
SAP’s Sales Army Still Doesn’t Justify an $8B Deal - shubhamjain
https://www.bloomberg.com/opinion/articles/2018-11-12/sap-has-to-prove-this-8-billion-deal-is-worth-it
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netcan
You can never say for sure when it comes to an individual example but, this
seems like a wide effect of macroeconomics.

There is a ton of economic pressure right now to "put money to work." Interest
rates have been low for a long time and industry is, for the most part, cashed
up already. This means prices get high.

There were obvious seeds sown internationally after the banking crash, but I
think tech companies may have something to do with it too.

Think of Tesla, a car manufacturer, and how different that is from a Facebook
or Amazon.

Musk had to sell all shares (holding onto voting rights) _and_ raise as much
debt as he could. Tesla is _still_ capital constrained.

Meanwhile, Amazon, Google and even apple are headed towards $1trn valuations
without cash problems at all.

These companies basically create massive book assets (and income streams)
without requiring much capital, or being capital constrained.

The growth potential and the cash needs are just not in the same place. This
part of the economy isn't growing out "investment." It's adding to the lake of
corporate cash, but corporate cash doesn't isn't used to make or grow googles.

We saw the baby version of this when of was writing about founders starting to
keep majority ownership.

~~~
Monkeyget
_[..]I think tech companies may have something to do with it too._ _These
companies basically create massive book assets (and income streams) without
requiring much capital, or being capital constrained._

John Van Reenen talks about this in this paper [1]. He has been looking into
how and why the giant companies have been concentrating all power in their
market : Amazon, Google,...

His hypothesis is that to become a giant company you used to need capital to
buy the best factory and the best machines but that nowadays to become big you
need to have the best version of _intangible capital_ : proprietary software,
users' data,...

Markets become winner takes all and this creates the rise of "superstar
companies". To become a giant company you can't just dump money at the problem
anymore to build, say, a new factory. The only way to dominate search is to
have Google's tech along with users and the data they generate. To become a
retail giant you invest heavily in logistics and inventory control management.

This has several consequences :

\- You don't need to borrow mass amount of money to become big.

\- Changing the interest rate doesn't have as big as an impact as before (if
you don't need large amount of capital to grow big, making money more
expensive won't prevent companies to grow big).

\- wages inequality rise (the few workers that produce the intangible capital
in the have high wage while wage become stagnant for the rest)

[1] Increasing Differences between firms: Market Power and the Macro-Economy
[http://mitsloan.mit.edu/shared/ods/documents/?DocumentID=504...](http://mitsloan.mit.edu/shared/ods/documents/?DocumentID=5041)

~~~
laichzeit0
So, Price’s Law? [https://youtu.be/UmUdcWk6Vfw](https://youtu.be/UmUdcWk6Vfw)

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olivermarks
I'm baffled by the price SAP paid tbh. The price SAP is paying for Qualtrics
equates to around 20X sales, and there is no indication there is huge growth
on the horizon or that this is a long term market.

Dennis Howlett knows a lot about SAP and wrote these early thoughts which I
thought are on point. [https://diginomica.com/2018/11/12/qualtrics-acquired-
saps-hi...](https://diginomica.com/2018/11/12/qualtrics-acquired-saps-high-
priced-bid-to-solve-customer-experience/)

~~~
mdorazio
I'm scratching my head on this one as well. Survey Monkey's market cap is
somewhere around $1.3B. Medallia's current valuation is unknown, but should be
under $3B. Qualtrics plays in the space in between these two and even though
it has a strong following and good growth prospects, it still seems like SAP
paid about double what they should have. My best guess is someone has a
convoluted plan to integrate Qualtrics into SAP as a module that enough
customers will pay for to make it worthwhile.

~~~
sbr464
Possibly to deter leverage from a competitor, among other reasons?

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xtrapolate
SAP is not paying for the product here. SAP is paying for the long list of
customers using and relying on Qualtrics today [1], many of whom are Fortune
500 and government agencies.

