Affected market: Customer relationship management services
Please note text in square brackets indicates range inserted at request of parties.
The OFT's Decision on reference under section 22 of the Enterprise Act 2002 given on 11 March 2004.
Acxiom Corporation (Acxiom) is a multinational firm with operations in the US, UK, France, Australia and Japan. Acxiom is a supplier of data management solutions for companies worldwide. In 2002 Acxiom's worldwide turnover was £567 million, of which £32.5 million was attributed to the UK.
Claritas Europe (Claritas) is a subsidiary of Claritas Inc, a US subsidiary of VNU. Claritas specialises in providing solutions for the management and processing of data. Its subsidiary 'Altwood' provides database management services within the UK. In 2002 Claritas' worldwide turnover was £65.5 million. In 2001, £31.2 million was attributed to the UK.
Acxiom acquired Claritas on 1 January 2004.
The transaction was notified on 8 January 2004. The administrative deadline is 11 March 2004 and the statutory deadline is 30 April 2004.
As a result of this transaction Acxiom and Claritas have ceased to be distinct. The parties overlap in the supply of Customer Relationship Management (CRM) services and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. A relevant merger situation has been created.
CRM is part of the sector of 'Direct Marketing' and is used as a process to optimise the value of relationships with existing customers and to identify potential new customers.
The parties submit that the CRM process can be divided into three segments:
- Data collection and sale – here data is collected from a number of sources and sold on to customers. This segment can be further subdivided by type of data: list data; electoral roll data; modelled/aggregated data and lifestyle data. These further sectors are discussed below.
- Data analysis – this is a process used to maximise leads for specific campaigns. Techniques include profiling and modelling.
- Database management – as data can be fragmented and stored in disparate systems which may not be compatible, database management allows the data to be processed more efficiently and stored in useful formats.
The parties overlap in all three segments, but do not overlap in the lifestyle data sector in data collection.
From comments received by third parties it would appear that the three segments which make up CRM are distinct as they serve different purposes. The majority of customers purchase segments from different suppliers, with some supplying in-house. Only one third party purchased all services from a single supplier.
There are companies who provide a portfolio of CRM services. Information received from the parties suggests that there are 4 suppliers who are active in all three CRM segments. Third parties have indicated that there are a number of companies that have the capability to start supplying data analysis and database management services quickly and at minimal cost. However, this is not the case for the collection of lifestyle data.
Data collection and sale as mentioned above can be further subdivided into:
- List data – these are lists of names and addresses, derived from telephone directories etc. It is relatively inexpensive and easy to obtain from list brokers such as Claritas.
- Electoral roll – this data is collected by local authorities and complied by suppliers such as Experian. This is also relatively inexpensive and easy to obtain.
- Modelled and aggregated data – this information is complied from existing datasets. It is sold at the postcode, household or individual level.
- Lifestyle data – this list data is augmented with additional information on core variables such as lifestyle, demographics and purchasing habits. The data is compiled from a number of sources and has a premium attached to it.
The substitutability between the data categories for data collection is unclear. Comments received by third parties indicate that customers generally use a combination of data sources to maximise response rates. Budgetary constraints and the degree of targeting required will also influence the purchasing decision. Thus in some cases if one type of data was not available another would do. Responses have also indicated that different data categories interact with each other, for example, list data, electoral roll data and modelled / aggregated data may supplement lifestyle datasets. However, some third parties have suggested that lifestyle data is distinct and there are no other datasets which would be substitutable, but the parties do not agree with this assertion.
On the supply side the data categories, excluding lifestyle data, are easy to obtain and are relatively inexpensive. However, lifestyle data appears to take in excess of a year to obtain and collection can be costly.
Overall, it would appear reasonable to consider each segment of CRM separately and within the segment of data collection and sale, there are cogent arguments in favour of either a frame of reference covering all categories or separating lifestyle and other data categories. However due to similar competition issues appearing whichever way the frame of reference is considered, it has not been necessary to form a firm conclusion either way.
The parties submit that the geographic scope is at least national. Third parties have had mixed views with some suggesting that customers may require a pan-European or worldwide service but the majority contend it is national.
For the purposes of this paper, the relevant frame of reference will be taken to be the national supply of:
- Data collection and sale (all data categories or lifestyle and other data categories);
- Data analysis; and
- Database management services.
For data collection and sale post-merger, the parties combined share of supply is [20 per cent-30 per cent] (increment [0 per cent-5 per cent]). If lifestyle data is considered separately then the parties combined share of supply is [20 per cent-30 per cent] (increment [0 per cent-5 per cent]). Post merger the HHI is 1285, which suggests that the market is moderately concentrated. However the increment is only [0-100] which indicates no prima facie concerns.
