Harris Interactive Inc. -  Market Research -  Category Directory

(585) 272-8400

135 Corporate Woods

Rochester, NY 14623

www.harrisinteractive.com

Sales

$131 million

Business Description 

Harris Interactive Inc. is a worldwide market research and consulting firm best known

for The Harris Poll(R), and for pioneering the Internet method to conduct scientifically accurate market
research. Harris Interactive combines proprietary methodologies and technology
with expertise in predictive, custom and strategic market research. The company
conducts international market research research through its various U.S. offices, its
wholly-owned subsidiaries: London- based HI Europe (www.hieurope.com) and
Tokyo-based Harris Interactive Japan K.K. (www.hpol.co.jp) -- as well as through
its Global Network of local market and opinion research firms.

The Company operates as one business segment, and services its clients
through six distinct operating groups:

- Business and Consumer Research,

- Health Care & Policy Research,

- Customer Loyalty Management,

- HI Europe,

- Harris Interactive Japan, and

- Harris Interactive Service Bureau.

The operating groups conduct:

- custom research -- internet-based and traditional studies conducted on
specific issues for specific customers,

- multi-client research -- internet-based studies conducted on issues of
general interest and sold to numerous clients, and

- service bureau research -- internet-based data collection conducted for
other research firms.

In 1997, the Company embarked on its mission to develop an Internet panel
and the proprietary technology infrastructure necessary to conduct fast,
comprehensive and accurate online market research. Accordingly, we have made,
and will continue to make, significant expenditures to drive the transformation
of the market research and polling industry to an Internet-based platform. We
believe that Harris Interactive is the leading Internet-based market research
and polling firm in the world, based on the size of our Internet panel, the
number of online surveys that we have completed and the amount of revenue we
derive from online research.

The Company operates telephone data collection centers in Rochester, New
York, London, England, and Tokyo, Japan. The Company's phone centers conduct
interviews utilizing computer-based questionnaires. The data are immediately
uploaded to the Company's central data-processing center, thereby enabling more
efficient and effective analysis. The Company's phone centers have sufficient
capacity to support reasonably predictable long-term needs. The Company also
out-sources telephone data collection to support shorter-term project needs and
others that exceed the Company's internal capacity.

The Company maintains secure in-house data processing operations that
provide rapid data management and analysis. The Company supports many platforms
and file types both to exchange data and to provide clients with extensive
database design and management capabilities. The Company also provides its
clients with sample management services and survey data results using a variety
of software applications.

Harris Interactive and The Harris Poll are U.S. registered trademarks of
Harris Interactive Inc. This Form 10-K also includes other trademarks, trade
names and service marks of Harris Interactive and of other parties.

OUR MARKET OPPORTUNITY

GENERAL OVERVIEW

Business is becoming more complex. Heightened competition, consolidation,
globalization of product markets, accelerated product launch schedules,
shortened product life and rapidly changing consumer preferences mark today's
business environment. This complexity has escalated the value of accurate and
timely information needed to make critical decisions. Business covets data about
the preferences, needs, buying behavior and brand awareness of existing and
potential clients. Well-managed companies also need to continuously track
product performance and competitive position, monitor consumer satisfaction and
loyalty, measure advertising effectiveness and determine price sensitivity.

Historically, market research has been performed using traditional data
collection methodologies: telephone, mail and in-person interviews. However,
these methods are becoming increasingly less effective (and less affordable) due
to high data collection costs, small sample sizes and the extensive time
required to perform the research. Consequently, large traditional research
projects can only be funded by organizations with significant resources. The
Internet has dramatically changed the market research and polling industry,
making it possible for the first time to survey a broad, diverse population at
costs and speeds that were previously unattainable. This capacity has actually
increased the amount of research that is being completed as much of our revenue
is "new" research that had never been done before.

THE INTERNET AND ITS IMPACT ON THE MARKET RESEARCH AND POLLING INDUSTRY

Since its conception in the early 1960s, the Internet has enabled hundreds
of millions of people worldwide to gather and share information as well as
conduct business electronically. The use of the Internet as a market research
and polling tool is still in its relatively early stages, having only been
practiced for the last five to seven years.

