Harris Interactive Inc.

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Harris Interactive Inc.

135 Corporate Woods
Rochester, New York 14623
U.S.A.
Telephone: (716)272-8400
Toll Free: (877)919-4765
Fax: (716)272-8680
Web site: http://www.harrisinteractive.com

Public Company
Founded: 1956 as Louis Harris and Associates
Employees: 1,262
Sales: $51.3 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: HPOL
NAIC: 541613 Marketing Consulting Services

Harris Interactive Inc. combines the capabilities of the Internet with the name recognition of renown opinion pollster Louis Harris, and has become one of the world’s fastest growing Internet-based market research companies. After Louis Harris and Associates was purchased in 1996 by a Rochester, New York market research company—Gordon S. Black Corporation—it de-emphasized the telephone as a primary means to conduct its surveys, opting instead for the Internet. After being briefly known as Harris Black International, the combined company changed its name to Harris Interactive in 1998 to better reflect its changing business and focus. Although the transition led to losses to the bottom line, the company remains well funded and expects to return to profitability soon and begin a prosperous future. Most of its revenues are drawn from commercial clients, yet it continues to conduct the Harris Poll—which for 40 years has tracked public opinion on political and societal issues. In reality, the Harris Poll has always served more as a way to maintain a brand name than to turn a large profit.

Public Opinion Polling Comes of Age in the 20th Century

Political polls in the 1800s were conducted by newspapers and magazines by means of a straw vote. Ballots were printed within the publication, and readers then mailed in or hand delivered their votes. This method was susceptible to ballot box stuffing, however; in fact, the practice was actually encouraged by the publishers, who were more interested in greater sales than greater accuracy. To offset this obvious defect, the idea of the “sample” was developed to create a random group of votes from which to derive more accurate results. Early pollsters then tried to achieve a cross section of voters by creating quotas of respondents—for example, people of differing incomes. This intuitive concept eventually led to the scientific polling methods pioneered by George Gallup in the 1930s. During the 1932 presidential election, he upstaged the best known straw poll of the day—sponsored by the Literary Digest —and ushered in the modern age of public opinion polling, as well as the image of the pollster as a wizard.

One of Gallup’s early rivals was Elmo Roper, who drifted into market research after failing in the jewelry business. His attempts to sell stock to other jewelers involved conducting some market research, and in 1934 he and two partners started their own market research firm and began printing the results of its surveys in Fortune magazine. Questions about the 1936 presidential election were also asked, resulting in an accurate prediction that helped Roper to launch his own marketing firm. Several years later he looked for someone to write up his material. He hired a young World War II veteran named Louis Harris.

Born in 1921, Harris joined the Navy soon after graduating from the University of North Carolina at Chapel Hill. After World War II, he went to work for the American Veterans Committee and in 1947 met Roper, who at the time was conducting research on veterans. Roper offered Harris a job writing his radio spots, as well as his regular column on veterans. Harris turned down the offer, however, because he did not want to write for someone else. Roper hired him anyway, putting him to work instead on commercial projects. Following the 1948 presidential election, though, when the polls inaccurately predicted that Truman would be defeated by Dewey (which led to many years of public distrust of pollsters), Roper put Harris in charge of political polling.

In 1954 Harris published a seminal book on political polling, Is There a Republican Majority? Political Trends, 1952–1956. He argued that polls were more important in explaining elections than predicting them. Having established his own reputation, and becoming dissatisfied with a meager partnership offer from Roper, Harris left in 1956 to form his own company—Louis Harris and Associates—in New York City. He took with him three major clients, which infuriated Roper. For the rest of his life, Roper would condemn his former protégé as a “crook.” In his defense, Harris insisted that it was the clients themselves who convinced him to break away from Roper.

Kennedy’s 1960 Presidential Campaign Makes Louis Harris the Top Political Pollster

Harris served on a number of political campaigns, but it was his work for John Kennedy in the presidential election of 1960 that elevated him to a stature close to that of Gallup. Until then, no presidential candidate had ever hired a personal pollster. Although valuable to the campaign, especially given the wafer-thin margin of victory, Harris made a number of mistakes that have since been glossed over. Kennedy himself noted that “a pollster’s desire to please a client and influence strategy sometimes unintentionally colored his analyses.” Moreover, Nixon had a pollster of his own—Claude Robinson. If Nixon had prevailed in 1960, Robinson would have likely eclipsed Harris in reputation.

Considered the top in his field but exhausted after working on more than 240 campaigns, Harris decided to discontinue private political polling and challenge Gallup and his long-running syndicated newspaper column “American Speaks.” Indeed, if Harris were to publish national public opinion polls, he had to give up private political work, to avoid any appearance of a conflict of interest. The Harris Poll began running in newspapers in 1963. Over the years to come, he provided political polling for two of the three major television networks, as well as for Newsweek, Time, Life, Business Week, the Associated Press (AP), and National Public Radio (NPR). At the same time, his firm also began to attract lucrative commercial work.

