By Barbara French and Gideon Gartner (@bfr3nch, www.barbarafrench.net, @gideongartner, www.gideongartner.com)
In the first part of this post, we challenged an urban myth that small analyst firms are threatening the Gartner and Forrester Research business models. We as yet see no compelling evidence. What we do see is many small advisory firms performing vital roles in the IT ecosystem, a few experimenting with business models, and many preferring their small businesses to the bureaucratic ways of large organizations. More than 25 analyst entrepreneurs shared insights on their businesses and philosophies, plus a handful of analyst clients shared their views — creating an unparalleled conversation! You can read the discussion here.
We’re picking up with the question, is it possible for small/new firms to shake up the Advisory industry? We think so. We’re not ready to concede the future of the advisory market to the current Gartner and Forrester business models. The question is, how?
In our view, firms wishing to disrupt the Gartner and Forrester models must have two particular attributes. First, they need a significant differentiator. It can be in specialization, the business model, service delivery or other areas. Equally importantly, they must be able to scale. That means substantial funding, an effective sales operation, well-honed M&A skills, or a combination of all three.
One of the potential differentiators getting attention lately is “open source research.” In theory, it follows the open source software model: research is developed openly and collaboratively with a marketplace and published under a Creative Commons license. Benefits include lowering research costs while driving consulting and other revenues. Challenges include quality control and the prerequisite of building a large and engaged community of collaborators that will be equally accessible to competing Advisory firms.
We see several other possible examples of disruptive behavior. In a recent conversation with Louise Garnett from Outsell, we came up with a short list of firms, past and present, innovating at least one aspect of the Advisory business model. Highlights, in no particular order:
1. Springboard Research: It claims to have a low-cost/high-quality reputation using low-cost research from China and India. Plus, Springboard built leadership in Asia Pacific markets while U.S. firms were reducing international presence. It’s a good example of specialization.
2. Altimeter Group: This small but growing top-rated analyst group seems to some as more a consultancy than an Advisory firm. Its analysts retain personal branding and independence while obtaining generous splits from their loyal clients from past relationships. The tactics are paying off, generating momentum. Founder Charlene Li’s increasing number of innovative ideas have been well recognized but to become a true disruptor to G&F the firm must (and might well) find a way to scale, and to accelerate its introduction of deliverables.
3. GigaOM Pro: Disruptors can emerge from outside the Advisory industry. Om Malik is incubating this research startup within his media network. This means ongoing exposure to 5 million unique visitors each month — far outpacing any Advisory today. It achieves low-cost/high-quality by using a network of on-demand subject matter experts (38 currently, all in emerging tech) and enforcing quality standards, from vetting experts to producing research. The experts negotiate and retain all Advisory fees resulting from participation in GigaOM Pro.
4. Giga Information Group (background): Funded as it grew, Giga’s model included innovations such as a single service priced by the seat and an expert network backing up its strong staff of analysts. It also made significant ongoing investments in building a salesforce and creating a brand. As with Altimeter and GigaOM Pro, it benefited out of the gate from the strong reputation of its founder. All of this resulted in annual revenues of over $70 million in annual contract value in less than 5 years.
5. Spiceworks: Another disruptor from outside the Advisory industry, Spiceworks is a systems and network management software vendor with an active community of 1 million users, all in IT management jobs in small- and medium-sized businesses. Spiceworks gives away its software to qualified users in exchange for real-time insights into their product deployments and participation in the online community. Sponsoring vendors conduct research and communicate directly with the community. Currently, its equivalent of “Advisory” is a simple question/answer service leveraging peer-to-peer and vendor evangelist interactions.
Firms that want to catapult to the top need to use innovation to their best advantage. Say for example, a smaller Advisory wants to specialize and provide research advice which exceeds Forrester’s in quality. The firm needs to find a way to actually demonstrate that it has a higher ratio or a larger magnitude of knowledge/information in at least one very specific market segment in order to improve its market share in the appropriate space. Invoking the idea that it exceeds Forrester in its specialty areas is one thing, but proving such specialization is something else again.
One example of a way to develop and demonstrate the above thesis qualitatively might be to assume the number of Forrester analysts (excluding consultants, juniors, management, etc.) and remind the reader of some claims that the old 80/20 rule still prevails (80% of analysts providing 20% of the value), perhaps reducing the ratio to 75/25. There’s no reason small competitors cannot focus on recruiting more senior and recently specialized people-power to build a claimable ratio of 70/30 or even 60/40.