Harris Interactive first began testing the Internet to conduct market
research and polling in 1997. At that time, there were approximately 40 million
people, or only about 16% of the U.S. population, who had Internet access. They
were not representative of the general population. Harris Interactive had to
perfect data weighting systems to correct for this bias. Today, the demographic
composition of Internet users has become closer to the overall population and
highly accurate weighting procedures have been developed, making the Internet a
viable means to conduct market research -- with significant advantages,
including:

- FLEXIBILITY -- Internet-based market research is conducted on the
respondent's schedule -- not the telephone researcher's schedule. Online
questionnaires may be completed at home, work or anyplace with Internet
access. Surveys can be created in multiple languages and administered
around the world seven days a week, twenty-four hours a day.

- VERSATILITY -- Motion and still pictures, graphics, advertising copy and
other visual materials can be viewed over the Internet, a feature not
available with telephone sampling. The images can be combined with sound
as well as protected from being stolen, printed, forwarded, copied or
saved. Internet-based methodology allows questions and their sequence in
surveys to be modified as panelists respond. Mail surveys, in contrast,
are limited to the order and content of the printed text of the survey.
Online qualitative research techniques such as chat room or bulletin
board focus groups provide substantial savings in time and travel costs.

- SPEED -- In our experience, an average mail survey takes approximately
six weeks from design to completion. In contrast, Internet surveys can
generally be completed in two to seven days. As voicemail, caller ID,
call screening answering machines, do-not-call protection, and a general
aversion to telemarketing proliferate, call acceptance rates drop and
telephone researchers must call more people to get the same number of
completed surveys. Therefore, the speed (and cost) advantage of the
Internet model actually becomes greater as the sample size increases.

- VALUE -- Internet-based methodology offers significant cost benefits when
compared to traditional market research methodologies. Traditional survey
sample size is limited due to the high data collection costs per
response. Internet-based market research methods can provide larger and
more robust sample sizes for the same cost, or the same sample size can
be gathered at a reduced cost.

- PRODUCTIVITY -- Because online panelists can read questions faster than
they can listen, more questions can be asked in the same amount of time.
Respondents in qualitative sessions conducted online create their own
transcripts, which can be immediately reviewed and analyzed by the market
researcher- versus having to create transcriptions from audiotapes.

THE HARRIS INTERACTIVE ADVANTAGE

We believe that Harris Interactive is the global leader in online market
research. We offer our clients a broad suite of Internet-based market research
and polling products. We have several competitive advantages that we believe
will enable us to maintain and expand our lead position in Internet-based
research. Our key competitive advantages include:

- HIGHLY SATISFIED AND LOYAL CLIENTS. Our intensive measurement of customer
satisfaction and the associated process improvements have allowed us to
greatly improve the quality of services that we deliver. All of our
researchers and managers are evaluated on the customer satisfaction
scores that they earn from their clients, and their bonus compensation is
tied to customer satisfaction levels. Consequently,
our Company-wide client satisfaction scores (over 9.0 out of 10 in fiscal
2003) are among the best in the industry.

- This high level of customer satisfaction provides us with a true
competitive advantage in the marketplace by:

- Monitoring and then responding to changing customer needs,

- Increasing the loyalty of our customers, which generates a larger
lifetime value earned from each client,

- Improving our margins by softening price sensitivity, and

- Decreasing our cost of sales due to the higher propensity for repeat
business.

- A PROPRIETARY PROPENSITY SCORE WEIGHTING SYSTEM. This system ensures very
accurate online data collection results by correcting for data anomalies
that occur due to sample bias - such as the difference in behavior
between online respondents and offline respondents. We believe that no
other online market research firm has an equal system to correctly weight
data and project results to a larger population. The accuracy of this
system was proven when Harris Interactive produced the most accurate
forecast of the 2000 U.S. presidential election and state-by-state
forecasts (72 races in total) that were approximately 2 times as accurate
as those generated through telephone polls.

- THE WORLD'S LARGEST INTERNET PANEL for conducting online market research.
Currently, our panel consists of several million individuals from around
the world who have been double opted-in and voluntarily agreed to
participate in our various online research studies. We are currently
adding thousands of additional names to our global panel on a daily
basis. This large and diverse Internet panel enables us to:

- conduct a broad range of customer-specific or multi-client research
studies across a wide set of industries,

- conduct very large surveys of the general population and studies of
low-incidence, hard-to-find subsets,

- market new research products and services through co-branded alliances
that we historically could not develop alone, and

- sell our online data collection services to other research firms through
the Harris Interactive Service Bureau, enabling us to penetrate new
markets and gain additional market share where we do not have
relationships or specific expertise.

