Confronting the crisis of the middle-sized market research firms

By Simon Chadwick

Between 2005 and 2015, the traditional market research industry posted a Cumulative Average Growth Rate of (CAGR) of 3.82%. Organically, the larger companies kept pace with a CAGR of 3.6%, feeding their actual (i.e. organic and non-organic) growth with a spate of acquisitions from the middle and smaller ranks of their competitors. Smaller firms (US$ 10 million – US$ 30 million annual revenues) saw an attrition rate in their ranks of one third over the decade, some being acquired but many selling off their assets in fire sales or purely closing down. Those left standing, however, did well, posting a CAGR of 4.33%.[1]

But what of the middle rankers – those with revenues between US$ 30 million and US$ 100 million? How did they fare? Again, about a third disappeared into the bowels of larger competitors, but those remaining did much worse than the market average – a CAGR of just 1.66%.

At the same time, it has to be said that seven new entrants emerged in the “middle sector” over the decade (as measured by the Honomichl and ESOMAR Global 25 indices) and that these were vibrant, fast-growth firms that, for the most part, brought something new to the industry. Prime examples would include dunnhumby (retail analytics), comScore (cross-media analytics) and Wood MacKenzie (secondary research in energy, metals and mining). The success of these companies just goes to re-emphasise what has been common knowledge in the industry for some time now – that growth and profitability come from focus, specialisation and differentiation.

But what of the those “traditional” middle market research firms that fared so poorly from 2005 to 2015? Were they undone by their lack of specialism and focus or was something else at play? In part, the answer is “yes”, lack of focus had something to do with it. But further investigation reveals a much more forceful trend at work – lack of access to capital in a fast-changing world.

The forces at play

Let’s briefly review the forces lining up against not only the middle rankers but all market research companies today:

  1. The Great Recession drove clients to deliver more with less budget and less resource. That led to significant re-evaluation of what adds value and what does not.
  2. To meet this need, they started to turn to new tools, new business models and new data sources, all driven by new technology. This opened the door to a tsunami of new investment into the insights and analytics (mainly analytics) industry in the form of over US$ 13 billion in venture capital in the last five years alone. Out of this torrent of investment, we can expect to see between 60 and 80 viable new competitors emerge.
  3. The traditional (and always flawed) business model whereby the collection of data was the driving force behind pricing has collapsed as data has become ubiquitous and its collection cheap almost to the point of being zero. That forces market research companies into value pricing – which implies that there is value to be had.
  4. Standardised, routine, validation research is increasingly being automated via large and powerful platforms that offer technology but no consulting. Some call this the democratisation of research, others may feel that it is more populist and dangerous, but it is what it is.

Simon Chadwick is managing partner of Cambiar and editor-in-chief of Research World.

[1] These data are taken from ESOMAR and from countries that publish ranking tables each year. As such they represent the USA and the larger European markets.

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