Why SAP CEO Bill McDermott signs his emails 'XO, Bill' since buying Utah startup Qualtrics for $8 billion cash (SAP)

Ryan Smith, Bill McDermott

If you get an email from SAP CEO Bill McDermott these days, you'll see him sign it "XO, Bill." But he's not sending hugs and kisses.
He's reminding his people why he spent $8 billion cash to buy Utah software company, Qualtrics, last fall and facing down criticism that price he paid was too high.
McDermott recently outlined the virtues of the deal just as SAP began handing out pink slips worldwide.

These days SAP CEO Bill McDermott signs his emails. "XO, Bill," he tells Business Insider.

But he's not sending virtual hugs and kisses. He's reiterating his marketing message of why he spent $8 billion cash to buy a Utah software company, Qualtrics, three days before its IPO.

The X stands for "experience data," the kind of data Qualtrics collects such as feedback from product testers, customer surveys, marketing campaigns, or employee satisfaction surveys. Qualtrics calls this "eXperience data" and it bills itself as the creator of a new category of tech called "experience management." That's when companies look across all their constituents — customers, employees, partners, etc. — to understand the kind of experiences they are having with the company and its products.

The "O" stands for operational data, the stuff SAP has traditionally collected like finances, inventory, sales and human resources information.

"When you take the 'o' data and you marry with 'x' data, you change world," McDermott told Business Insider in a 1:1 interview at Qualtrics customer conference last week in Salt Lake City.

"We talk about the digital board room. We look at the business of SAP. We run the whole company on one single instance of SAP HANA. So one database, one ERP system for the whole company," he says, referring to SAP big -data database, HANA, and its world-famous financial software known as enterprise resource management (ERP) software.

"In real time, we know how's our customers doing? What's our loyalty results? What's the top 25 things in terms of the commercial interests of the company at any one time," he says.

But as good as all that data is, it doesn't answer the most important question: why? Why is this product selling but not that one? Why is this sales team exceeding expectations and that one failing?

"With Qualtrics, we'll know how we're doing every day and why," he says.

McDermott believes that this combo will be game-changing for companies, helping them spot and fix problems instantly, and increase everyone's satisfaction.

And very satisfied customers "spend three times more money with you than those that are satisfied," McDermott says.

Qualtrics CEO Ryan Smith says that several of his biggest customers, that also use SAP, have already called him and volunteered to be guinea pigs as SAP and Qualtrics integrate their products.

Ultimately, Smith believes that by combining the data they keep in their SAP systems and what they get from their Qualtrics survey/feedback systems, that companies will be able offer a level of customer service that just isn't possible today.

He gives the example of an airline.

"SAP has all the airport data. And we’re collecting all the experience data from the airlines. Imagine an airline being able to send a note to their medallion customers and let them know that the security lines are a little long. That's not their world. That’s the airport world. But that's the kind of thing that will be a available," he said.

Shocked the tech world

Four months ago, SAP shocked the software world by buying Utah-based market research software company Qualtrics for $8 billion in cash.

Bill McDermott Qualtrics was three days from a highly anticipated IPO. It was a profitable company, earning $2.5 million in net profit on $289.9 million in revenue in 2017. It expected to raise about $495 million in the IPO at about a $5 billion valuation.

Yet, when McDermott and Smith announced their Sunday-night deal, the first question an analyst asked on the call was: "why did you spend $8 billion on a company we've never heard of?," Smith remembers.

McDermott, who rose to the corner office of Europe's biggest software company from a career as a salesman, was ready to explain.

And he's been explaining ever since, including changing the signature on his emails to XO, Bill. (Qualtrics is in on the marketing message, too. They've painted an X and an O on all their office elevator doors.)

As we previously reported, McDermott wooed Ryan Smith and his brother cofounder, Jared Smith, for months, trying to get them to sell, in a courtship that included bicycle rides, dinners with the wives, the whole nine yards.

McDermott told us his revelation, the reason he charged after Qualtrics, came from his own experience in running SAP, as well as listening to his customers lament about their decision-making processes.

SAP is an enormous multi-national company with 96,000 employees in 140 countries, 425,000 customers, hundreds of enterprise software products. When he went in search of tech to understand the "why," he found Qualtrics. He checked out the competition and made up his mind to acquire the company.

SAP wasn't a Qualtrics customer at the time but it is starting to use it internally.

"We’re now putting Qualtrics into 45 different processes in the company," he said. For example, he's using it for customer retention, asking customers why they do or don't use a product, and to better understand employee performance.

As for the ongoing criticism that the $8 billion price tag, at 20-x sales, was too high, McDermott also has an answer: The price will look cheap in hindsight.

He compares SAP's purchase of Qualtrics to when Steve Jobs went back to Apple because Apple bought his company NeXT. Or when EMC bought VMware. Or when Facebook bought Instagram.

And he notes that Qualtrics was profitable and growing at over 50%.

With SAP's massive sales force and army of consultants like Deloitte, he believes its growth will accelerate. He also says he paid in the neighborhood of the multiple Salesforce paid for MuleSoft. That was 16x sales. Or what Microsoft paid for GitHub. That was 30x sales. Although, neither of those transactions were all cash deals.

Also ... layoffs

Truth be told, McDermott has to find growth.

While SAP's revenue has been slowly growing, and the stock price has fared well under his decade of leadership, SAP is the quintessential old-school software company that's being overthrown by cloud computing upstarts.

SAP isn't, itself, a cloud provider like Amazon Web Services. Instead, it's selling more of its software on clouds run by Amazon, Alibaba, Google and Microsoft.

Qualtrics should help him show big growth in cloud software.

SAP employees Ironically, on the same day that McDermott was on stage at Qualtrics conference, SAP also started implementing the layoffs it announced at the end of January.

First-hand accounts of the layoffs tweeted out by laid-off employees showed that pink slips were sent to some prominent business application developers, who worked on its old-school software.

The restructuring reportedly impacted some 4,400 employees, some of whom can apply to be transferred into other positions.

McDermott didn't discuss the layoffs much with Business Insider, except to say that the company is adding employees this year. It expects to grow by at least 4,000 net people this year to employ 100,000 at the end of 2019.

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