- SPECIALTY-PANELS. During the past three years, we have performed
additional screening of the respondents in our main panel in order to
form specialty panels or groups of people with similar, hard to find
characteristics. We have developed numerous specialty panels, including
Affluent, Chronic Illness, Gay, Lesbian and Bisexual, Mothers and
Expectant Mothers, Physicians, Pet Companion and Technology Decision
Makers. Our clients highly value our ability to rapidly perform online
surveying of these low incidence populations, and have even asked us to
develop proprietary specialty panels exclusively for their use. Specialty
panel research has become a key driver of high profit revenue growth for
the Company.

- PROPRIETARY TECHNOLOGY INFRASTRUCTURE. A significant amount of computer
software and hardware is required to conduct Internet-based market
research and polling. The key elements of our technology infrastructure
include:

- A HIGH SPEED CUSTOMIZED EMAIL SYSTEM, which enables us to rapidly
format, target and send over one million customized email invitations
per hour;

- A SOPHISTICATED SURVEY ENGINE, which can process 240,000 five-minute
incoming surveys per hour with a peak capacity of 20,000 surveys
processed simultaneously;

- SOFTWARE SYSTEMS with the ability to collect data in any language
supported by Microsoft, including double-byte character sets (such as
the Asian languages) and left to right reading languages;

- An advanced SURVEY DISPATCHER SYSTEM, which acts like an air traffic
control system to monitor, control and balance all respondent activity
across all of our servers - and to ensure that no respondent will get a
"sorry - the system is busy" notice. In addition, our proprietary
dispatcher system gathers real-time statistics on survey starts,
suspensions and completions, shutting off the surveys when the
contracted completion levels have been achieved, thereby reducing cost
overruns.

- A patented customizable MULTI-LANGUAGE REGISTRATION AND POLLING SYSTEM,
which allows new and existing panel members to add, delete or update
their registration information online, and which recognizes each
panelist's language preference and delivers the survey in that language;

- Flexible, AUTOMATED REAL TIME REPORTING TOOLS that allow online access
to weighted survey data at any time and speed the process of data
delivery to clients;

- A SCALABLE TECHNOLOGY INFRASTRUCTURE. This infrastructure was designed
with no theoretical upper limit and can easily and cheaply grow with the
expansion of our business. Currently, we believe that we can double our
existing capacity at a cost of less than $300,000.

- A STRONG BRAND. We believe that The Harris Poll is one of the best-known
polls operating in the United States today. For over 45 years, The Harris
Poll has been recognized for providing trusted information to a broad
range of companies, non-profit organizations and governmental agencies.
We use a variety of marketing strategies to heighten awareness of and
enhance brand recognition of The Harris Poll, Harris Interactive and our
Internet-based products and services.

OUR PRODUCTS AND SERVICES

Our services are focused upon serving numerous vertical markets, which
include, but are not limited to, pharmaceutical and health care, ecommerce,
consumer packaged goods, automotive, financial services, technology, education,
media and advertising and public policy. By aligning all of our support
functions (e.g. sales, marketing, research staff, etc.) to specific vertical
markets, we can effectively and efficiently deliver our services, while
providing a high level of industry expertise and consultative support.

Our three primary sources of revenue are:

- custom research

- multi-client research

- service bureau research

All multi-client and service bureau research is conducted via the Internet.
We deliver custom research by employing both traditional and Internet-based
methodologies. Currently, we are aggressively transitioning our custom research
and polling products and services to Internet-based research. During fiscal
2003, 46% of our total revenue was derived from Internet-based products, up from
41% in fiscal 2002. We continue to dedicate a significant amount of our
financial and management resources to developing and marketing new products and
services that use our Internet-based methodologies.

CUSTOM RESEARCH

For almost 50 years, we have provided custom research to a broad range of
clients, ranging from business-to-business and business-to-consumer companies,
to non-profit organizations and governmental agencies. This experience has
served as our foundation to build the techniques used to conduct accurate
Internet-based custom research. Our long history has also provided us with
particular strong expertise in the following markets:

- health care,

- pharmaceuticals and medical devices,

- office equipment and technology,

- education and public policy,

- transportation,

- marketing communications and advertising, and

- public relations.

We conduct many types of custom research including customer satisfaction
surveys, market share studies, new product introduction studies, brand
recognition studies, reputation studies, ad concept testing and more. A custom
research project has three distinct phases:

- SURVEY DESIGN -- Initial meetings are conducted with the client to
clearly define the objectives and reasons for the study which ensures
that the data collected by the research will meet the customer's needs.
Based on the requirements, we then determine the proper research
procedure such as a mail, telephone or Internet survey, focus group
meetings or personal interviews, identify the population to be surveyed,
and design the survey questionnaire or focus group protocol.

