The $12.5B Business Behind Online Surveys
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Good morning! It's Friday, September 15th. Today we’re tracing Qualtrics' path from operating out of a basement to servicing the majority of Fortune 500 companies!
The $12.5B Business Behind Online Surveys
If you’ve taken an online survey before, you’ve likely used Qualtrics’ without even knowing it.
The company made history in 2018 when it was acquired by SAP for $8B– the largest private-enterprise software acquisition to date. Qualtrics made waves again this year when SAP sold it to Silverlake for $12.5B!
What’s The Business
Like many successful entrepreneurs, Qualtrics founder Ryan Smith dropped out of college. However, it wasn’t to start a business. Instead, it was to take care of his father who had been diagnosed with throat cancer– but an idea for a billion-dollar company still came from it.
Smith’s father was a marketing professor and believed that the internet could be used to accelerate market research, and in doing so, cut out expensive market research firms. Essentially, Qualtrics' mission was to equip businesses with the tools to conduct their own market research.
The road to success was difficult, but today Qualtrics’ subscriber base includes the majority of Fortune 500 companies, and last year it generated $1.6B in revenue.
Qualtrics' business model relies on three revenue streams
XM Platform: Customers pay a subscription fee for access to XM, an all-in-one market research platform. Subscription costs vary depending on the size of the company. This revenue stream represents ~70% of the company’s earnings.
Qualtrics On Demand: Qualtrics organizes focus groups and conducts high-level market research for existing XM subscribers. Fees vary depending on the size and scope of the focus group testing, and it accounts for 20-30% of revenue.
Professional Services: This revenue stream involves the consulting and training fees for helping companies implement and integrate Qualtrics’ services.
As of December 2021, Qualtrics had over 16,750 customers using its XM platform across 120 countries.
How They Won: Finding the Right Consumers
In the early days, Qualtrics had a hard time converting new customers. Smith’s pitches fell on deaf ears as companies didn’t see a problem outsourcing their marketing research to a third party, believing that “If it ain’t broke, don’t fix it.”
Disrupting an established industry is difficult, but it isn’t impossible. Smith went back to the drawing board and completely changed his target audience. Rather than targeting businesses, he would sell directly to marketing professors at business schools.
This pivot was a game-changer for Qualtrics. Marketing professors were enthusiastic about the product and saw the potential behind Qualtric’s online research tools. While this consumer group didn’t have much capital, widespread adoption within this audience segment had substantial ripple effects.
For one, marketing professors fell in love with the survey tools and convinced sociology and psychology departments to implement it in their scientific research. Secondly, marketing students learned to use Qualtrics during business classes, and they’d take their software preferences to their future jobs.
By selling to marketing professors, Qualtrics created a direct avenue to future corporate customers. One of their first major deals came from a business graduate who went on to work at Heineken. After the MBA used Qualtrics for a field study project, Heineken bought a software license for $60,000. Another student who worked for Expedia similarly encouraged the travel company to sign up.
When asked about his company’s success, Smith stated the following:
“Reinventing ourselves is what we do best. Every time we’ve torn something down, our business has come back stronger and better.”
Whether it's transitioning to a subscription model, expanding product offerings, or reimagining their target audience, the number of reinventions Qualtrics went through from the early 2000s to today could fill a book.
That’s because Smith knew that it’s not change but complacency that kills a business. And for Qualtrics, which set out to disrupt the marketing industry, continually adapting to consumer trends wasn’t just a pathway to success– it was a necessity.