In 1969 Harris sold his company to a brokerage firm, Donaldson, Lufkin & Jenrette, staying on as the head of the polling organization. Louis Harris and Associates was then sold in 1975 to the Gannett newspaper chain, with Harris agreeing to serve as chief executive officer of the new subsidiary. The focus of his work was very much commercial by that point. He created the Harris Perspective, a public opinion service that cost subscribers—mainly corporations—$25,000 a year.

Founder Leaves Company in Early 1990s

By the early 1990s, Louis Harris and Associates was generating approximately $7 million in annual revenues. At the age of 71, Harris announced in January 1992 that he had decided to leave the firm that bore his name in order to start a new public opinion and market research company that would concentrate on international issues. He and Gannett management maintained that his departure was amicable and, in fact, they hoped to work together on future projects. They also agreed to share the Harris name.

While his former company retained the Harris Poll, Harris was still able to publish his new works as “surveys by Louis Harris.” Meanwhile, taking over for Harris as the CEO of his old company was Humphrey Taylor. Taylor’s UK polling firm had been acquired by Harris in 1970, at which point Taylor took charge of the company’s expanding international business. He moved to New York in 1976 and had become president of Harris in 1981.

Although considered a prestigious acquisition some 20 years earlier, Louis Harris and Associates was just a small part of Gannett’s media by the mid-1990s. Even Gannett’s flagship publication, USA Today, relied on the Gallup Organization for its polling. The syndicated weekly Harris Poll was relegated to medium and smaller-sized newspapers. Roughly half of the company’s work was now in the public policy field, providing research in health care, aging, education, and race relations. Only 3 percent of revenues were derived from political polling. The company also engaged in strategic research for commercial clients such as banks, insurers, and telecommunications companies. Overall, Gannett was disappointed in the financial performance of Harris and no longer felt that the company fit in with its future plans.

Gordon S. Black Corporation Buys Harris in 1996

In 1994 Gannett sold off the Harris European subsidiaries located in London and Paris. Then in 1996, the company sold Louis Harris & Associates itself to the market research firm Gordon S. Black Corporation for an undisclosed amount. Analysts estimated the cost to be between $14 and $20 million. The plan was to operate separately under a holding company, Harris Black International. The CEO and chairman of the company—Gordon Black—had earned a doctorate in political science from Stanford, and had then began teaching political science at the University of Rochester in 1968. He was soon doing consulting work on the side, with his first assignment coming in 1969 when he was hired by a group of local Republican officials to determine the chances of them being unseated from office. When Black’s study indicated that they would lose, his results were readily dismissed. Every one of the officials, however, was subsequently voted out.

Company Perspectives:

We are dedicated to delivering global research products and services that meet or exceed client requirements, to creating a client-focused culture that excites and motivates our people, to sustaining our leadership in Internet-based research and technology, and to providing superior value to our shareholders.

Black’s first major client was Xerox Corporation, which commissioned a study from him in 1973. That job would lead to others, and several years later, in 1978, Xerox would save Black from bankruptcy. While working on a project for the city of Troy, New York, Black was caught up in a political imbroglio that resulted in the city refusing to pay his bill and leaving him responsible for $35,000 in expenses. With the young professor on the edge of financial ruin, Xerox asked him to bid on two projects for a total of $80,000. The company also paid Black upfront, allowing him to pay off his debt. Years later, he would learn that the Xerox management knew of his difficulties. Their unsolicited help earned Black’s lifelong loyalty.

Although a tenured professor, Black resigned from his teaching post in 1978 to run his company full-time. Within a few years he was generating $1.5 million in annual revenues and serving other well-known clients such as Eastman Kodak and Gannett. By the time he bought Louis Harris and Associates from Gannett, his firm was posting $12 million in annual revenues, which ironically was double what his better-known acquisition was producing.

The Late 1990s and A New Focus on Internet Polling

Black began to recognize the possibilities of using the Internet for market research in the late 1980s when his company began working for the Media Advertising Partnership for a Drug Free America. Rather than contact a set number of households for their study, Black’s people conducted interviews in central locations around the country, such as shopping malls, then used a non-probability model to account for differences in the population to arrive at their data. They found that the results matched perfectly with those obtained by telephone interviews. Black became convinced that they could perform projectable research if they had a large enough database. Later work done for Business Week on Internet penetration revealed how rapidly the population was getting online and how the demographics were converging with the general population.

Moreover, an increasing number of people were refusing to participate in telephone or in-person surveys. By receiving surveys via e-mail, however, participants could respond at their own pace and convenience. The Internet also allowed pollsters to conduct surveys at a much faster pace than could be done using traditional methods. Aside from speed, the Internet held the promise of lower costs and the ability to reach desired pools of people. Web capabilities also allowed marketers to test out ad concepts or movie trailers.