[1]
[https://www.qualtrics.com/uk/customers/](https://www.qualtrics.com/uk/customers/)

~~~
cm2187
SAP doesn’t really need any introduction among Fortune 500 companies.

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shadowtree
In 2011 SAP bought Successfactors, for 3.4bn. The "maven" CEO, Lars Dalgaard,
was gone in 2013, did a short stint at a16z and runs his own VC firm.

SAP took 8bn to buy more cloud business, which is less money it will take to
move ERP customers from on-prem to cloud.

As MSFT is raking in cloud revenue, every other enterprise player is nervous
about looking outdated. ORA stopped reporting cloud numbers altogether.

For comparison, ORA bought NetSuite for 9.3bn USD in 2016. Since then they
have told NetSuite customers their user licenses prices will be raised by 5%,
every year, for the next 5 years.

Expect Qualtrics to pull similar stunts.

~~~
jaxtellerSoA
>As MSFT is raking in cloud revenue, every other enterprise player is nervous
about looking outdated.

Too late, SAP looked outdated back in early 00's. I don't get why anyone still
uses SAP, it performs like crap, is way, way, way more complex than needs to
be, and costs a fortune.

~~~
toomuchtodo
> I don't get why anyone still uses SAP, it performs like crap, is way, way,
> way more complex than needs to be, and costs a fortune.

Because it is the least worst option for businesses who need what it offers.

~~~
jaxtellerSoA
>Because it is the least worst option for businesses who need what it offers.

And what is it offering exactly, relation database? Shit man, PostgeSQL, Maria
DB, Firebird, etc.

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noir_lord
I think it makes sense because SAP is focussed on operations management
(inherently inside your business) and Qualtrics is focussed on whats happening
outside your business.

If you marry the two in an integrated way you cover the entire chain from "raw
supplies in from this supplier through to customer not happy about quality of
material _from_ that supplier".

So while on it's own Qualtrics might not be worth 8bn to anyone else it might
well be worth 8bn _to SAP_.

~~~
AznHisoka
Qualtrics is focused on whats happening in your business, specifically what
your customers think about you.

A company like SimilarWeb or Gartner might tell you whats really happening
outside your business(ie market trends)

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blindwatchmaker
Is there someone on Qualtrics' board that used to be management/has
connections with management at SAP?

~~~
rconti
Never attribute to malice...

This would be far from the first time that a bit of a dinosaur overpaid to try
to buy their way into a market.

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manigandham
The middle range of the IPO put Qualtrics at a $4B valuation, so SAP bought it
for 2x market open.

Seems they're trying to buy the customer feedback "experience management"
angle to close the loop on their financial and ERP systems used to create and
deliver products. It sounds nice in theory but these integrations rarely work
and its doubtful most companies would use the whole suite or even use them
together, even if offered by the same vendor.

SAP might be trying to reach into the "cloud" market by throwing cash, but I
can't think of a single example where this has been a great success.

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hn_throwaway_99
I think this should be a good lesson to lots of entrepreneurs that there is a
huge valuation to be had if you can find a "missing piece" that some other
large company would be willing to (over)pay for.

It's also important to recognize that large corporate CEOs are incentivized to
overpay for a deal. There is certainly more "glory" and bias to make big,
splashy deals than the more mundane work of growing a business organically.

Tons of examples of fortunes that were made by getting some big sucker company
to overpay: Yahoo -> broadcast.com, HP -> Autonomy, Time Warner -> AOL, etc.

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anoncoward111
Talking to a sales guy is at best inefficient, most likely a waste of time,
and at worst, torture.

Lies, broken promises, tacky tactics. They will defend the "value-add" of
their profession but it's a complete and utter joke.

I used to work sales at Oracle selling StorageTek libraries.

Google, Apple, Salesforce etc would just draft up POs themselves and send them
straight for processing without ever talking to the sales guy about anything.

Thankfully I now work in support at a consumer heating oil delivery company
and I feel like I'm infinitely more helpful and engaged in my work.

