There are few bona fide analysts of the analysts. Outsell has figured prominently in this small group for many years. What gives Outsell its chops? The company has published a landmark report on the industry analyst business for many years. The report has become a valuable resource for those in the analyst business as well as those who partner with analyst firms, purchase content from the analyst firms or manage influencer relations with the top analyst firms.
The 2012 edition of “Watching the IT Watchers” was released a few months ago. The report, authored by Perry Gartner, covers top analyst firms by revenue, highlights notable contenders and analyzes the business of the industry analysts at large, including key trends, drivers, threats and opportunities.
Give me a shout if you’ve read the report. I’ll be digging into it over the next few weeks.
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.
There’s a good deal of speculation on whether the research and advisory business is entering a new phase — one in which small Advisory firms may be thriving at the expense of the large firms. David Hatch summed up this point of view in a comment to “Advisory Industry, a future redesign: the ‘Payment’ Model”:
“Independents are growing in number while research firm-employed analysts are shrinking… This shift is likely going to be the genesis of the new business model…”.
Is there in fact a groundswell favoring the smaller firms? Cutting to the chase, we beg to disagree, but we should be able to find hard evidence as well as qualitative assumptions and begin to see possible implications for the analyst business at large.
As David implies, counting heads is one way to measure sea change. But even when cutting its claimed analyst force down, Gartner generally has had a greater than 50:1 edge in research personnel vs. the any of the small Advisories. What is not clear is whether manpower size alone is more important than some combination of factors such as:
- Depth of coverage in specific areas
- Average analyst quality
- Breadth of deliverables (content types, events, etc.)
- Frequency, depth and and quality of personal interactions
- Length of contract “lock-in” ( Gartner has been pushing 2- and 3-year contracts)
- Broad spread of client seats (difficult to displace)
- Clients being change-averse to replacing Advisories of long standing
- Selling to multiple constituencies rather than to vendors only (which improves an Advisory’s understanding of the overall territory)
- Cornering the CIOs and other senior positions when selling to large non-vendor enterprises
Quantity does not equal quality. Yet, there is no realistic method to measure the average quality of different Advisory firms in their sphere of activity, and it must be acknowledged that G&F both score relatively high on most of the 10 points above.
What about the David vs. Goliath buzz? Private conversations with appropriate contacts follow the usual recessionary story-lines and seem to favor the small firms:
- Vendors and their analyst relations (AR) departments are doing new advisory deals with small firms and even with individual analysts laid off by IDC, Forrester and Gartner. Those are generally recognized for unique skills and the stand-alone analysts are expected to continue in this role. Even as vendors allocate budget to smaller firms, they are invariably renewing Forrester and Gartner contracts, as usual.
- Other analysts who have stayed put during the recession may be heard murmuring that they’re ready to jump to something new, indicating they see opportunity in the wings.
- Several small firms and solo advisors are compensating for the poor economy by doing an excellent job of public relations, thus garnering disproportionate attention and hopefully monetizing their efforts through social media.
There may be some truth above, but insufficient to prove material penetration of the small firms’ client bases. Other initiatives exist, but none seem to offer evidence on the extent to which relative market shares might evolve during the next few years. Only the two large leaders provide solid financials and shareholder discussions, therefore we know that Gartner and Forrester enjoyed good quarters recently which were however influenced by both their publicly divulged future 5%-7% annual price increases (regardless of the economy) and with no more price negotiating going forward. If such reported pricing inflexibility by G&F can be maintained, that might help the strongest of the small competitors to slowly penetrate the fortresses. Then again, G&F’s CEOs are committed to win and if necessary may reverse field on their pricing strategies and hold their own.
Mathematically, even with accelerating business volumes, we’d bet that it would take small Advisories ages to make significant inroads on G&F. Outsell’s Louise Garnett estimates average growth in the overall information industry at around 10% per year. That means small firms need to grow faster than the industry average for 15 to 30 years to reach the size of an AMR Research or Burton Group! Do today’s young analyst companies have to face that long a runway before reaching what might be called “critical mass”? Or are these firms satisfied — even desirous — in remaining small and independent, without needing to worry about large staffs and investors? Either way, G&F likely do not have much to worry about.
That’s not to say that there will be zero competitive inroads against G&F. Opportunities exist to mount significant competitive inroads. We think the most important could emerge from meaningful innovations, preferably true game-changers requiring specific assets which the established competitors have been unable to muster thus far.
