Balancing Insight and Efficiency: The Role of Open-Ended and Closed Questions in User Research Tools and Their Investment Implications

Epic EventsThursday, Jun 26, 2025 9:49 pm ET
16min read

The digital economy hinges on understanding user behavior, and the tools that enable this understanding are at the forefront of innovation. Companies like Qualtrics (now part of SAP), SurveyMonkey (now part of Momentive), and Hotjar have built billion-dollar valuations by offering platforms that help businesses parse customer feedback. Yet, the methodologies these tools employ—open-ended versus closed questions—remain a critical dividing line in user research strategies. For investors, this distinction is key to evaluating which firms are best positioned to capitalize on shifting demand for deeper customer insights.

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The Dual Nature of User Research
Open-ended questions, such as “What frustrates you most about our app?” allow users to express unfiltered thoughts, uncovering latent needs or emotional drivers that structured surveys might miss. These are the bread and butter of qualitative research, critical for innovation and product design. Closed questions, on the other hand—such as “On a scale of 1-10, how likely are you to recommend our service?”—provide quantifiable data that fuels metrics like Net Promoter Scores (NPS), essential for tracking satisfaction over time.

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The best tools, like Hotjar's mix of heatmaps and open-ended feedback, blend both approaches. Yet, the balance between these methodologies varies widely among companies. For instance, Qualtrics excels in closed-ended surveys, leveraging SAP's enterprise reach to dominate B2B analytics. Meanwhile, platforms like Typeform prioritize open-ended storytelling, aiming to capture nuanced user experiences.

SAP Total Revenue YoY, Total Revenue

Market Dynamics and Investment Opportunities
The qualitative research segment is growing faster than its quantitative counterpart, driven by the rise of AI-driven sentiment analysis and the need for companies to differentiate through personalized experiences. Startups like Notable, which uses AI to analyze open-ended user interviews, have raised over $50 million in venture capital, signaling investor confidence in qualitative tools.

However, established players are adapting. SAP's acquisition of Qualtrics in 2019 for $8 billion was a bet on its ability to integrate qualitative insights into broader enterprise workflows. Qualtrics' “XM Platform” now includes tools for analyzing open-ended responses, but its core strength remains in closed-ended metrics. This hybrid model could be its competitive edge, as companies seek tools that handle both depth and scale.

Risk Factors and Considerations
Investors must weigh the risks of over-reliance on any single methodology. Tools focused solely on closed-ended surveys may struggle as competitors like Hotjar or Qualtrics blend qualitative and quantitative methods. Conversely, niche qualitative platforms may face scalability challenges.

The stock performance of Qualtrics' parent company, SAP, offers a case study. While SAP's overall revenue grew steadily post-acquisition, its shares have lagged behind tech sector averages, partly due to macroeconomic pressures on enterprise software spending. Meanwhile, Momentive (formerly SurveyMonkey), which offers both qualitative and quantitative tools, has seen modest growth but faces stiff competition from free/open-source alternatives like Google Forms.

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Investment Strategy
For growth-oriented investors, the qualitative research space holds promise. Companies like Notable, which focus on AI-driven analysis of open-ended data, may offer higher upside despite their smaller scale. Value investors might prefer established players like Hotjar or Momentive, which benefit from recurring revenue models and diversified product suites.

However, the optimal portfolio would balance both: investing in hybrid platforms that leverage the strengths of open-ended depth and closed-ended efficiency. SAP's Qualtrics and Hotjar (if it goes public) are likely to remain leaders here, while niche players could be acquired as the market consolidates.

Conclusion
The user research tools sector is at an inflection point. As businesses demand deeper insights without sacrificing efficiency, platforms that master the interplay between open-ended and closed questions will thrive. Investors should prioritize firms with agile methodologies and the ability to integrate qualitative and quantitative data seamlessly. In a world where customer experience drives loyalty, the tools that decode it will remain vital—and those that balance both question types will lead the pack.

Josh Nathan-Kazis is a financial analyst specializing in SaaS and tech-driven innovation.