by Bob Walker | Oct 31, 2018 | Uncategorized
As expected, Qualtrics filed its Form S-1 registration statement (IPO) on October 19, 2018 under the oh-so-sexy symbol ‘XM’. Qualtrics, backed by VC firms Sequoia and Accel, has been valued at as much as $2.5 billion; soon we’ll hear what the market says.
XM’s IPO was certainly hurried along by the recent public offering of SVMK (SurveyMonkey). How quickly expectations fade: SVMK began trading on September 26, 2018, as high as $20 and closed at $17.24. Today (October 31, 2018) SVMK closed at $10.71 — a drop of nearly 40% in a month. BOO!
Still, SVMK’s market cap of $1.31B is nothing to scream at.
Interestingly, both companies are roughly the same “core” size (i.e., revenue from subscriptions), although they got there in very different ways. In 2017, SVMK subscription revenue was $219 million and Qualtrics was $213 million. However, Qualtrics adds nicely to their subscription business with service bureau-style programming, sample, and integration services that combined are $77 million (26% of total revenue) for a grand total of $290 million. SVMK is making a significant effort to expand their team and enterprise offerings.
Qualtrics is a different story. While the operating picture is a bit ghoulish, the real story is Qualtrics’ growth rate. According to the S-1, as of June 30, 2018, Qualtrics had an overall net operating loss of -$3.4 million, slightly ahead of its 2017 loss of -$3.7 million (amounting to about -2% of revenue). Conversely, Qualtrics’ subscription revenue grew nearly 50% in the full year ending 2017, and 42% in the first six months of 2018. And Qualtrics’ total revenue grew 52% in the year ending 2017, and 40% for the first six months of 2018. The street likes a Cinderella story (sorry, wrong genre), and Qualtrics is certainly that. But maybe I am missing something.
Still, SVMK revenue grew at a reasonable 6% between 2016 and 2017, and for the first six months of 2018 grew somewhat faster at 14%. But this was not enough to overcome a gaping operating loss of -$27 million (the first six months of 2018).
Given weak financials and a significantly depressed stock price, SVMK looks like a juicy acquisition target. Likely prospects include Facebook (limited survey capability but a vast supply of sample) and Google Forms (part of G-Suite with basic functionality). Are scary spirits propping up the stock price? With rapid acceleration, costs at Qualtrics have also grown fast. As revenue from labor-intensive “professional services” grows, labor cost growth must outpace revenue. These costs are not as scalable. Qualtrics’ “professional services” gross margin (currently at -20%) drags subscription margins down (which are 80%). Sales and marketing expenses are a whopping 50% of revenue (with R&D at just 15%). License fees are not funding more R&D; instead, fees largely support the sales team, marketing, and the Qualtrics Summit. That doesn’t seem like a very sustainable business model to me. Maybe I am missing something.
Qualtrics says that their “business model relies on rapidly and efficiently landing new customers and expanding our relationship with them over time.” Translation: XM’s cross-sell tentacles quickly reach across organizational boundaries wherever feedback is involved. Qualtrics has smartly leveraged their survey data collection engine across corporate silos with similar data and benchmarking needs (i.e., effectively the back-end of Research Core).
This templated approach is attractive for “large customers” (those with $100K+ in subscription revenue) who seek a familiar look and feel, a shared platform, and a tiered pricing model. Large customer growth has been very fast: +60% in the six months ending June 30, 2018, impressive by any measure. Qualtrics is also able to leverage its technology investment by modularizing its code base.
Qualtrics claims to have created a “new category of software, Experience Management, or XM™, which enables organizations to address the challenges and opportunities presented by the experience economy.” This is largely magical thinking for the IPO syndicators and future investors. In reality, there are only so many whales. The pod is fairly static and growth of 50% YOY is simply unsustainable in any industry. Maybe I am missing something.
Qualtrics has a few options: headcount and cost reduction, price increases, and perhaps packages for lower-end customers (and hope to upsell/cross-sell). These don’t seem likely. Rather, as Qualtrics continues its rapid move into consulting (and away from DIY subscriptions), they will be attractive as an acquisition target for companies in software, accounting, and management consulting. And Qualtrics fits well into a blockchain-enabled, supply-chain world.
No doubt, the IPO will make the founders very rich. But with a sweet acquisition offer, the management team may find itself working for a new employer sooner than they think. But maybe I am missing something.
BOO! That’s a scary story indeed!
by Bob Walker | Oct 3, 2018 | Marketing and strategy, Marketing research
There is an old joke about sharing research results: management’s response is either “I could have told you that”, or “I don’t believe it”. Humorous, but too often true.
Yet if a company has spent serious money on research, perhaps management should listen more closely to the full story. As researchers, we know all too well that any research project will usually confirm some obvious things. For example, a brand’s overall position or market share, key benefits, or common usage occasions are standard by-products of many studies.
But what happens when we peel back the layers a little more, and drill into more subtle differences? That is where we can uncover new learning and turn doubters into believers.
