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.
Gartner’s planned acquisition* of AMR Research sparked some vibrant conversation this week. Alex Williams posting on it at ReadWriteWeb Enterprise asked my perspective. With his OK, I’m sharing our offline exchange, which focused on enterprise supply chain decision makers.
Enterprises have been putting up with quite a bit of churn and staffing reductions among their analyst firms during this recession, and AMR Research is no exception. Still, AMR Research merging into Gartner signals the loss of yet another independent voice in the enterprise tech marketplace.
Gartner is not simply buying AMR Research business contracts. Gartner is buying the attention and trust that enterprise decision makers invest in AMR Research. That’s what will determine the lifetime value of the AMR Research clients. Attention and trust are the stakes.
The difficulty supply chain decision makers face is that they can’t easily transfer their trust in AMR Research to another analyst firm. Their biggest obstacle is limited choice. Few analyst firms come close to AMR Research in terms of size, expertise, track record, culture and clientele. The choices are:
- the giants — Gartner, Forrester, Informa/Ovum
- a few companies with dedicated teams, such as ARC Advisory and IDC Insights
- a sprinkling of qualified supply chain experts among the hundreds of small analyst firms and one-person shops
Companies comfortable with the AMR Research company culture will need to think about chemistry as much as content when considering Gartner, Forrester Research, ARC Advisory Group and IDC Insights.
The small and one-person consultancies already include several former AMR Research analysts. Decision makers comfortable with betting on the jockey, rather than the horse, will find familiar faces in this group.
What about replacing AMR Research with advisors who do not wear an analyst badge? Most decision makers already listen to several types of experts, at least in the early stages of their decision process. So in reality, this is a question of whether to direct more attention and trust to current advisors whether they be peers, consultants, etc.
My advice to AMR Research clients and partners: take a fresh look at your decision support ecosystem while you’re on honeymoon with Gartner. Assess everyone who has your ear, not just the analysts. It’s a good time to ask, “who are the smartest people on the kinds of supply chain issues we have, and do we confer with them?”
What’s up this week in influencer relations? Here’s what I’ve been talking about offline when the conversation rolls around to, “So what’s up? Anything I need to know?” This week the gossip has centered around analyst blogs, HP and Dell. Feel free to add your nuggets.
EDS = HP. HP retired the EDS brand this week. Time to update your influencer lists with the HP email and titles.
Perot Systems soon to = Dell. Get your head around what this M&A means if your company relies on referrals and such from Perot Systems.
Who owns blogs - analysts or the analyst house? Are analyst-written blogs more the property of the analyst house or the analyst? Consensus: depends on whether it’s a “company” blog. Some say negotiate social media content rights at the time of employment. Otherwise, personal blogs may be considered company IP at the point of departure.
Top analyst blogs. Jonny Bentwood is preparing to issue his Top 100 analyst league tables. Big backroom buzz is on whether there’s any shakeup at all in the top few. Most gossip is about whether or not Altimeter is an analyst company. I’m thinking the Gartner and Forrester blogs will make a difference, based on the employee base, media reach and Twitter penetration. Usual under-the-breath gripes about RedMonk standings. Stay tuned on that. Not by coincidence, I’m doing a massive Tekrati blog directory update. Buzz me this weekend if you’re feeling compelled.
Enterprise Mobility Matters turns 2. Congrat’s to Philippe Winthrop, today marking the 2-year milestone of his blog.
Phil Fersht soon leaving AMR Research. Carter Lusher broke the news on Twitter. Phil’s uber-smart on outsourcing, offshoring, nearshoring, you name it. Another analyst whose blog has transcended several jobs. I’m not sure there are any top-tier analyst firms that haven’t benefited from his expertise and network. So I’m guessing he’ll jump next to a different kind of gig.
Following on the heels of layoffs at Gartner and AMR Research, comes word that Yankee Group and iSuppli also reduced headcount. Yankee Group CEO Emily Nagel discussed the reduction in the company blog. Meanwhile, there is word of a reduction at iSuppli, a firm that just recently acquired Telematics Research Group (TRG). This much consolidation in the tech industry analyst community has implications for analyst relations and influencer programs.
Tech suppliers can react in one of two ways.
The most common reaction is list management. The premise is that you automatically replace one analyst name on your list of influencers with another analyst name. When somebody moves out, you move somebody up.
That’s exactly what the analyst salespeople want tech suppliers — and IT decision makers — to do. Swap one analyst with another. Treat them as interchangeable parts. Transfer your trust, no hesitation.
That strategy would work really well, if analysts were toasters.
The other option is research. This entails pulsing your salesforce and decision-makers and evaluating the overall market segment, to find out how influence is shifting on the ground. The idea is that you think outside the box, and make no assumptions that one analyst is replaced by another analyst out in the marketplace.
You may find that a trusted analyst is being supplanted by a consultant or a thought leader from an IT association. You may find most decision-makers taking a wait-and-see attitude, opting for no immediate adjustments to their circle of advisors.
In the end, trust is not about lists or toasters or interchangeable people. Trust is personal, especially when company or career is on the line.
Short-term, there’s little likelihood that you can uncover every decision where an exiting analyst was advising. Look into the priority transactions in your pipeline; assess and act on those situations on a case by case basis.
For the long haul? My advice is don’t rush to revise your influencer list. Live with the gaps until the dust settles and you can figure out what’s really happening.
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.