Scale is perhaps the greatest challenge facing would-be disruptors. Sound growth strategies and financial management are vital. M&A can play a key role, as proven by Gartner and Forrester. Recent activity among smaller firms runs the gamut, from iSuppli acquiring Screen Digest to Datamonitor expanding its portfolio.
Bottom line however is that incremental change might be “too little too late”. What’s required to succeed (and arguably needed by the industry) is use of an old trick: taking a large clean sheet of paper, and imagining an Advisory model which will clearly represent a breakthrough that will attract investors (because significant capital will likely be required to realistically challenge the current status).
A conceivable alternative might be to consolidate a significant number of strong analysts and/or small firms, with a management team working together to implement what was suggested in the paragraph above. And then the outcome will still hang on the solidity of the financials.
Small firms and new entrants can disrupt the Advisory industry. Note that IBM once virtually controlled the entire computer hardware market, until innovative firms around the edges changed the ground rules, which challenged customer reliance upon Big Blue. But these outlying firms succeeded mainly via new functions and better price/performance ratios. So while there are various degrees of freedom in structuring a hypothetical Advisory firm such that an opportunity arises to emulate what once occurred in IT hardware, this would take imagination, time, and perhaps most important, money. It can be done: Giga Information Group showed that the industry leaders were in fact vulnerable and grew from $zero to $70M contract value (not including consulting and events) in less than 5 years.
Finally, more input from Louise (Outsell): Every segment of the information industry looks the same. In each segment, a few big players represent at least 50% of revenues. Smaller companies make up the rest, carving out various niches. The IT research market follows the norm: it covers many segments, with a few firms dominating each segment and holding those positions for years on end. Successful contenders will understand this market structure before attacking it.
Editor’s Note: This has been cross-posted at Gideon’s blog, www.gideongartner.com. We’ll cross-posts your comments to both blogs.
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July 27th, 2010 at 9:59 am
New post: Advisory Industry Competition: Pushing Past ‘Business as Usual’ (Part 2) http://bit.ly/azNenC
This comment was originally posted on Twitter
July 27th, 2010 at 10:53 am
Small specialist firms can certainly compete effectively - but only whilst they remain small. What kills most firms is the expense of back-office infrastructure and staff.
I think there is a wider issue though in the definition of the market and hence what an alternate model may look like. It is my view, based on the published results of the major firms, that the overall market for the advisory research universe is growing at a glacial pace. The vast majority of companies engage with none of the firms - especially when you move below $1B revenue firms. Firms are largely competing for each others existing clients and using an acquisition strategy to grow their user base to try and then cross-sell into that base(versus seeking out true new business).
The question is what do the non-buyers of advisory research actually want and what would they buy. I suspect that the answer lies some way outside of current models focusing far more on the outcomes that they seek versus the current models of production.
July 27th, 2010 at 1:43 pm
Simon,
Thanks for raising this point. Agree, most of today’s firms can’t afford to serve SMBs. The cost of sales and the margin on deliverables confound them. Firms that can afford to serve SMBs manage costs and attain scale differently than their enterprise-focused compatriots. A proven example is Info-Tech Research Group. Companies with newer models - GigaOM Pro, your own Skills Connection company — may invent the flexibility to sell to and service all sizes of clients. You’re all worth watching.
The tantalizing question, of course, is your last point - what would the untapped markets actually buy from advisory firms? And for that matter, what would cause existing clients to shift their spending to a new expert advisor?
July 27th, 2010 at 6:31 pm
New post by @bfr3nch and @gideongartner about innovators in the market research business http://bit.ly/aLiEsN
This comment was originally posted on Twitter
July 27th, 2010 at 6:31 pm
New post by @bfr3nch and @gideongartner about innovators in the market research business http://bit.ly/aLiEsN
This comment was originally posted on Twitter
July 27th, 2010 at 6:51 pm
thank you @bfr3nch and @gideongartner for giving @gigaompro the shout out. Your comments are deeply appreciated. http://bit.ly/9wdllh
This comment was originally posted on Twitter
July 27th, 2010 at 6:57 pm
RT @michaelwolf: New post by @bfr3nch and @gideongartner about innovators in the market research business http://bit.ly/aLiEsN << Good read
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July 27th, 2010 at 7:10 pm
@om we agree @GigaOMPro shows innovative thinking in IT research & advisory model. congrat’s! (cc @gideongartner) http://bit.ly/aLiEsN
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July 28th, 2010 at 1:33 am
Hi Barbara & Gideon,
I’ve been really enjoying this discussion over recent weeks, plus Ray Wang’s 7 Tenets post - congratulations on driving this dialogue, because I agree that new models are going to drive innovation in the analyst space. There are many firms which have the capability of differentiating themselves and providing alternatives to the big players, though I doubt many have the ability to scale in a global market. Even Forrester has limited analyst footprint outside North America.
