(Corrects the amount of time Ryan Smith waited to raise funding in the fourth paragraph, from five years to a decade. Corrects the spelling of Kyle Groff's name in the seventh and last paragraphs.)
The business of making software for online surveys is pretty easy to understand: You find people who want to conduct surveys and sell them access to software that creates forms they can circulate. “That’s all a survey is—it’s a form with an analytics component,” says Ryan Smith, the co-founder and chief executive of Qualtrics, one of the bigger names in the online survey industry. “We have the best form.”
A good form turns out to be surprisingly valuable to have: Qualtrics just closed a $150 million fundraising round led by Insight Venture Partners, Accel Partners, and Sequoia Capital, valuing the company at more than $1 billion. The funding round makes Qualtrics at least the second online survey company to join the billion-dollar club; SurveyMonkey raised an investment round last year with a reported valuation of $1.3 billion.
These valuations are based on the desire of businesses to know what their customers are thinking. The market research industry brings in $21 billion in annual revenue, according to IBISWorld. In general, selling software subscriptions to corporate clients can be good business because it creates a recurring revenue stream. And no one really wants to switch vendors once they’ve trained employees to use a certain system.
Smith founded the company in 2002 with his father but didn’t raise any investment funding for a decade, at which time Qualtrics was profitable and bringing in $50 million in annual revenue. The company declined to discuss its current revenue but says it is still in the black.
Qualtrics now has about 6,000 clients running 2.1 million surveys on an average day. The basic software is free, but the cost for a big corporate client can easily run into the tens of thousands of dollars annually. The magic is in the upsell. A client using the basic service receives offers for a wider array of products, from employee surveys to market research, in a strategy known among software companies as “land and expand.”
The first place Qualtrics landed was graduate school. For three years the company worked solely in academia and built up a huge following at business schools. Having doctoral researchers as customers ended up being a blessing. The students were working on sophisticated problems and demanded all sorts of things, like the ability to make it seem like you were asking about one subject when in fact your focus lay elsewhere. Any software that could support students’ thesis ideas would be more than rigorous enough for the average corporate marketing department.
One of Qualtrics’s clients is JetBlue (JBLU), which switched to the company because the customer-feedback platform it was using made it difficult to measure opinion about individual flights, rather than the company as a whole. The switch allowed JetBlue to determine, for example, why the passengers on a particular early-morning flight from Philadelphia were always disgruntled. “These morning flights were businesspeople,” says Kyle Groff of JetBlue. “They were cutting it close and they wanted a cup of coffee, but the gate wasn’t close to any concessions.” The airline started handing out free coffee and doughnuts, always a sure bet for raising morale.
While Groff tells the story to demonstrate Qualtrics’s flexibility, his experience at JetBlue also illustrates the cleverness of the company’s initial decision to focus on academics. Groff knew he was unhappy with the software his company was using, When Groff went to replace JetBlue’s survey software, his first thought was to go with what he knew. He had used Qualtrics in graduate school.
