I was sorry to see that Qualtrics recently laid off 780 positions (October 2023), coming on the heels of 270 layoffs back in January of 2023. This represents about 20% of the Qualtrics workforce. Having once gone through that painful experience in my career, I remember the anxiety and stress it caused when the floor dropped out from underneath me. I hope that everyone affected is able to find new opportunities as quickly as possible.
News articles from tech publications have explained the layoffs as a contraction following COVID-driven hiring and staffing up to meet demand – but Qualtrics it is not Amazon and doesn’t compete in the direct-to-consumer space, so the comparison doesn’t quite line up. So what forces are at play that may have resulted in these layoffs? I see a few inter-related things:
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Marketing research isn’t a high-growth business, and survey research in particular is a mature one. Big firm research growth has slowed due to a proliferation of DIY platforms, more reliance on digital evaluation (e.g., MTA, social media listening), and less need for user input at earlier stages of product development. The growth in questionnaire-based survey research is less than 2% per year.
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The Qualtrics “experience management” strategy included horizontal expansion into other areas of the enterprise, such as human resources, that run on feedback. The growth rate of this strategy has also slowed. Small- and mid-cap organizations represent a less attractive segment because they don’t do as much research or tracking, and their projects are typically much smaller.
- A major revenue source at Qualtrics is satisfaction tracking, especially programs built around NPS. You’ll recall that in 2003, NPS was touted as “the one number you need to grow” your business. Gartner has predicted that more than 75% of organizations will abandon NPS as a measure of success by 2025 due to a lack of correlation with metrics like sales or retention.
- NPS programs also have great margins and are insulated (that is, once up and running, they are hard to dislodge). But with NPS programs dissolving, Qualtrics must make up that revenue with ad hoc projects and compete directly in the traditional survey space with capable lower-cost providers.
- Qualtrics plans to spend $500 million on AI over the next four years to leverage “the world’s largest database of human sentiment”. But with AI more ubiquitous, this new strategy could be a major drag on earnings. And exactly whose sentiment will be used to train the models and shared with the rest of the world – the proprietary data of their clients? And by leaning hard into AI, even less staff may be required.
- Perhaps the most obvious reason for the recent layoffs at Qualtrics is that Silver Lake et al (which completed its acquisition in June 2023) needs to see a return on its $12.5 billion investment. Cutting staff is the easiest lever to pull, especially if growth has slowed. That will make the balance sheet look healthy, even if growth prospects are muted.
You might recall, back in November 2018, SAP purchased Qualtrics for a hefty $8 billion. That union was touted as a way to accelerate a new “XM category”. The goal was to combine experiential and operational data to power the “experience economy”. But “experience management” didn’t seem to gain momentum, and with a clash of cultures, SAP quickly spit out the frog it had swallowed – something I had predicted in a post back in 2018. Once all of these hard times have passed, I expect Qualtrics to be refloated as an IPO by 2026 or so. That will please the private equity folks.
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