Recently, a well-known management consulting firm was hired to develop a new growth strategy for a major pain reliever brand with over $300 million in sales and a 30% market share. The consulting firm’s research convincingly showed that 60% of the brand’s usage occasions were for muscular pain. It was therefore argued that the product should concentrate all of its advertising dollars on this single use indication. By going narrow, it was argued, we could grow huge. In doing so, it could capture the lion’s share of the muscular pain “market”. It was brilliant strategy – or was it?
By solely concentrating on a single indication, 40% of the business would be at risk (i.e., the non-muscle pain usage). Ad support would only be for muscle pain, leaving all other indications vulnerable and up for grabs.
The new campaign would, therefore, start with a significant share deficit – roughly 12% (40% non-muscle pain usage of the 30% share). It would have to make up the share loss by stealing from other muscle pain usage occasions – if that was even possible. The strategy was severely flawed.
My client immediately felt uneasy with the recommendation. She questioned the way in which the firm had asked its questions. The approach they used virtually guaranteed the results obtained and, in fact, it was designed to simply confirm what they had recommended.
We urged caution and requested resources to conduct a better-designed study. Management initially balked, saying “I don’t believe it”. But we prevailed, and showed that the pain reliever market is really a huge basket of symptoms far greater than muscular pain alone. There were many pain indications: headache, fever, menstrual pain, dental pain, fractures, flu/fever, swelling, fatigue, and more. Muscular pain was actually a smaller indication than headache or flu/fever. Our brand just didn’t have as much share for these indications.
With the executive team’s support, the brand was successfully re-positioned as an all-purpose pain reliever. Other pain reliever brands that went the “single indication” route ended up being much smaller businesses.
And we don’t hear people saying “I don’t believe it” anymore.
by Bob Walker | Sep 17, 2018 | Marketing and strategy, Marketing research, Survey research
On August 29, 2018 SurveyMonkey filed an initial registration statement with the SEC (symbol “SVMK”) to float an IPO; the offering is now expected in late September. A recent update to its IPO filing includes a first pass at pricing; it has printed a price range of $9-$11 which, at a midpoint valuation, is $1.29 billion (lower than originally estimated).
In 2017, SurveyMonkey had revenues of $219MM, up 5.5% from 2016, and appears to be on track for around $240MM in 2018. However, the company is losing money: the loss of $24MM in 2017 has already been exceeded in the first six months of 2018 ($27MM). The company attributes this to increased R&D spending, but this accounts for $15MM of that figure.
In the research space, there are other possible IPO candidates, e.g., Qualtrics (we expect an IPO eventually), Decipher (part of FocusVision), and Confirmit (already listed on the Oslo exchange). Of all of the SaaS offerings, SurveyMonkey has perhaps the most to gain as it contemplates expansion – or sets itself up to be acquired. The list of potential suitors could include social media, e.g., Facebook (Sheryl Sandberg owns 5% of SVMK) or Google, and on the research/data science side are ResearchNow/SSI, IBM (SPSS), or even Microsoft.
Yet the opposite might be true: SVMK notes that their large user base, offerings, extensive data set, and integrations provide opportunities to drive acquisition: remember Zoomerang?
The S1 statement is interesting from a trends standpoint, as SVMK makes the following observations (paraphrased) about the survey research industry:
- The nature of engagement between organizations and their key constituents is fundamentally changing by becoming more open, bi-directional and frequent. Internet-enabled business models, together with rapidly evolving societal changes have revolutionized constituent expectations for service, speed and experience. Organizations that ignore, misinterpret or react too slowly to feedback risk falling behind the competition.
- “Big data” alone is insufficient to optimize decision making. To make good decisions, organizations need to marry “big data” with “people powered data” so that organizations can see beyond basic trends and better understand issues affecting key constituents.
- Employees are increasingly empowered to make decisions, and decision making within organizations has become decentralized. Employees throughout organizations are directly collecting and analyzing feedback. Access to information enables more decisions to be made at more levels across the organization. This accelerates the operating speed of the organization and increases accountability for decision making at all levels. As this data set is aggregated, organizational leadership is also using these insights to improve organization-wide decision making.
- Technology adoption is changing: IT solutions are now shaped by decentralized use. As organizations let employees become more empowered, technology becomes accessible to more individuals with varying levels of skill. IT departments then must step in and impose enterprise-grade security, customized company branding, and integration with software applications.
SVMK bolsters its IPO case by noting that quality research requires design, analysis time, and expertise that many companies do not have. Thus, individuals with absolutely no research expertise can gather and analyze data like a pro. As a long-time marketing research consultant, I find this assertion to be silly. Believe what you want; an additional planned layer of AI technology is envisioned to add support to this naive conceptual model.
Of note, a study conducted by SVMK in 2017 showed that 45% of business users who utilize online survey software considered SurveyMonkey to be their survey platform of choice. This makes perfect sense to me: SurveyMonkey fits the needs of individuals and small teams who need answers to basic questions. The design tool and integrations are good, and the online reporting is solid (better than several enterprise platforms), and the mobile app is very good.
