Gartner's pending acquisition of Meta Group is the latest, and largest, merger of market-research firms. But it also marks a consolidation trend in the industry that's likely to continue in 2005.

Research companies are merging as revenue growth slows and profit margins narrow. That means research-service users, including IT buyers and managers, will find a dwindling number of sources of independent research. And those with close ties to specific analysts may find those relationships difficult to maintain.

Last week, Gartner said it will acquire Meta for $162 million in cash. The deal is expected to close in the second quarter.

Some Gartner clients say the Meta buyout won't alter their relationship with the company, and may even enhance it. The acquisition "is really just bringing in more talent. I don't think they would do anything to jeopardize their position with the user community," says Mike Luter, chief technology officer at the Cancer Therapy Research Center. The outpatient cancer-treatment and research company in San Antonio has been a Gartner client for four years. "I have faith they've made the right choice," Luter says.

Gartner's acquisition of Meta follows Forrester Research's acquisition of Giga Information Group in 2003 for $51 million. That leaves Gartner, Forrester, and IDC as the only big research firms, says Anthea Stratigos, CEO of Outsell Inc., which provides consulting services to information service providers, including research firms.

That could mean fewer sources of information from which to draw. Retailer Sears, Roebuck & Co. engages multiple analyst firms to get a variety of opinions on topics important to its business. "A good end result [to consolidation] would be the firms establishing knowledge-sharing groups where the firm serves as the facilitator rather than the source," a Sears spokeswoman says. "This type of communication and sharing of information, directly between companies, can be much more valuable than generic research of survey results."

The Meta acquisition is an opportunity for Gartner to buy growth, cut operational and administrative costs, and boost profitability, Stratigos says. In the first nine months of 2004, Gartner reported a 4% revenue increase to $638 million, but a 30% drop in net income to $12 million.

Gartner won't comment on merger plans beyond a statement saying the acquisition will provide clients with greater depth and breadth of expertise, and the addition of Meta's sales force will increase revenue.

The squeeze on IT budgets in recent years, along with growth of the Internet as a source of white papers and other advice about IT analysis and management, has led to declining revenue for many research companies. "The market has been flatlining, and it's difficult for these firms," Stratigos says.

"The underlying business model in market research is flawed, and people are struggling right now with how to find growth," says Jamie Bedard, president and CEO of Aberdeen Group, a second-tier market-research firm that also may make acquisitions in 2005. "It's clear--size matters," he says. "That's true both in the ability to attract the right analysts and to be able to provide scale and distribution leverage in the content you produce."

Research firms have gotten away from creating intellectual property such as reports that can be sold many times over to recover costs and generate profits, Bedard says. Instead, they've been expanding their professional-services offerings. But services have lower margins because they're more labor-intensive and have higher client-acquisition costs.