Post-merger there remain a number of alternative suppliers and customers are able to purchase a portfolio of data from a variety of sources. A number of competitors for lifestyle data have commented that there are a limited number of alternative suppliers available, however this is not backed up by information received regarding shares of supply in this segment.
Acxiom was unable to provide data on the revenue generated from its own data analysis sales as this is not undertaken on a stand alone basis, however it contends that a negligible portion of its UK turnover comes from the sale of data analysis. Claritas share of supply for this segment is [0 per cent-5 per cent], with the HHI at 2679 indicating a concentrated segment. However with almost no accretion in share of supply, the merger will have a negligible effect on this segment.
For database management services, the parties combined share of supply is [20 per cent-30 per cent] (increment [0 per cent-5 per cent]). The HHI post merger is 3178 (increment [100-200]) which indicates a highly concentrated segment.
Although the segment is concentrated the transaction may enhance competition as the merged entity will face competition from Experian who hold a 50 per cent share of supply (see [note 1]). Comments from third parties also indicate that there are a number of alternative suppliers for database management services. For example one customer switched to Acxiom after a tender process involving six suppliers.
One third party raised a concern regarding the impact of the merger on the portfolio power of the parties. The transaction will give Acxiom access to databases owned by Claritas which will enable it to provide a 'one-stop-shop' service.
Although the merger may enable the merged parties to offer a wider range of services, it does not seem plausible that they would tie services together as there is no evidence of customers preferring to purchase this way. There is also no degree of market power to leverage and numerous suppliers are active in the various segments.
Barriers to entry and expansion
Third parties have informed the Office that to collect and supply data, a company would need to gain accreditation from the Direct Marketing Association (DMA) and the Institute of Direct Marketing (IDM); abide by the relevant legislation and consumer data protection schemes; hire experienced staff; and purchase the appropriate software to hold and manage the data. This data will also need constant updating.
For lifestyle data, some barriers do exist due to the need for a supplier to sustain losses until a critical mass is met, with the estimated cost of a national survey being £1-3 million. However there has been evidence of entry, with Data Locator, My Offers and Preference Services all launched in 1999. Dunn Humby also entered in 2001.
For data analysis third party comments have indicated that barriers are low, and one commented that there was oversupply in this segment. There has been evidence of entry including Streetwise Analytics, Datalyticx, The Clockworks and the Consumer Data Consultancy all launching in 2003.
A supplier for database management would require the appropriate software and experienced staff, although there is no evidence of entry some customers do supply in-house.
Overall, barriers to entry in the various segments do not appear to be significant.
All third parties contacted submitted that customers in all segments have negotiating strength due to the choice of suppliers available and the volumes and frequency of purchase.
The merged entity is active in all levels of the supply chain, which may raise vertical issues, due to the control over the supply of data that the merged entity will possess. This supply of data is a necessary input for data analysis and database management services.
A third party had concerns that the merged entity would change its pricing strategy, especially to low volume suppliers who do not hold long term contracts and that this would increase prices. Another third party suggested that the merged entity may stop supplying its competitors.
In order to enter into the above strategies the merged entity would need to possess market power in one or more of the segments of the supply chain. The shares of supply and low barriers to entry suggest that the merged entity does not hold any market power at any level of this chain. For data collection and sale the combined share is [20 per cent-30 per cent] and for data analysis the share is only [0 per cent-5 per cent]. The OFT does not therefore consider it to be the case that the pricing incentives to downstream competitors will be significantly altered, or that the merged entity will stop supplying them.
THIRD PARTY VIEWS
The majority of third parties did not express any concerns about the transaction. However a few raised concerns that the merger would result in a change in pricing strategy and potential refusal to supply. These concerns have been addressed above.
The merger qualifies on the share of supply test under the Act. For the purposes of this paper the appropriate frames of reference are taken to be the UK supply of data collection and sale (all data categories or lifestyle and other data categories), data analysis and database management services.
At a horizontal level, the evidence suggests that the shares of supply and accretions to these are not problematic. There are a number of alternative suppliers present in all segments, customers appear to have some negotiating strength and barriers to entry are generally low.
At a vertical level, the merged entity will control the supply of data which is a necessary input for data analysis and database management services. Due to the lack of market power of the merged entity at each level of the supply chain, this does not appear to raise any competition issues.
Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.
- Parties estimate