Well done on calling out Springboard, the only non-US example of a new business model, and one well worth looking at. But I think it’s overstating it to put them in the Advisory space as a whole. Springboard was established in Singapore 6 or 7 years ago, and has some truly innovative ways of conducting and delivering research which broke out of the traditional technology silos, but they have generated their revenues from vendors, not from IT users.
Springboard recently acquired Hydrasight, an Australian end-user advisory firm which was established by a couple of ex-Meta analysts, John Brand & Michael Warrilow. Hydrasight was a great example of a disruptive model on the advisory side, but it couldn’t scale. The Springboard acquisition of Hydrasight gives it the opportunity to scale the advisory model, so I think it will be interesting to watch over the next year or so. With John Brand in Australia and Michael Barnes (ex-Meta, ex-Gartner) in Singapore, it has the potential to build out an advisory business in Asia/Pacific, but that will take time, particularly as many of these markets are fairly immature in terms of paying for advisory.
(As an aside, Springboard also has a relationship with Spiceworks which you also mention, as well as with a quite interesting firm in Japan, Nork Research. Don’t underestimate how important alliances & partnerships will be in the New World…)
I think the important point is that innovation will not happen just in the US. There are other interesting examples in Asia/Pacific - have a look at Longhaus, for example - and in Europe, I expect. China has its own group of sell-side firms, as does Japan - all of which follow fairly conventional models. India has none, but I expect that the advisory model is likely to build traction there over the next few years, mirroring the evolution of the Indian services & app dev vendors as the market matures.
I guess the bottom line is that disruptive players could come into the US, from outside. What they lack in local knowledge could be offset by smarter ways of doing things, so no one can afford to be complacent. But increasingly, I think understanding of global markets is important because the technology is coming from Bangalore, Shenzhen, Sydney and Bangkok, not just Silicon Valley and Boston… and analysts will need to be able to advise their clients accordingly.
July 28th, 2010 at 8:08 am
Barbara/Gideon – Nice follow-on piece to Pt 1 of your Advisory Industry series. As we’ve discussed previously, I think that your three core tenants are solid: 1) the Advisory Industry can be disrupted, 2) it will require a significant level of differentiation on the part of the disruptor(s), and 3) true disruption – from a single firm – requires scalability. With that in mind, I have to put on my analyst hat and bring up a few points:
First, there is a significant difference between disruption and replacement. It is far easier to disrupt a market and force some type of change to the overall market, than it is to replace a dominant player This is an important point if you are willing to do so at a marginal or even zero profit level for some period of time (as noted in some of the business models you cite), which is an interesting point to bring up in a market where annual subscription models make it very difficult to quickly steal clients from existing firms.
With that in mind, disruption of a market almost always offers opportunities for those willing to take a chance. Interestingly, you could easily argue that Social Media has disrupted the Advisory model and opened up opportunities for some of the firms that are referenced from your conversations with Louise from Outsell (although I have some serious doubts about some of the business models scaling well – ex: partnerships/consultancies work very well in legal and accounting markets but have almost none of the leverage required to “produce once, sell many” that a firm would need to really experience explosive growth in the analytical business).
Second, I think it is unfair to think that there will be a single disruptor that bites into the Gartner/Forrester pie. Rather, we are likely to see a vast number of firms emerge that offer significant choices regarding specialization in the collective sense that could potentially have a noticeable impact on the major players (side note: consulting, which does not scale well, is a particularly vulnerable area for the major players since there is generally no fixed subscription aspect to protect your customer base).