- DATA COLLECTION -- Field data collection is conducted through
computer-aided Internet or telephone interviewing, by mail or in person,
or by holding focus group meetings or any combination of the above.
Quality procedures assure that surveys are returned and the correct
number of interviews are completed.

- WEIGHTING, ANALYSIS AND REPORTING -- We review the collected data for
sufficiency and completeness, weight the data accordingly, and then
analyze by desired demographic, business or industry characteristics. A
comprehensive report that typically includes recommendations is then
prepared and delivered to the client.

Our proprietary sample design and questionnaire development techniques
ensure that complete and accurate information is collected, and that this data
will satisfy the specific inquiries of our clients. We have developed in-depth
data collection techniques that enhance the integrity and reliability of our
sample database. Our survey methodology ensures that responses are derived from
the appropriate decision-makers in each category. As a result, we deliver the
data that our clients need.

MULTI-CLIENT RESEARCH

Multi-client research is sold on a one-time or subscription basis to a
large number of customers that have an interest in a particular market segment
or research application. Our multi-client products are developed on an
independent or co-branded basis and are marketed by us. We collaborate with
other parties that have unique experience in a particular subject or market to
produce co-branded multi-client products. Agreements for co-branded studies are
negotiated on a case-by-case basis, with revenue generally applied to specified
categories of expenses and any profits shared accordingly. Co- branded products
typically enable our clients to conduct research that they could not conduct
without our Internet panel and technology infrastructure. By combining their
expertise with our vast database and research capabilities, we are able to
develop and market products that benefit both parties.

SERVICE BUREAU RESEARCH

The Harris Interactive Service Bureau (HISB) conducts Internet-based data
collection for other market research firms that either do not have the necessary
resources to develop Internet-based market research capabilities or that have
otherwise chosen not to develop such capabilities themselves. In addition to
being a strong revenue source, HISB also enables us to penetrate markets or
industries where we do not have current relationships or specific expertise. We
also believe that HISB reduces the likelihood that those clients will invest
significant financial and management resources to develop competitive
Internet-based market research capabilities, and therefore serves as a barrier
to entry to our competition

Harris Interactive Service Bureau clients can utilize our data collection
capabilities on a long-term, continuous basis or on a project-by-project basis.
During fiscal 2003, 100 market research firms used HISB, up from 90 in fiscal
2002 and 74 at the end of fiscal 2001.
 

OUR COMPETITION

We compete with numerous market research firms, as well as corporations and
individuals that perform market research studies on an isolated basis, many of
whom have market shares larger than our own. Consolidation in the industry
continues to create larger and larger global firms, some with billions of
dollars in annual revenue.

Industry analysts at Inside Research estimate that traditional market
research and polling revenue in the U.S. will grow at about 1.9% (compounded
annual growth rate, "CAGR", adjusted for inflation) in calendar year 2003, while
the Internet-based market research and polling segment of the industry will grow
at about 17% (CAGR adjusted for inflation) in calendar year 2003 -- down from
60% (CAGR adjusted for inflation) in CY2002 and 53% (CAGR adjusted for
inflation) in CY2001. Although barriers to entry are high, we expect that
competition will intensify as existing market research firms continue to invest
in building their online research capabilities.

We will likely also face competition in the future from other traditional
market research firms who move into Internet-based technologies or other
companies with access to large databases of individuals with whom they can
communicate on the Internet. These companies may, either alone or in alliances
with other firms, attempt to penetrate this market.

Many of our current and potential competitors have longer operating
histories or significantly greater financial and marketing resources. These
competitors may be able to undertake more extensive marketing campaigns for
their services, adopt more aggressive pricing policies and make more attractive
offers to potential employees, partners and potential customers.

Further, our competitors and potential competitors may develop technologies
that are superior to ours or that achieve greater market acceptance than our
own.

We believe, however, that we can and will remain highly competitive due to
the knowledge of our people and our ability to excel in:

- proprietary sample design techniques,

- questionnaire development,

- in-depth data collection, and

- the ability to accurately deliver data that represents the desired
demographics.

We also believe that we have additional competitive advantages such as:

- our expanding global footprint

- our ability to project results to the required universe,

- our large Internet panel, diverse in geographic scope and demographic
depth,

- our scalable proprietary Internet technology platform,

- our quality, and the depth and breadth of our products and services,

- our brand recognition and strong reputation,

- our values, and

- our very high levels of customer satisfaction
 

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