We’ll discuss some noteworthy innovators and our ideas on seizing the competitive opportunity in the Advisory Industry in Part 2.
Editor’s Note: This has been cross-posted at Gideon’s blog, www.gideongartner.com. Comments are welcome at both.
GigaOM today celebrates the first anniversary of its GigaOM Pro research division. GigaOM Pro is one of the more interesting of the recent entrants to high tech industry analyst business. Mike Wolf (@michaelwolf), vice president of research, sat down with Tekrati and spoke about the first year: the formative decisions early on, recent progress and a few immediate changes as the venture begins Year 2. Plus, a Cisco subscriber weighed in on her experience with this innovative industry research service.
First, let’s catch up with what’s new as announced yesterday by GigaOM founder Om Malik. GigaOM Pro officially emerges from beta today. The online retail price rises from $79 to $249 per year, with discounting down to $199. That’s a fraction of the cost of comparative services. Since its launch, the service has published more than 500 research items, including in-depth reports on the app economy, e-books and cloud computing and more than 100 company profiles. Plus, subscribers can contact analysts privately or discuss findings openly through the community features of the site.
Further sweetening the deal, the 6,000 beta subscribers can renew at the $99 beta price. According to Wolf, the 2010 renewal rate looks good. The subscriber base is large enough now to create its own momentum in new sales.
The company will now provide research buyers a corporate purchase option in addition to online sales. The new Corporate Edition makes it simple to buy a quantity of seats at a volume discount. Wolf said that the Corporate Edition builds on the innate appeal to GigaOM readership and is garnering interest from a broad base of small to large companies, market research buyers and intel centers. The first corporate clients to sign include Microsoft, Adobe, Rovi, Juniper Networks, Peer1, RRE Ventures, Norwest Ventures, Hill & Knowlton, LewisPR and Accenture.
The 1-year anniversary coincides with GigaOm’s third annual Structure conference, taking place today and tomorrow in San Francisco. Celebratory perks at the sold-out cloud computing event include:
- Conference attendees receive a comp copy of the in-depth report, ”Defining Internal Cloud Options: From Appistry to VMware” by Derrick Harris
- Attending GigaOM Pro subscribers (and those who buy a subscription onsite) can enter a drawing to win an iPad (Wi-Fi)
- Wolf will lead a rapid-fire panel on where cloud computing is headed over the next 3 to 5 years. The questions were submitted by GigaOM Pro subscribers and Twitter fans. The panelists, selected from the virtual GigaOM Pro Analyst Network, are Derrick Harris with GigaOm PRO, Phil Hendrix with immr, and John du Pre Gauntt with Media Dojo.
- Members of the GigaOM Pro Analyst Network are in attendance throughout the event.
In its first year, GigaOM Pro has proven that it can stand apart from the majority of industry research firms on price, coverage, quality, speed and customer experience. The affordable price is certainly an important part of the equation. However, that would mean nothing without the rest.
Early on, Malik, Wolf and CEO Paul Walborsky made several decisions that set GigaOM Pro on this unique path. “We knew we had to do something different,” said Wolf. “We didn’t want to do a Gartner or a Heavy Reading. We didn’t want to be consultants. We focused on innovating the research business model with price, community and a virtual network of domain expertise.”
Thus, they sidestepped the trappings of traditional research firms: high overhead, exclusionary pricing, long lead times and a finite pool of analyst experts on any given topic.
The GigaOM media network is able to subsidize its research start-up and provide immediate brand recognition. Further, GigaOM editorial standards and cradle-to-grave project support ensure that research coverage leads or closely tracks hot trending topics while adhering to quality standards. The strength of the brand — combined with the management team and editorial support — has enabled the research start-up to recruit close to 40 high caliber experts to its virtual Analyst Network and produce an impressive body of written and rich media research deliverables on 5 emerging tech domains, from green tech to Google and Apple to cloud:
- Connected Consumer
- Green IT
GigaOM’s grounding in Web 2.0 also translates into differentiation in the customer experience: subscribers can network with each other and the experts, and discuss every piece of research published, no holds barred.
“Our subscribers like the style of service,” said Wolf. “They like the model — access to any research at any time.” He said the rapid turn-around on hot topics and ability to bring in deep-dive contributing experts from the industry at large make GigaOM Pro a great add-on to advisory services from the established analyst houses. “We’re not displacing other services. We’re complementary to traditional firms.”
