I was sorry to see that Qualtrics laid off 780 positions this month (October 2023), coming on the heels of 270 layoffs back in January: this represents about 20% of the Qualtrics workforce. Having gone through that painful experience in my career, I remember the anxiety and stress it caused when the floor drops out from underneath you. 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 frenzy – but Qualtrics doesn’t compete in the direct-to-consumer space. Qualtrics may look like a high-flying tech company, but it is not Salesforce, Microsoft, or Amazon.
So, what are the forces that are causing the layoffs? I see several inter-related things:
Decline in the Need for Tracking Programs
A major source of revenue at Qualtrics is customer satisfaction tracking, especially those built around the Net Promoter Score (NPS) concept. You’ll recall that NPS was originally touted as being “the one question you need to ask” to run your business. Many companies are walking away from NPS because they have learned (the hard way) that NPS doesn't correlate to any objective metric, such as sales.
Declines in the Use of Survey Research
More generally, growth in the survey research business has slowed for many reasons: a proliferation of platforms, more reliance on other (digital) metrics, and less need for consumer input in earlier stages of product development. I estimate that the growth in survey research sales year-over-year is below 3%. NPS programs have great margins because they are insulated (that is, once up and running, they are hard to dislodge). But NPS programs are dissolving, so Qualtrics now must compete in ad hoc segments with very capable and much lower-cost providers.
Impact of AI
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, and the strategy dubious, this seems to add a further drag on future earnings.
Growth Has Peaked
Part of Qualtrics’ “experience management” strategy was to reach into other departments within large enterprises that run on feedback, such as human resources. But the growth rate of this strategy has significantly slowed. Conversely, smaller organizations do not have the need or simply cannot afford Qualtrics. The tag line “used by 90% of the Fortune 100” doesn’t scream affordability, and mid-market is unlikely to represent a growth segment.
Recoup the Investment
Back in November 2018, when SAP purchased Qualtrics for $8 billion, the union was touted as a way to accelerate a new “XM category” by combining experience data and operational data to power the “experience economy”. But “experience management” really isn’t a thing, and SAP quickly spit out the frog it had swallowed.
The most obvious reason for the recent layoffs is that Silver Lake and CPP Investments (which completed its acquisition in June 2023) want to see a return on its $12.5 billion purchase price. Cutting staff costs is an easy lever to pull, especially when growth has slowed. If successful, you can expect that Qualtrics will be refloated as an IPO by 2026 or so.