A Market Research Colossus
Nielsen in A.C. Nielsen's own words
I am a fan of podcasts with entrepreneurs as a source of inspiration and business history. Patrick O’Shaughnessy’s Invest like the Best1 or Auren Hoffman’s World of DaaS2 are favorites. I have mused on historical founders that would make interesting interviewees. One such founder would be Arthur Charles Nielsen Sr, the founder of the company(ies)3 that still bear his name today.
Fortunately, in the case of A.C. Nielsen, the next closest thing is available: a transcript of a speech given in 1969 in which Nielsen recounts the founding, growth, and development of his company and field over the prior forty years. The speech reads like a podcast would sound today. Its entirety, including additional graphics, is available online. I recommend reading through the entire speech, but I have pulled out quotes that I personally found interesting, or amusing.
Nielsen was built initially on measuring sales, not media:
Then, at serious risk of bankruptcy, we launched a continuous marketing research service known as the NIELSEN DRUG INDEX. Seven months later, a parallel service (called NIELSEN FOOD Index) was established for the food industry.
The business actually started in 1923 with surveying industrial products but encountered a sort of near-death experience during which it was reborn into consumer-oriented market research firm: a crucible moment4.
The post-crucible firm focused on sales of products in stores, not media measurement initially. The word “Nielsen” typically evokes association with media ratings, although, those in the industry will know Nielsen measures both5 media and product sales.
On performance:
The original investors suffered along period of doubt and danger, those who hung on and were not protected, by a paternalistic government, against risk-taking have enjoyed 700-fold increase in their original investment.
Equally significant is the amazingly low turnover among clients. On a dollar basis it has averaged, for the past 30 years, only about three percent per year.
[…] the record shows an absolutely unbroken series of sales increases for 30 successive years.
While Nielsen was not a hyper growth company6 (at least by today’s standard) but it was an enduring one7. It had delivered a streak of thirty years of revenue growth in 1969 and compounded its valuation at 18.2% annually at between 1923 and 1969. In comparison, the stock market compounded at 5.45% over the same period8. Nielsen’s results, ownership structure, and financial returns have been varied since the 1990s, but the brand and reputation endures today. Only a very small percentage of companies public in 1969 endure today, in any form, and even fewer are doing the same thing they started doing in 1933.
Market research and DaaS has never been sexy:
Recounting a conversation his son had:
What's your name, son?"
"Philip Nielsen."
"Where does your father work?"
"On Howard Street, in Chicago."
"What does he do there?"
"Market research."
"Market research? Oh, I see, he's a butcher."
While market research might be better known today that in the 1930s, I have little doubt that information and data-oriented businesses are not exactly well known. I still am regularly asked, by investors or candidates, if there are examples of large companies that sell data.
Nielsen had a purpose driven mission:
It is important to recognize that increases in marketing efficiency, which create reductions in the cost of distribution, not only produce larger sales and profits for manufacturers and retailers, but also result, in a competitive economy, in lower prices to consumers, enabling them to expand their buying power and thereby enjoy a higher standard of living.
[referencing a previous building dedication] I dedicate this building to the task of furthering the science of marketing research a form of human endeavor having for its ultimate objective the increasing of the standard of living in the free countries of the world.
Perhaps a mission is telegraphed in the title of the speech (“Increasing Prosperity”…) but Nielsen frames the advancement of market research and data technologies as increasing market efficiency which leads to higher standards of living9. It is a humanitarian and accurate10 interpretation of his field and amusing reply to those who bemoan today’s generation of programmers, data scientists, and others working on “just optimizing clicks”.
The basic data acquisition and research process has remained the same:
An accurate national sample of retail stores […]
The owner of each store is asked in return for cash payments and/or other forms of compensation to cooperate in the research project […]
All figures obtained from the sample of retail stores are expanded, by a complex mathematical procedure
More than another forty years have passed since A.C. Nielsen’s speech.
However, much has also stayed the same – for the better or worse. Nielsen’s description of his business model is remarkably similar to how market research (and specifically sales intelligence) products operate today, although, data moves faster and digital payments are paramount. Further, Nielsen’s name remains on now two companies and careful sampling and survey design is still critical to market research.
Certain things are extremely different. The world has digitized and the scale of data collection possible is orders of magnitude larger. Nielsen makes references to continuous sales monitoring, but by that, he means monthly or quarterly data points. While many institutions still survey at these intervals11, it is now possible to have almost real-time data. Also illustrative is what is not in the speech. Despite employing many of the same data collection techniques used today, Nielsen makes no mention of privacy, a topic that would be front and center today today.
I am left with a curiosity, and perhaps an ambition, to figure out who will speak for the next 40 years in market research at the centennial of the original speech. Maybe podcasts won’t miss their chance after all.
Invest Like the Best; worth noting that the episode in which Patrick interviews Auren is a favorite.
The corporate structure of Nielsen since 1969 is a complex topic in itself outside the scope of this post. Most recently, Nielsen was split into a media data business (“Nielsen”) and sales data business (“NielsenIQ”). This is the second time the company was split in two, with both segments bearing the Nielsen name.
Crucible moment — to borrow a phrase from Sequoia and their podcast I have enjoyed.
Leaving the corporate split between Nielsen and NielsenIQ aside.
Nielsen’s amusing jab at a “paternalistic” government may betray his politics, but he is also referencing a joke earlier in the speech where he mentioned the Securities Exchange Commission (SEC) would not be amused with the false precision included in his original investment prospectus. In fact, the formation of Nielsen, the company, predates the establishment of the SEC.
Also, my investor readers are directed to the particular line where Nielsen cites dollar retention figures way back in 1969 (albeit, he cites gross, not net, figures). Although did you expect otherwise from a data company founder?
The S&P 500.
This has been shown relatively conclusively, starting with a famous paper in the Journal of Economics about the Kerala fish market.
IBID
Unfortunately…