Black was convinced that the Internet was going to revolutionize polling, and felt that if his company failed to embrace the new technology it would only be a matter of time before it simply failed to exist. In January 1998 his management team met and decided to change the direction of the company. At a time when Harris Black was worth just $18 million, it began looking for $15 million in funding in order to buy the necessary hardware and establish a large enough polling panel of respondents. The Chicago venture capital firm of Brinson Partners Inc. provided $14.7 million in funding, and Black signed a deal with MatchLogic, Inc., a company also looking to develop a database for advertising. They agreed to co-finance a 5 million-name database for $15 million.

By July 1998 Harris Black had developed a panel of 700,000 online respondents, but the company had yet to generate any revenues using its new capabilities. Customers were cautious, and internally at Harris Black there were signs of discontent. Nevertheless, Black and his chief financial officer, David Clemm, pressed on. In 1999 the company finally began to generate Internet revenues. Also in that year, Black changed the name of the company to Harris Interactive to better reflect the changing nature of its business.

In December 1999 Black took Harris Interactive public. The company offered 5.8 million shares of common stock, initially priced at $14 per share, and raised $81.2 million. By this point, the size of its online panel had surpassed 4 million. The company also entered into a significant alliance with the advertising agency of Young & Rubicam, which invested in Harris Interactive as part of the deal between them.

In 2000 the company focused more on international business, signing an agreement with Blauw Research of the Netherlands to expand its panel of European respondents. This move was followed by a deal with Le Vote, a Honduras firm, to expand its presence in Latin America; and also by a deal with MASMI Research, a Russian company, to expand into Russia and Eastern Europe. By July 2000, Harris Interactive had more than 6.5 million online panelists in its database. It had also increased its Internet-based clients from 261 to 363 over the previous quarter.

As was expected, however, the transition to an Internet-based business was expensive. Revenues, which jumped to $37.3 million in 1999—a 34.2 percent increase over the previous year—simply could not match the transition costs. The company posted a loss of $1.9 million in fiscal 1998, followed by a loss of $8.8 million in 1999, and $20.9 million in 2000. During those three years, Harris Interactive spent almost $13 million to develop its Internet panel and approximately $21.6 million on infrastructure. As a result of these high losses, the company soon began instituting some cost saving measures.

In the summer of 2000, Harris Interactive faced a major problem in how it conducted its business: a large number of its e-mail surveys were blocked by efforts to prevent “spamming” (unsolicited mass e-mailings), affecting approximately 2.7 million of its 6.6 million panelists. Harris Interactive quickly filed suit, contending that a nonprofit organization, Mail Abuse Prevention System, had wrongfully identified Harris as a “spammer,” a matter they alleged was instigated by an executive of a competing research firm, Incon Research Inc. Named in the suit were America Online, Microsoft, and a dozen Internet companies that Harris Interactive accused of blocking e-mail to its users. By October the company had dropped its suit, though, after agreements had already restored connections to 98 percent of its panelists.

Key Dates:

1956:: Louis Harris and Associates founded in New York City.
1963:: Syndicated Harris Poll is launched.
1969:: Harris acquired by Donaldson, Lufkin & Jenrette, Inc.
1975:: Gordon S. Black Corporation founded in Rochester, New York; Harris sold to Gannett Corporation.
1992:: Louis Harris leaves company.
1996:: Gordon S. Black acquires Louis Harris and Associates to become Harris Black International.
1999:: Company changes name to Harris Interactive Inc.

In November 2000, Harris Interactive put its methods to the test by predicting national election results, which according to Black was the industry’s gold Standard. Harris correctly predicted 36 out of the 38 states it polled for the presidential race, as well as 27 senatorial and 7 governors’ races. It was the only organization to correctly forecast the nationwide presidential race as a dead heat, estimating 47.4 percent of the popular vote for Gore and 47.2 percent for Bush. While telephone polling methods had produced results that were generally within normal sampling error, Harris Interactive’s online model, according to Black, “succeeded on a scale that cannot be explained by luck, statistical accident or any false claim about what we do.”

Harris Interactive cut 12 percent of its workforce—about 70 workers—in response to a slowing U.S. economy in 2001. Nevertheless, the company hoped to return to profitability within the first year or two of the new millennium. The company had a significant amount of cash and securities in hand—some $60 million—so that it was well positioned to ride out both a downturn in the economy and the completion of its transition to an Internet-based business. Although a number of high-profile Internet companies had gone out of business, there was no doubt that the Internet itself would continue to grow and become an even more prevalent part of daily existence. Other market research firms followed the lead of Harris Interactive, and also began to develop Internet-based polling systems. Harris Interactive, combining an old brand name with new technology, had a significant head start over its competitors, however, and appeared well positioned for the dawning of a new era in market research.

Principal Divisions

Health Care and Clinical Trials; Emerging Markets; Business and Consumer Research; Brands and Consulting; International Research; Harris Interactive Service Bureau.

Principal Competitors

The Gallup Organization; Greenfield Online Inc.; Incon Research Inc.; Information Resources; Knowledge Network; Media Metrix; NFO Worldwide Inc.; Nielsen Media Research; Roper Starch Worldwide Inc.