In the present IT Advisory scenario, could it really be more an issue of changing market dynamics that ultimately lead to the eventual decline of the industry leaders? This also addresses your point about scalability, since it is not a single firm that must be scalable, but rather a market with a large number of new entrants with sustainable, yet smaller, business models (although there will certainly be some new firms that are more aggressive with regard to growth/acquisition than others – to paraphrase George Orwell, “All analysts firms are created equal, but some are more equal than others”).
Third, and lastly (I promise), I would question the requirement to attempt to go toe-to-toe with the major players that dominate the IT Advisory Industry. Instead, I would focus my efforts on finding new, unaddressed market opportunities (a strategy that has worked more than once in the past) that offer value and growth potential outside of the traditional service offerings, or perhaps even outside of the present service markets.
You referenced IBM as an example of market vulnerabilities, but I think that example (and the wave of mini, micro, & personal computers – driven by market demand - that upended their core business model by changing the market itself) highlights an interesting point: you don’t always have to compete with the major players – just help find a way to make them obsolete!
In business, you can either find a way to climb around those higher up the ladder, or you can build your own ladder.
Personally, I favor the latter!
July 28th, 2010 at 1:05 pm
Who will take down the “Big 3″ or disrupt the hierarchy of IT advisory/research services? It isn’t just small firms who might or could (and in come cases already have), it is how small and independent analysts use digital marketing techniques to offer service and influence in new ways. Look at a loose consortium like V3-serviced small/indie analysts, or No Jitter - they have already changed the game to some extent. Look at Focus and its expert network approach, another potential game-changer. I believe the “Internet model” has nipped at the heels of the Big 3, but hasn’t impinged on them much yet. Why?
Differentiation and disruption can take many forms, but it often starts with cost: How can the same service be delivered for much lower cost, perhaps more efficiently, without sacrificing credibility.
That credibility challenge is the secret sauce as far as I concerned in the IT analyst space. You can tweet and blog until your thumbs bleed, but if you are just another Vuvuzela in the cacophony of opinion Gartner will not be impacted. The challenge of some of the very social media oriented small firms who are plying a much lower cost models than Gartner is establishing and nurturing that credibility. If you are a non-consumer IT buyer looking for guidance who are you going to trust? Perhaps with the coming generation of IT there will be a big change - the long-term inference of the “Cloud” may have a huge impact on IT advisory in that demand may go down. If IT moves more toward an SLA-driven procurement role, well, Gartner, Forrester and IDC may go the way of the horse-and-buggy.
So if you are a small firm, yes, use SM more actively and swiftly than the Big Three. But more importantly pick out a niche area or two, go deep, establish credibility - and then hold your breath for a Gartner or Forrester acquisition if you are successful ;>
July 28th, 2010 at 10:58 pm
Barbara and Gideon - thank you very much for the mention, insights and facilitation of such a great discussion.
We established Springboard Research over six years ago with the intention of creating improved and more modern approaches for our industry. We never wanted to become another Gartner, Forrester or IDC - we have always sought to learn from the best of those firms, but to build on it with new innovations and a more international approach. We believe we’ve made good progress, but we’re still learning a lot and have a long way to go.
I believe a thread going through many of the comments posted here (and our experience) is that the greatest challenge is shedding one’s experiences/reference points in the traditional industry and seeing where it will be in the future, and then ensuring a viable transition from the current environment to the new one. This transition does not happen quickly - it requires experimentation, persistence, follow-through, stamina, execution and cycles of improvement. Sometimes in these discussions we think that a great new idea or technology can get a firm there on its own, but good management, execution and HR are as critical as ever.
We have also learned that it is not all new world and virtual; in fact, we have found our events business is a powerful enabler for our online communities. It is the combination of new strategies and approaches (usually digital) with some of the established ones that presents the most sustainable breakthroughs in our view. When an end-user from our online community attends one of our events, we have far richer and more sustainable interactions with them.
My good friend Dave Noble is correct that we are still building out our end-user advisory business and we expect this to continue for years. We have great optimism about our Hydrasight acquisition and enormous confidence in John Brand, the head of this business division.
Moreover, there are some measures we track in this market that are not traditional ones which people often miss. We already have an online community of end-users (Benchmark IT) with over 2500 organizations, a readership for our newsletters of over 1500 additional end-users and an event business that brought over 600 Asian end-users to our events in the first half of this year (across New Delhi, Mumbai, Singapore and Hong Kong). In the second half of the year we’ll be reaching out to an additional 1000 end-users at our events in Beijing (August), Sydney, Melbourne (September), New Delhi, Mumbai and Bangalore (November).