Stephanie Stahl’s Oct 14 post reports that one BI CEO is complaining that insights obtained by former Gartner analyst Howard Dresner could present unfair competitive advantage to his new employer, Hyperion. By contrast, well-known Hyperion competitors Cognos and Business Objects had advanced knowledge of the pending departure and saw no complications or compromises resulting from Dresner’s job change. Just the same, Gartner’s Ombudsman office is developing a formal policy regarding analyst departures.
Source: “When an analyst works for your competitor”, InformationWeek blog.
Reprinted from Tekrati
Gartner, Inc.’s acquisition of META Group has sparked industry discussion about top industry analyst alternatives to Gartner. Tekrati asked seven of the top choices in North America to state their case for technology users and vendors. In addition, this report highlights two stand-out firms from among the hundreds offering specialized expertise and services.
Top picks include well-known firms — Forrester Research, IDC and AMR Research — and four lesser known firms: Burton Group, Info-Tech Research Group, The 451 Group, and The Advisory Council.
We also highlight two stand-outs among hundreds of firms offering specialized expertise: Nucleus Research and AMI-Partners.
This Tekrati Special Report is divided into several sections. We invite you to comment and trackback at the Tekrati Weblog, using the links at the bottom of each page. To date, two comments have been posted to the Introduction.
- Special Report: Alternatives to Gartner, Introduction: Overview of the special report and listing of the analyst firm spokespeople who responded to our questions.
- Special Report: Alternatives to Gartner, Technology User Viewpoint: Tekrati asked seven of the top choices in North America, “What is the primary reason that former META clients, from the end user community, should short-list your company for their industry research and advisory needs?” Here’s how they responded.
- Special Report: Alternatives to Gartner, Vendor/Provider Viewpoint: Tekrati asked seven of the top choices in North America, “What is the primary reason that former META clients, from the vendor community, should short-list your company for their industry research and advisory needs?” Here’s how they responded.
- Special Report: Alternatives to Gartner, Differentiators against Gartner: Tekrati asked seven of the top choices in North America, “What are the primary characteristics that differentiate your company from Gartner, Inc.?” Here’s how they responded.
- Special Report: Alternatives to Gartner, Free-form Comments: Tekrati asked seven of the top choices in North America, “Any related quotes or comments you would like to provide?” Here’s how they responded.
- Special Report: Alternatives to Gartner, Specialized Expertise Firms: Hundreds of industry analyst firms offer specialized expertise on topics from browsers to globalization to storage to telecommunications. Some serve only technology providers within an industry, some focus on geographical regions, others serve only technology users. Two of the stand-outs in this arena are Nucleus Research and AMI-Partners.
The Gartner acquisition of META Group marks the first major change in the line-up of the largest IT industry analysts since Forrester Research acquired Giga Information Group in 2003. The consolidation presents Gartner management and META Group employees, clients and competitors with immediate challenges and opportunities. It also re-opens the debate over the long-term role of the industry research houses.
Understanding the Acquisition Context
The Gartner acquisition put an end to several years of rumor-mongering that META Group was on the block. Despite the industry chatter, META Group ended 2004 with a strong international and market-specific presence, brand equity, loyal clientele and healthy revenue growth. For any other dedicated IT research house, acquiring or merging with META Group would have been a strategic move. For Gartner, the acquisition is strictly tactical. A quick look at the market numbers shows why.
According to Outsell, Inc., Gartner commanded 41% of IT research market revenues in 2003, while META Group claimed 6%.
While Outsell won’t release its 2004 analysis until the end of May, Outsell vice president Louise Garnett said that preliminary estimates put Gartner market share up a few points in 2004 and META Group down slightly, while the overall market grew approximately 5%. A best-case scenario for Gartner would be an increase of a few points in 2005 market share as a result of the acquisition.
To achieve even this, Gartner must move quickly to cut redundancies and shore up revenues and assets it wants to keep.
“It is a consolidation. It is not a situation like the Forrester-Giga merger, where the synergies of the two parties boded well for all parties — creating a win-win-win for employees, clients and shareholders,” said Garnett. “In this case, there’s a high overlap in the products.”
Chatter and Confusion
Yet, critics and some competitors have tried to set META client expectations along the Forrester-Giga model.
While SEC regs handicapped Gartner’s and META’s ability to communicate freely with their respective employees and clients, other pundits speculated that as little as 20 percent of META analysts would be offered jobs at Gartner and that META clients would suffer the most.
Confusion in the field organizations — and disenchanted analysts floating their resumes — increased the negative chatter.
Then, a mid-March lay-off executed by META Group fueled the flames. Gartner, rather than META President/COO C.D. Hobbs or Chairman Dale Kutnick, took the additional heat.
Finally free to speak, Gartner CEO Gene Hall announced on April 1st that 100 META Group sales professionals agreed to join Gartner. In addition, he revealed that Gartner retired the META Group brand and cut all but three META events planned for 2005. Sources at Gartner added that Gartner analysts and content will be incorporated into the remaining META events, and that discussions with offshore META representatives are underway.
Hall also alluded to ongoing Gartner management priorities — discussed during Gartner’s recent analyst day — that set the tone for the META consolidation. These priorities include streamlining Gartner’s bloated product lines, re-aligning staffing and skills, ramping up for strategic growth markets, and re-energizing sales of core subscription services offering higher margins.
Sources close to Gartner say that slightly more than half of META Group analysts received offer letters to make the transition. Tekrati estimates that META employed approximately 115 analysts prior to the March lay-off, which apparently targeted analysts as well as consultants. Some, such as META Group senior vice president and principal analyst Nick Gall, have accepted the offer. Most must decide within the next few weeks.
The disposition of the META consultants is less clear.
Against this backdrop, the task of mapping META clients and contracts to Gartner products, services and combined account teams is underway.