The Insights Supplier- Part 1: Choosing a Direction
Editor’s Note: A few weeks ago Tony Cosentino made some profoundly insightful comments on another post here on the GreenBook Blog. I was so impressed that I reached out to him and asked if he would consider contributing a post of his own. Well, it turns out that Tony could do much more than that: he recently published a book called Into the River: How Big Data, The Long Tail, and Situated Cognition Are Changing The World Of Market Insights Forever.
This is one of the best deconstructions of the transition state that market research is in that I have ever read. In fact, I’m jealous that Tony has found a way to so clearly and concisely explain the shift that is occurring within our industry and lay out several models for designing the successful MR firm of the future; he does a far better job of it than I have!
Tony has been kind enough to allow us to serialize select portions of his book and I am very excited to bring you the first in that series. In it Tony lays out the vision for the changes that market research suppliers will need to make in order to thrive in the new market that is emerging. This is a must read article from someone whom I believe will very quickly emerge as a major thought leader in our industry. Enjoy!
By Tony Cosentino
Given the changes in the market insights industry, the traditional supplier will need to move upstream into a strategic role, develop and sell a niche software, become the low-cost provider, or abandon the business altogether. The space that many firms have successfully occupied, that of a full-service generalist, is soon to be a failing model unless the firm can provide the service at the lowest cost or can move into strategic-partner relationships. Unfortunately, what many of these firms are starting to encounter are shrinking margins and a clientele focused on fast-and-cheap research. At the same time, adjacent industries such as management consulting and technology firms are smelling blood in the water and swimming furiously to enter the space. This is creating a more crowded market and a promise of further industry consolidation. With this Darwinist backdrop, there are likely three models of differentiation, or some combination of the three, that suppliers will adopt: Strategic Partner Model, Software Provider Model, or Low-cost Provider Model. Note that in at least one case, the software-provider model, an entirely different go-to-market strategy is needed. Different go-to-market supplier strategies are discussed in Part 2 of this article.
Strategic Partner Model
The strategic insights provider may take one of two approaches. One is a firm that acts as a general contractor knowing the best-of-breed solutions across a variety of measurement tools and suppliers. These firms will enable a seamless network to serve a company and will become more important as the business intelligence side of the house begins to work more closely with the traditional research function. These firms provide a holistic viewpoint and have a clear end- to-end implementation model or business process map for multiple types of measurement systems. As traditional Market Research firms move into this space with their competencies in analytics and research, they will likely encounter management-consulting firms and technology consulting firms moving into the same space.
Alternatively, the strategic insights partner may provide value by being niche focused. Unlike, the generalist firm, these suppliers will provide very clear and specific subject matter expertise. Examples may be along the lines of data integration and quality control, innovation research or predictive modeling. These niche approaches will be accompanied by specific vertical industry knowledge as well. The key is that the value emphasis will start to be more focused on the category expertise and outcomes and less on the research or data itself (unless data quality and integration focus is the core offer). An example of this trend is in the category of secondary research. Due to the explosion of data and information sources around the web and the crowding of this space in general, firms that supply secondary data that can be reproduced (without to much investment) will likely become relatively less valuable than the firms that provide data-driven consulting guidance (e.g. IDC, Gartner, or Forrester in the technology industry).
Software Provider Model
As sample and data collection becomes commoditized, software is becoming the backbone of the insights industry and software driven firms are becoming more numerous. Software tools are coming to market in many shapes and sizes, from basic text-analytics software to fully serviced Enterprise-Feedback-Management (EFM) systems. The solutions can be integrated or point products, but they all have one thing in common: they are undercutting the traditional Market Research firms on price and forcing many industry players to change positions.
The software model itself changes how services are priced. Insights services have traditionally been priced on a project basis whereas the software industry generally prices on a seat license or on a per-processor basis. Such models ensure consistent revenues and continuous emphasis on investment in software development (R&D). In contrast, the traditional insights model is a professional services model with its high labor costs and per-project pay back. The glaring difference is that software firms run heavier up-front investment costs, but have lower operating costs. Once they have the software developed (and paid for) they are able to undercut the traditional insights supplier significantly.
Low-Cost Provider Model
The low-cost supplier model appears to split into a couple of camps, but the two share similar traits such as reducing overhead, outsourcing and off-shoring as needed, and the aggressive use of technology. These companies are finding a way to do research at a very low-cost and still produce a ‘good enough’ result.
The first low-cost provider model is one of scale and is generally the domain of the large provider that already has an aggregation of global work and can speak of their global alignment and capacities. These firms are pursuing low-cost strategies by being extremely aggressive on project pricing (often coming in at a 20%+ discount to other major providers), and off-shoring and outsourcing non-critical job components. For instance, a couple of the major Market Research suppliers have pursued low-cost strategies by outsourcing data collection and analytics activities to overseas companies. Some have gone so far as to spin off call-centers, calling them non-core services; only to turn around and rethink the decision. These firms seem to be gaining traction as they win share, but the strategy comes at a cost. The strategy to ‘never lose on price’ is putting margin pressure on the entire industry and has created something of a deflationary scenario for research consultancies. (The other, perhaps more ominous detriment to the industry, is an erosion of overall industry brand equity).
The second camp of low-cost suppliers are the smaller, more nimble providers that have very low overhead to start with and are helped tremendously by advances in technology and the commoditization trend in the sample business. In recent years, the barriers to entry have come down to a level where strong industry veterans with a good network can step out and start a firm on their own. The basic infrastructure of a data collection and reporting software platform, a decent sample provider, and a statistician (if the principals aren’t building their own models), provides the equivalent of a start-up business in a box. If one needs to provide ethnographic research, a learning system, or unique info graphics, these contract services and software tools are easily available as bolt-on offers.
Note: Part 2 will be published next week. Watch this space!