In the right hands, SurveyMonkey can work as well as enterprise platforms, giving SVMK much more runway to grow. Conversely, growth in enterprise platforms like Qualtrics is flattening, as more revenue must come from consulting services and thus stealing business from full-service research firms. And, unlike many enterprise platforms, SVMK has developed a huge stable of free integrations to expand its functionality, while other companies charge ridiculous amounts for the same thing.
There is no question that the impact of SurveyMonkey on the survey research industry has been vast: there are 60 million registered users, of which 16 million are active. While most accounts are non-revenue generating (i.e., free), there are still 600K paying customers across 300K organizations.
by Bob Walker | Sep 16, 2018 | Marketing and strategy, Uncategorized
Blockchain provides the basis for a dynamic shared ledger that can reduce time when recording transactions, intermediary costs, and fraud. In the last couple of years, I’ve seen an increasing number of presentations on the value of blockchain. In industries where digital record-keeping is lacking, an immutable ledger (guaranteeing the chain of custody between parties) can be an enormously powerful tool.
Now it is much more than a concept – blockchain is being implemented around the globe. As the development of the “physical cloud” evolves, blockchain will thrive as more processes are truly automated, presenting fewer vulnerabilities and opportunities for fraud. Supply chains will have less buffer inventory, and more materials will be harvested just-in-time to feed fluctuating demand.
Yet in the marketing research industry, blockchain faces significant challenges. Current efforts, like those in other industries, are primarily focused on accounting benefits and fraud prevention. In particular, online consumer panel companies are dealing with huge amounts of fraud: they have been paying out millions in incentives for surveys with no data! How does this happen? Bots, click farms, and illegal software can all circumvent legitimate data collection efforts. One of the worst is a program called Coby. Once installed, it hides behind a VPN. Coby brags that it can generate personal information “to protect your privacy”, can complete Captcha prompts, completes surveys that have just enough variability, and generates email to fool panel companies. No wonder research companies are panicked.
Data privacy advocates say that blockchain will allow consumers to take control of their personal data “assets” such demographics or financial data. Online consumer panelists allow access to their anonymized personal information using tokens, which are digital permission slips with a limited lifespan. One a token is exchanged, the anonymized information (including survey responses) is passed to the survey research company. Then the token expires and the transaction is immutable. From a data privacy standpoint, these are positive developments.
Conversely, while blockchain is good for fattening research company profits, it does nothing to address the biggest issue in the marketing research industry: survey participation and non-response bias. Non-response needs significantly more attention, and is a major omission in blockchain discussions. One could argue (and I would agree) that putting the individual in charge of their own information is essential (and is at the heart of GDPR). In doing so, we may reduce the number of inappropriate requests for survey participation. Perhaps this will increase the likelihood that individuals will participate in the future.
For the short term, blockchain may solve part of the data quality problem. Can blockchain restore trust, and foster greater cooperation? Time will tell – and it will take a lot of time.
by Bob Walker | Aug 28, 2018 | Customer satisfaction, Marketing and strategy, Survey research
Many companies have established ongoing customer satisfaction programs: your department or company may be one of them. If not, you probably see many customer satisfaction survey examples once you finish a purchase transaction with a company. The airlines and lodging industries are particularly good at sending out requests for feedback shortly after every flight or stay. Yet a recent conversation with a client gave me pause: he rather confidently indicated that customer satisfaction research was the primary tool used for strategic insight into the performance of their business and the minds of consumers. Um, not.
Customer satisfaction research is not strategic research, and it never will be because it was never intended to be. Customer satisfaction research results cannot identify areas for new product development, a new advertising or communications strategy, or possible new market opportunities. Importantly, customer satisfaction research cannot tell anyone if the business is expanding or contracting, or effectively meeting customer needs, since it is restricted to recent customers.
At its best, customer satisfaction research is a process control and exception reporting tool. But even these goals are sometimes elusive, especially when the measures being used are general and nonspecific. Customer satisfaction can be very useful if trying to determine if specific performance criteria are within acceptable limits. However, the research ‘container’ (i.e., areas of investigation, questions, scales, and metrics used) is generally naïve in terms of whether the dimensions themselves are relevant or not.
One can hypothesize that, in a number of cases, some of the measures being asked probably have little to do with characteristics of the transaction that matter, or where the business is going – or where it is been. As an exception reporting tool, customer satisfaction is useful; as a business guidance and strategy development tool, it is of limited use.
But where does that leave us if most marketing managers and researchers don’t recognize the essential distinction between a process control tool and research designed to help grow the business?
The function of strategic research is to help an organization look out the window and navigate the uncertain and constantly changing road ahead. It is both quantitative and qualitative in nature. Strategic research helps the management team understand their customers’ attitudes and behaviors about the products they are using – and also those of their competitors. Additionally, strategic research helps identify the direction in which category users feel the market is going. It’s research that is dynamic, and always listening to customers general feelings and more detailed perceptions of your brand or service, rather than restricting their responses to the measures that are predetermined in a customer satisfaction study.
Don’t be lulled into complacency by positive customer satisfaction research results that indicate your business is doing well among your existing customers. You are only getting part of the story, and strategic research (which can take many forms, and should be conducted routinely) involves actively listening and responding to the ever-changing needs of today’s customers.
