Thursday, June 10, 2010

Consolidation in the market research business

According to PaidContent UK, iSuppli, a well-known U.S.-based technology research company, has acquired Screen Digest, a UK-based market research company that tracks media markets. Three years ago, Screen Digest acquired Adams Media Research, one of the top researchers following the home video market in the U.S. Now, all three companies will be under one roof. The acquisition is intended to raise iSuppli into the ranks of companies like Forrester, which acquired Jupiter Research two years ago.

The multiyear recession has taken its toll on market research and industry analysis companies. Budget cuts by large clients have made them much more selective as to which research they buy. Some clients have gone out of business, and others have gone away through mergers and acquisitions. For example, the market research firm I worked for a few years ago had Nortel, Tandberg and Ericsson as clients, among others. Nortel has since gone bankrupt, and Ericsson acquired Tandberg. This same scenario is playing out for research firms in a variety of industries. It's hard to replace customers of that size, especially in a recession.

Small market research and market analysis firms are in a particularly bad spot, in that their values lie in the heads of their researchers and analysts. Unless they're highly specialized, their customer accounts are usually of little value to an acquirer that often serves the same customers and has superior sales capabilities.

The acquisition trend is likely to continue, with the following outcomes:
  • Individual researchers and analysts (one-person firms) will hold on, because they tend to be more cost-effective and more flexible than the big firms.
  • The small (2 to 10-person) research firms will have the biggest problems, because they're too small to be of interest to the big acquirers and most likely to be cut when customers whittle down their market research contracts.
  • The medium- and large-size research firms will merge to get into new areas of practice and penetrate new customer bases. These mergers will result in consolidation of back office operations, with resulting layoffs.
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