Customer experience (CX) technology provider Medallia's IPO offers more proof that CX strategies and technologies are “must haves” and that CX has evolved to an era of context-driven customer engagement. As of this week, the 1,258-employee CX tech company out of San Francisco had a market worth of $4.61 billion

On the heels of last month’s initial public offering by Medallia, analysts shared their thoughts with CMSWire. 

“I think it demonstrates the value of CX,” said Faith Adams, senior analyst for Forrester who serves customer experience professionals. “And that it is a must-have, not something that is nice to have. It also heightens awareness of the various tools. At the same time, it also can start to show some of the challenges that surround the tech as new categories emerge.”

Betsy Burton, VP of research and fellow at Aragon Research, said Medallia’s IPO is a signal that customer engagement is involving into “context-driven customer engagement.”

CX Validated, by Billions

It’s no secret: many say we’re in the experience economy, where customer experience trumps things like product price and services. Mary Meeker’s 2019 Internet Trends report found winning businesses build and use data plumbing tools and digital data and insights to improve customer experiences.

They collect data to:

  • Understand customer wants and improve business processes.
  • Increase customer input/improve products.
  • Manage direct customer/subscriber relationships.
  • Improve consumer decision-making.

And now come the multibillion-dollar moves to back this emphasis on customer experience. Medallia’s IPO follows SAP’s $8 billion acquisition of Qualtrics, another CX tech provider, in November of 2018. Medallia officials in their S1 filing with the U.S. Securities and Exchange Commission said they see the total addressable market for their Experience Management platform and other products to be approximately $68 billion in 2019. Medallia’s yearly revenue in its recent report was $313.6 million. 

Related Article: How to Show the Value of Customer Experience Efforts

Medallia: Experience Management 'Critical'

Medallia officials also noted “the success of today’s enterprises depends largely on how they deliver experiences.” They reported:

  • Experience management is critical in today’s experience economy
  • There has been a wholesale transfer of power to customers.
  • Enterprises struggle to capture and analyze experience signals at scale.
  • Enterprises fail to retain and motivate talented employees.
  • Alternative approaches have failed to adequately address experience management, including survey-based or point solutions, operational systems (CRM, ERP, human capital management) and market research and consulting firms. 

Medallia's Risks and Rewards

So what's this multibillion-dollar CX software about? Medallia captures experience data from signal fields emitted by customers and employees on their daily journeys and understands and manages omni-channel experiences, according to officials. “It looks like Medallia is applying AI and predictive analytics,” Burton said, “which makes its offering more than just CX management.”

But, as required in S1 filings, Medallia also addressed risk factors, citing an accumulated deficit of approximately $371.2 million as of April 30. It also cited risks such as unknown growth trajectory for a new experience management market, potential loss of subscriptions and possible data security breaches.

Medallia opened investors' eyes because it offers context-driven customer engagement more so than customer experience management, according to Burton. “Context-driven customer engagement leverages AI to understand the customer’s context first and foremost, and use modeling and pattern matching of massive amounts of internal and external information to find connections (including opportunity and threats) that the customer might not have even previously considered,” Burton added.

Learning Opportunities

Related Article: Medallia Gets $150M from CXM Believers

CX Potential Outcomes

So what does this all mean for those using CX technology? What do moves like Medallia's mean to CX tech users? First, according to Adams, CX tech users should know that, if successful, these technologies can help brands:

  • Measure their CX.
  • Listen to the voice of their customer.
  • Connect/link it to other data (i.e. operational, financial, etc.).
  • Analyze the data.
  • Infuse the insights into business decisions.
  • Drive engagement in both insights and action.

According to Forrester data, CX still is not great, though, and it's showing no sign of improvement. For the third year in a row, zero brands were found to excel at it, Adams said. “CX can be a critical differentiator for organizations,” she said. “Companies have to be able to keep up … and CX technologies should enable this. And when these tools are used correctly, it should translate to business outcomes/results. In addition, they can help contribute to creating a more customer-centric culture.”

CX Tool Ecosystem: Too Much Traffic?

But CX technologies come with many challenges, Adams added. Many firms, she said, have multiple tools/solutions in place as different lines of business, channel teams, and more often have their own tools. “And in many cases, there is little or no coordination,” she added. “So even when vendors like Medallia are in place, there are often other vendors within the same category also doing business within the same company.”

For example: Medallia is in place, but so is ForeSee (now ForeSee Verint) and SurveyMonkey, and then it all feeds into Clarabridge for more of a single/omni-channel view, according to Adams. She added, another group of vendors is emerging that acts in a similar way to Clarabridge, i.e. they bring together multiple data sources. “As I like to say to Forrester customers: ‘no good things happen in silos,’” Adams said. “Think about it: your customers do not care about the org structure. They see one company. I have been harping on this for some time now. Put simply, sometimes the technology can also hinder things when it is not deployed enterprise wide and sits in silos.”

Related Article: 4 Customer Experience Takeaways from Mary Meeker's Internet Trends Report

Be Leery of CX Vendor Promises

Ultimately, no matter who IPOs, brands need to think about how they engage their customers, how open their platform is and whether their business model has evolved, according to Burton. “It’s not just a matter of buying tech,” she said. “They need to think about whether the providers can provide them with the services that they need.”

Do your homework, Adams said. “Many vendors in this space overpromise and underdeliver,” Adams said. “Many also pivot the conversation to the tech, but the tech alone is not going to be what solves some of the problems — and services are a necessity in many cases.” 

Buyers often fall for the sales messaging and promises of transformation only to be disappointed because they actually put the technology first. “I always recommend using the old POST methodology,” Adams said. “People, Objective, Strategy, then Technology. Tech should never come first. The challenges run deep.”