exactly that. Together, SAP and Qualtrics represent a new paradigm, similar to market-making shifts in personal operating systems, smart devices and social networks. SAP already touches 77pc of the world’s transactions,” said SAP CEO Bill McDermott.

“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.”

The Smiths who shaped the cloud business

Qualtrics was founded by a father-and-son team and is used by enterprises, academic institutions and government agencies to collect, analyse and act on feedback from customers.

CEO Ryan Smith helped to start Qualtrics with his dad in the basement of the family home in Utah in 2002. Since then, the company has risen to become one of the fastest-growing tech companies in the world, with thousands of enterprises across the telecoms, healthcare, financial services, retail, travel, consumer goods, technology and manufacturing industries using its platform.

Qualtrics established its European operations in Dublin in 2013. In August, Qualtrics revealed plans to boost its Irish headcount to 600 people through the hiring of 350 in Dublin.

“Our mission is to help organisations deliver the experiences that turn their customers into fanatics, employees into ambassadors, products into obsessions and brands into religions,” Smith said.

“Supported by a global team of over 95,000, SAP will help us scale faster and achieve our mission on a broader stage. This will put the XM Platform everywhere overnight. We could not be more excited to join forces with Bill and the SAP team in this once-in-a-generation opportunity to power the experience economy.”

The rationale for SAP acquiring Qualtrics

The best way to understand SAP’s acquisition of Qualtrics is the overall narrative of the world of computing moving from traditional on-premises services to one where everything is accessible through the cloud.

SAP is combining the running of businesses with the ability to get the best out of customer and employee experiences.

SAP’s operational data platform is the driving force behind systems such as HR, CRM and ERP, which are the lifeblood of most organisations today. By combining this with experience data, it positions the German IT giant for the next phase of how companies will run. It will also see SAP up the ante against Salesforce, one of the original forerunners of SaaS.

“The combination of Qualtrics and SAP reaffirms experience management as the groundbreaking new frontier for the technology industry,” McDermott said.

“SAP and Qualtrics are seizing this opportunity as like-minded innovators, united in mission, strategy and culture. We share the belief that every human voice holds value, every experience matters and that the best-run businesses can make the world run better. We can’t wait to stand beside Ryan and his amazing colleagues for the next chapters in the experience management story. The best for Qualtrics and SAP is yet to come!”

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years