Qualtrics IPO Alert: Buckle Up for Changes

Updated: Feb 23

Last July, SAP announced plans to take Qualtrics public in an upcoming IPO. Qualtrics is the premier provider of Experience Management (XM) and Customer Experience (CX) survey software, and SAP will remain the majority owner. The move – slated for early 2021 -- is intended to increase Qualtrics’ autonomy and enable it to grow its market within and beyond the SAP customer base. It will also allow better enable SAP to focus on integrating its portfolio of enterprise cloud offerings and, we believe, because of Qualtrics’ size, integrating it would require too big an investment.

Why Should Customers Care?

At ClearEdge, we are experiencing a huge influx of Qualtrics deals of increasingly larger sizes. The average dollar amount of Qualtrics deals has swollen by 76% in the last 24 months, and this trend shows no signs of slowing. Qualtrics proposals are also notable for being opaque. With greater autonomy, we predict that Qualtrics’ sales reps will still behave aggressively and be less willing to negotiate or provide transparency.

Exponential growth of SAP Qualtrics Deal Size Trends Year Over Year

The above chart showcases how deal sizes for Qualtrics spends have changed year over year. Though the average only incrementally increased, the top 25% and upper ranges (top 5% roughly) experienced a large variance in comparison to the average. This variance has proved that a number of Qualtrics agreements expanded rapidly under SAP's paper, solidifying Qualtrics as a strategic software spend area for many customers.

Given the impending IPO, we recommend clients immediately set aside time to rethink their SAP and their Qualtrics strategies, going forward. We anticipate more rigid and longer renewal terms, with little opportunity for negotiation unless there’s net new spend. The vendor is hungry for revenue after being battered in 2020 and will inflate demand models and foist excessive product suites on customers to maximize spending. Furthermore, without Qualtrics offerings in the mix, SAP customers lose a point of leverage: there’ll be no more incorporating Qualtrics spend in SAP deals for greater buying power or using Qualtrics competition to threaten SAP with lost business.

We have seen a lot of Qualtrics customers close deals on SAP paper, which means they were probably doing business directly with SAP. Moving ahead, the deal process will look different with the Qualtrics team. For example, standard renewal uplifts for SAP are 3.3%, while the Qualtrics standard renewal is a bump up to 5%.

For Qualtrics customers, our advice is to renew earlier and lock in longer deal terms. By getting ahead of the transition that follows the spin-off and IPO, you will inoculate your company from the risk of the unknown. At the same time, you would be wise to explore alternative solutions to Qualtrics, which could provide a viable Plan B if/when needed.

By engaging early with Qualtrics, you will give yourself time to push back and go multiple rounds with the vendor. The sales reps might stand their ground on multi-year proposals or poor renewal terms, but Qualtrics will not walk away from new business.

We also urge clients to create a conservative internal demand model and carefully control the information flow to Qualtrics. This exercise includes starting with a low demand, getting prices, and slowly introducing more demand to encourage volume discounts. Qualtrics will not reduce quantities or provide additional discounts once they know you’re looking at higher volumes.

Customers are advised to carefully leverage any new spend. After the IPO, Qualtrics will be eager to secure revenue and show growth. Use the vendor’s fiscal year end to close new business when they will be highly motivated to do so.

For more information about leverage building opportunities, download our blog titled “Leverage: The Key to Every Deal” or contact your ClearEdge representative.

- Christian DeKnatel is an Analyst at ClearEdge Partners.