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.
To industry observers the situation seems clear: changes taking place in IT buyer decision processes require corresponding changes in how vendors deal with influencers, such as the industry analysts. However, the changes in tech decision-maker processes have been gradual and have varied greatly by market. Plus, critical aspects of buying decisions remain hidden from external view. As a result, few in tech marketing are aware of the extent of change taking place in their customer decision processes. Even fewer are thinking about how best to map the new realities to Analyst Relations programs.
I recently had the opportunity to speak with 3 of the people who are not only thinking about it, but translating their observations and ideas into practice: Evan Quinn, director of Corporate Analyst Relations at HP; Jennifer Bartolo, vice president of IT Influencer Relations for SAP; and Debashish Sinha, vice president of Marketing for HCL America.
They are pioneering analyst relations for the next decade. You can check out my initial notes in our newsletter, The Influencer.
No high tech influencer program is complete until it addresses sourcing and vendor management executives. You may think that this group of people is buried deep in your customers’ accounting departments, removed from actual decisions. You may think of them more as gatekeepers on properly filled out forms, credit checks, and other accounting records. Not so. These executives wield enormous potential for influencing computer, software, service and device vendor selection, pricing, Ts&Cs, and more.
The current economic condition makes this an ideal time to take a hard look at sourcing advisors and vendor management executives. Check out the insights one group shared with Forrester Research CEO George Colony.
Take a little of our Influencer50 advice: don’t limit your knowledge of these influencers to what you read in a market research report. Get out there and identify them. Then, engage with the ones who matter the most to you in each of your markets.
If you sell technology, you already know that sourcing advisors figure prominently in your influencer ecosystems. Have you ever wondered how they manage to get into your accounts in the first place?
Most likely, they’re getting to your customers and prospects through word of mouth referrals, vendor referrals, or direct sales. That’s according to a new study on the sourcing advisory business by Phil Fersht, AMR Research analyst and blogger, and Ed Nair, Global Sources (part of CyberMedia India Ltd.). The survey finds sourcing advisors get as many business leads from vendor referrals as they do from their own direct sales efforts.
In other words, sourcing advisors obtain the lion’s share of their business through influencer marketing (word of mouth, vendor referrals).
This helps explain why sourcing advisors are such a disruptive and persistent force during a decision process — they walk in with networked authority.
The study is free and well worth a read, despite the dubious title and tagline — “The Definitive Survey of Sourcing Advisers”, the first ever study on…. (Phil, you ought to know better.)
Hat tip to Vinnie Mirchandani.