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vadym909
I can't comprehend why companies in strong positions need to acquire the
strongest company in a new category at a premium. I'd think they'd want to buy
the 3rd or 4th ranked player in that category for a fraction of the price and
then use their know how, clout and sales force to grab market share. That
would be a win-win for themselves, the smaller company and customers.

~~~
majani
There is a rational fear of the market leader taking most of the market share
over time.

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besquared
Ben Thompson explains the strategic bet they're making. Mostly from the words
of the organizations themselves. [https://stratechery.com/2018/the-experience-
economy/](https://stratechery.com/2018/the-experience-economy/)

------
redwood
I think there's a lot of misunderstanding here. Sure it's a large number but
ultimately it's a testament to how Enterprises increasingly understand the
criticality of customer satisfaction. In other words, Enterprises can be
flying blind if they don't understand what's going on and it's actually very
valuable to control the most popular platform used for understanding
customers. Put another way, this is a little bit like Microsoft buying
LinkedIn but instead of focused on the network of who works where it's focused
on the network of Enterprise knowledge about their customers. Aka a key piece
of CRM.

~~~
netcan
What the article points out as notable is the price.

I agree sap they probably have a reason why they want to buy this company,
even at this price. But, the question is, why is the price so high? ...more
about the market than the buyer's needs.

Even if you are willing to buy potatoes for £10/kg because of a special
recipe, it still begs the question of why you had to.

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tristor
There was an absolutely genius sarcastic comment in this thread that was
posted by a throw-away and then deleted. I was going to reply to it, but saw
it was deleted when I clicked to reply but was luckily able to copy it out of
my cached version of the page. I'm going to reproduce it below, because it was
hilarious:

The deal was 800 millions. Unfortunately, Alice, a local purchaser, made a
mistake in the Purchase Requisition in ME51N.

After clicking on the "diskette" icon (or was it the "mountain"?), she noticed
that she had written one zero too much (so 8 Billions). She immediately wanted
to correct the error in ME52N (by clicking on the "pencil"). Unfortunately,
her access to ME52N was revoked by the SAP Basis Authorization Team because
the internal audit team wanted to improved "security" to respect the GDPR.

She tried to contact Bob from the SAP Basis Authorization Team, but he was on
holiday. Charlie answered for him but told Alice that she had to introduce a
ticket in Solution Manager to ask for an access to ME52N. She had no access to
SolMan, so she had to ask her Super Key User to make a ticket for her. The
list of Super Key Users was available on a SharePoint list on the company's
intranet, but had not been updated for a long time. Eventually she found out
that her SKU, David, was retired.

Fortunately her colleague Erika (a former SKU that moved from another
division), had kept her access to SolMan and wrote the ticket for Alice.

In the meantime, the Purchase Requisition had been approved by Fernand (from
Finance) in the Workflow. Gerard, a (bored) new recruit, immediately converted
it to a Purchase Order with ME21N.

After a few weeks, Alice, who got access to ME52N, noticed that the PO had
already been made by Gerard. She contacted him with Lync to inform him of the
mistake. But the "Cancel" button for a PO was not working. During the User
Acceptance Test, Gerard had noticed that Cancel did not work, but the
consultants told him that he had to follow the scenario, otherwise they would
tell his boss that he was "resistant to change" and that he had to sign off
the UATs. (The bonus of the consultants was based on the number of successful
UATs).

It escalated quickly. The Director wanted to stop the transaction! But it was
needed an unexpected Change Request to make the Cancel button work. The CRs,
like authorizations, must be asked via SolMan, but the Director was unable to
use it because it did not work on his iPad Pro (but it will soon because Fiori
will solve all the problems).

Eventually, as the CR was too complicated to implement, the purchase went
through and SAP bought Qualtrix for $8B (but they still are unable to find the
scanned invoice in VIM).

~~~
expertentipp
Posting this in the intranet as an employee of the company from the post
header would get one fired. Such things, each of them, are literally happening
in these kind of environments and everyone are absolutely serious about them.

~~~
tristor
The fact it's vaguely plausible to anyone who has ever used a SAP product is
why it's so hilarious. If you're asserting this is not merely plausible but
actually likely, that's scary rather than funny.

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expertentipp
The octopuses from ERP market acquire businesses to take over their market
share and paying customer base. Ideally a customer base which is locked-in.
Know-how, technologies, industry - these are irrelevant.

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m3kw9
They also look at the market cap this deal can add which can be easily more
than 8 bill if done right to the ceos vision