Our vision is to develop best practices and innovations from our core, build end-user communities that integrate a number of touch points (many of which are free), embed technology and social media into as much of what we do as possible and then extend our reach. We believe M&A can be a key part of our scaling process as well.
At any rate, thank you again for hosting such an interesting exchange of ideas!
July 29th, 2010 at 12:00 pm
Simon, I think you’re spot on. I’m the product manager at GigaOM Pro, and when we talked to folks prior to launching, we saw a big opportunity to bring quality market information to smaller potential customers who have been priced out of the market traditionally. Especially in today’s high-tech world, there are plenty of sub-$1B —heck, sub-$1M and even sub-$1K — companies and entrepreneurs, not to mention investors, organizations and others, who need market information. What they need from it, and how they want to access it, is somewhat different, as well. They need more affordable, web accessible, discursive information than their larger-company peers, too. They want to — and do — turn to web searches to find content and send short online communications to experts. We think there’s a way to facilitate these kinds of lightweight interactions with traditionally high-touch experts through our service.
July 29th, 2010 at 1:34 pm
@Simon and @bfr3nch
I have found that the demand for highly granular research services in the tech sector drops precipitously when you get to SMBs. We all define SMBs differently, and it varies to some degree by industry depending on the concentration of participant market share at the top. But to use Simon’s $1 billion threshold as the highest end of medium, the primary reason for the drop-off in demand is there is generally an aggregation and packaging of products and services that is made by companies that serve those clients. This takes most of the decisions on infrastructure, advanced technologies, and platforms out of the hands of those end-users.
Also, one of the most significant drivers of demand for technology research is rapid technological change and consolidation of suppliers. That same channel that aggregates products and services for SMBs buffers and slows down the transfer of technological advances to clients. So that eliminates much of the need and associated demand for related research services.
And there is another factor. Decision cycles and investments tend to be spread out over a few years by SMBs, with huge investments in relative terms made all at once, with it leveling off dramatically for many years – sometimes as long as a decade. SMBs have much less ability to spread those investment out over time. So that concentrates the demand for research and advisory services over those brief periods where the large investments are being made.
The smallest buyers invest primarily in packaged solutions. Those would be almost entirely purchased from vendors that sell what were once called turnkey systems. And even among the largest SMBs, there might be only high demand (as exists at the largest global 1,000 organizations) for related services in buying cycles of 3 years during any 10 year period.
With this SMB perspective in mind, it does still leave room for innovation in associated research services to address that demand. But it is a very different deliverable, with much more complex and dynamic sales and marketing elements to reaching buyers at the right time, with timely deliverables. This is why the market tends to be served today mostly by consultants that stay current on the space and deliver highly customized research deliverables.
July 29th, 2010 at 2:37 pm
Mark,
It appears you’ve done research on SMB analyst needs – thanks for sharing insights here. Agree with your points on why today’s analyst services have been out of alignment with SMB tech decision making. As for your view that packages eliminate many SMB choices/decisions, well, that raises some interesting questions about how cloud environments may affect enterprise needs for analyst services, doesn’t it?
July 29th, 2010 at 3:33 pm
Yes, I agree, it would certainly have a negative impact. Although if you subscribe to Larry Ellison’s perspective, the analyst community has nothing to fear! ‘;-)
July 30th, 2010 at 4:52 am
Springboard Research innovating the advisory business model http://bit.ly/8XzIBW
This comment was originally posted on Twitter
July 30th, 2010 at 4:53 am
Springboard Research innovating the advisory business model http://bit.ly/8XzIBW
This comment was originally posted on Twitter
August 18th, 2010 at 10:44 am
From someone who has been in the IT research industry for some time in a sales capacity, I thoroughly enjoyed reading the threads on the dynamic landscape of innovative and disrupting business models. One question, how will these small boutique firms who are trying to establish their unique value, going to keep away from the grasps of Gartner or Forrester acquiring them and thereby maintain a somewhat level playing field in this industry. Or is it the strategy of the top tier IT research firms to acquire these up and coming research firms as a way of maintaining a monopolistic hold on the markets and therefor there revenue models?
October 25th, 2010 at 4:44 am
I think you should look to companies like Red Monk as exemplars of where depth trumps breadth.