Lisa Soto, an analyst relations manager with Cisco based in Irvine, Calif., who’s been using the service for about a year, concurs. She works in one of Cisco’s consumer divisions and said, “The PRO service is how we keep our ear to the ground about what is happening in the industry. We can always count on GigaOM PRO to give us an in-depth evaluation and realistic perspective of the impact many new technologies, key announcements have on the industry. As soon as we hear about a trend or a new movement, we know GigaOM PRO will provide a deep and rich perspective of what is happening and the value to the industry and most importantly the consumer.”
Two things she likes most about the service are its responsiveness to the market, and the social aspects of the research delivery. She finds GigaOM Pro is one of the first research resources to provide information on a new trend. “The timing is unbelievably fast.” She also likes the ability to interact with the experts and content — it’s designed from the ground up with community features of a full-fledged social network — and likes the option of being alerted to new research via “the most current social media tools.”
The GigaOM Pro social experience goes beyond written word. A series of “Bunker” events brings together select subscribers by invitation only at a physical location. The rest of the community shares the event via streaming. Looking ahead, these types of events will likely play a larger part in the corporate edition.
Finally, there is one more aspect to the GigaOM Pro social design: an Analyst Relations network within the Pro community. This professional network is open to any analyst relations practitioner actively working with clients — not just those affiliated with Pro subscribers. Members can network with each other and with the virtual GigaOM Pro Analyst Network. Soto said she has taken advantage of the network to expand her division’s relationships with influencers in adjacent markets.
In a busy year of beta — during one of the worst recessions in tech market history — GigaOM Pro succeeded in putting a fresh face on the high tech research business. Prospects for Year 2 look good. Research buyers, analysts and analyst relations teams should take note.
Do you have some opinions on how social media is changing the analyst business? Or how it could be changing the analyst game? If so, I’d love to hear from you. Your points may well end up on my July roundtable, ”The Impact of Social on the Analyst Industry“, with Jonny Bentwood of Edelman, Carter Lusher of SageCircle, and our roundtable producer and host, Jeremiah Owyang of Altimeter Group. The Twitter hashtag is #socialanalyst.
We’ll be discussing — and debating — the impact of social on analysts and analyst firms, and resulting changes in the analyst experience for IT decision makers, tech providers and their analyst relations representatives.
Some changes are taking place behind the scenes, in business, research and sales operations. Some changes are clearly visible at events and online through blogs, communities, media sites and Twitter. Other changes are being forced on the analyst business by IT decision makers and tech providers, as social media redefines approaches to decision making and influencer relations.
Social is not just another hammer in the tech toolbox. It’s also a set of behaviors. We expect analysts to adopt these new behaviors. So far, some are, some are not.
As with all Altimeter Group webinars, this one is free to attend and space is limited! Register at your earliest if you’d like to participate in the live conversation.
- What: The Impact of Social on the Analyst Industry: A Roundtable with Jonny Bentwood, Barbara French, Carter Lusher, and Jeremiah Owyang
- When: Wed, Jul 21, 2010 from 9:00 AM - 10:00 AM PDT
- Info, Register: https://www2.gotomeeting.com/register/823666435
Special thanks to Jeremiah for organizing this event!
Editor’s update, June 29th: Post your suggestions on topics & points of view you think we should cover during the roundtable at Jeremiah’s blog.
I’m not a fan of the growing schism between Altimeter Group and the rest of the analysts. One of the most visible wedges driving this rift is the idea of “rock star analysts.”
“Rock star analyst” is an old notion with deep roots among financial analysts. Originally, rock star analysts were the ones who made the right call the most often, especially on complex decisions. They made their clients the most money. There was a strong body of proof and formal professional consensus behind the status.
Not so on the tech analyst side of the aisle. What does “rock star analyst” mean to analyst relations people and analysts today? It seems to mean an analyst scores high on RSS readership, Twitter following, social net savvy, citations in the media. In short, celebrity status. Customer satisfaction isn’t a meaningful factor, beyond the PR value of the analyst.
What does celebrity status have to do with accuracy, completeness, timeliness? With giving clients great advice?
Why would a decision maker want to hire a celebrity to help with tech decisions?
It’s time for a reality check. Of the many reasons one might hire an analyst, celebrity status is — at best — just one aspect of the package.
Update, for clarification: I’m criticizing the rising popularity of labeling an analyst a “rock star” due to celebrity status. I see Altimeter Group as an unwitting victim of this craze. Ray Wang and his associates have proven their chops as technology & business experts. Putting them on rockstar pedestals strictly because of their social media popularity is insane. And arguably, it’s a disservice to the entire analyst profession. - BF May 12, 2010.
