Deal Radar 2010: Medallia

On September 10, 2001, Medallia pitched to its first customer, a top five hotel company, as a pilot customer. Then came September 11th. Much to Medallia’s surprise, the hotel called back on September 12 and said it would like to move forward with Medallia, which built the prototype system. The company pressed ahead, and after six months the hotel replaced its traditional search system with Medallia, a platform that uses SaaS and Web-based technology to collect “customer intelligence” at every point of contact, allowing companies to measure customer sentiment accurately. The platform delivers real-time feedback and prompts employees to act on that feedback continuously.

Medallia was co-founded by Borge Hald, CEO, and Amy Pressman, president and CFO. Hald served in the Norwegian Air Force, rising to the rank of lieutenant, before working at Morgan Stanley and Procter & Gamble and as a project manager for the Boston Consulting Group. Pressman initially developed the idea for Medallia as a consultant for the Boston Consulting Group. While working with executives of Fortune 500 companies, she saw a direct relationship between customer loyalty and companies’ success.

At the time Medallia was founded in the early 2000s, companies relied almost exclusively on mail or phone surveys conducted in-house or by market research firms to gather customer satisfaction data. It was a slow and costly way to collect data, and there was often a significant lag between when a customer interaction occurred and when that interaction was reported. This of course made the data reported much less useful. What’s more, the data was typically analyzed at a corporate level and often not shared within a company, even among other key stakeholders, let alone with rank-and-file workers.

The founders of Medallia wanted to close this gap. The company’s founding coincided with the emergence of a new category of technology called enterprise feedback management (EFM) designed to do just that. Medallia wanted to take EFM one step further, turning customer feedback into insights on which clients to take action and sharing those insights with the entire company—from the executive suite to the market research team and the business’ front lines, so these businesses could have better relationships with their customers. It also wanted to offer a solution that all employees could use easily and with little training.

Medallia’s feedback platform is divided into a five-step process to gather and act on information: Capture (data collection and integration); Share (dashboarding, push reporting, and benchmarking); Recover (customer recovery); Discover (interactive/text analytics and data mining); and Improve (goal setting and media sharing) tailored to the sectors that the company targets. Each user’s homepage is customized to her role, and the platform integrates with other system such as Salesforce.com and Siebel. Medallia also offers cross-industry solutions such as contact center operations and an EFM for companies that use the net promoter score metric (NPS), a customer satisfaction metric introduced in 2003 by Fred Reichheld, Bain & Company and Satmetrix. The company recently launched a version of its product for the iPhone.

Here’s some nifty bragging by the company: “One Medallia customer says that it earns more than $20 million in incremental revenue annually by repairing at-risk customer relationships through Medallia, and Medallia customers outpace the S&P 500 in market value growth. Since 2003, publicly traded Medallia customers have increased their overall market capitalization by 224% compared to 22% for the S&P 500. In the dismal 2009, companies using Medallia out-performed the S&P 500 with overall market capitalization increasing by 64%, while the S&P 500 grew 18%.”

More than 50,000 businesses and business units in more than 100 countries use Medallia, which currently targets the hospitality, retail, financial services, health care, call center, e-commerce, and other B2B and B2C tech sectors. Customers include Fidelity, Four Seasons, American Express, Hilton, Hyatt, eBay, and Sephora, among others. Eighty percent of top global hotel companies are Medallia customers.

By multiple accounts, the market is significant and picking up momentum. Gartner estimates that the market is $330 million a year and is growing at a double-digit clip, at 21% in 2008 and an estimated 15% for 2009. The global market research market, which is just one of the markets from which EFM takes share, is a $30 billion market. But EFM is, according to Gartner Research Director Jim Davies, a “young, immature, and evolving” market, with possibly as many as fifty players with “pure” offerings jostling for market share. Competitors include Allegiance; Confirmit; Ransys; MarketTools, which acquired CustomerSat; and Vovici, which is focused more on surveys. RightNow has EFM as an add-on to its main CRM offering, and SPSS, part of IBM, also has an EFM product.

While Medallia is entirely bootstrapped and funded through existing business operations, it would not rule out the option of outside funding should the need arise. The company has been profitable almost since inception and has grown rapidly year over year. It marked its seventh straight year of growth in 2009, when revenue was up 38% up to between $20 million and $30 million.

Medallia considers itself a technology company at heart, with employees who like to create new things, and it will continue to strengthen its technology core to bring new data collection, analytics, collaboration, mobile, and visualization capabilities into its solution. In terms of growth at the market level, many of Medallia’s existing customers have seen measurable results and are now rolling the solution out to more business units and geographic locations. In parallel, Medallia is expanding in new and existing industries.

There are no plans for an exit — the company wants to continue to grow and keep hiring at both the management and general levels.

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This segment is a part in the series : Deal Radar 2010