TechCrunch has edged into the syndicated research business, the traditional turf of analyst firms such as Gartner, Forrester Research, IDC, Burton Group, et al. The idea behind TechCrunch Research is elegantly simple: package up quarterly reports based on the open source CrunchBase wiki database, sell the reports at economical price points and promote the service across the TechCrunch media network.
What are the implications for analysts and influencer relations managers? Hint: This isn’t about the upfront revenues from selling research reports, or annual subscriptions.
The implication for analysts who cover tech and mobile start-ups is serious new competition for the coveted role as a trusted and well-known expert. TechCrunch Research is promoted across the TechCrunch network — a network that garners 5.5 million unique visitors each month and is wildy popular with VCs, start-ups, early adopters and C-level tech execs. Name an analyst firm that can compete with that kind of audience on this particular market segment. In an attention economy, TechCrunch Research looks like a winner.
There is another implication and it goes far beyond analysts who cover start-ups. TechCrunch Research is the first serious competitor basing paid research subscriptions on open sourced content.
Think about that for a minute. Think about the difference this represents in the cost of acquiring data and the options for making money off of it without sacrificing integrity.
CrunchBase covers close to 19,000 start-ups, plus funding activity, acquisition activity and profiles of some people. Contributors include the TechCrunch staff plus readers and those wanting to be listed. In other words, it’s community based.
Plus, it’s published under a Creative Commons Attribution License [CC-BY], thus it is “open source”. It’s also freely available, however try not to confuse open source with free. “Open source” is strictly about the license rights, “freely available” is strictly about the price tag to the buyer.
Finally, what about analyst relations managers and others involved in influencer relations? First, take a hard look at the TechCrunch demographics to understand how the readership maps to your decision-makers and their influencers.
If it counts, then consider what you’ll need to track: TechCrunch Research reports, the CrunchBase database and coverage and comments impacting reputation across the TechCrunch media network.
Regardless of whether or not your interests center on start-ups, take a good look at CrunchBase. How will you manage relationships with research outfits when their researchers include the community as well as the named staffers? That’s an interesting picture.
And just in case your knee-jerk reaction to any of this is, “Never gonna happen on my watch”, remember this: where TechCrunch goes, others follow. Many others.
For more on TechCrunch’s entry into the research market, see my coverage at Tekrati, TechCrunch Reinforces Entry into Syndicated Research Market“.
R “Ray” Wang has posted a synopsis of his role as an industry analyst. Ray is with Forrester Research. His clients include tech buyers and tech providers. As a result, his straightforward summary describes the main roles that many analysts play in the tech industry.
I noticed that Ray doesn’t focus on describing his influence. He doesn’t call out his role as an influencer in the enterprise software market. Instead, he describes how he helps clients and how he creates intellectual property for Forrester through his research, analysis, consulting, and reports.
Many important influencers avoid the “influencer” label. It’s not the way they talk about themselves.
They leave such determinations to people like us here at Influencer50, who identify and score influencers on a market by market, client by client basis.
There’s no magic formula for being a great analyst or a great influencer. Ray’s a great role model for both.
Gartner, being one of the few publicly traded industry analyst firms, notified the SEC that it was reducing headcount by 117 this week. This was followed by SageCircle reports of a reduction at AMR Research. Not surprisingly, the double-serving of downsizing news sent murmurs through the analyst relations and analyst watchers communities. Dennis Howlett, an Enterprise Irregulars and ZDNet blogger, posted a thoughtful perspective, well worth reading.
From my ongoing conversations with AR people over the last few months, I know there’s an assumption that the smaller (and thus ostensibly “more agile”) analyst firms will weather the 2009 economy better than the sector behemoths Gartner, Forrester Research and IDC. I don’t quite share that optimism, based on my conversations with analysts. One of the challenges is that there are so many small analyst shops vying for shrinking budgets.
And that drives me crazy.
The high number of small analyst businesses is a direct result of excessive fracturing within the analyst business. Fracturing has become a chronic problem within the analyst business. It’s epic. The entire sector is out of balance.
The fracturing is compounded by too many small firms staying small, not even attempting to grow into mid-sized firms.
If you’ve followed me even casually, you know that I’m supportive of 1-person and small-team analyst businesses in the world today. For the last 9 years, I’ve been one of the go-to people to validate them and raise their market visibility.
Many small analysts produce research and advice on par with Gartner. I just wish their business vision and execution was on a par with Gartner too.