Gartner & AMR, but in the end its still organic growth vs. the Analyst Cycle

Praise goes to the IIAR for breaking the news (to me, at least) of Gartner’s purchase of AMR Research. The AR institute posted the news an hour before Gartner’s press release on BusinessWire started to pop up in the press. AMR’s Bruce Richardson has also outlined the good news about the deal [And Tony Law’s analysis tells end users what they need to do]. In a nutshell, it allows AMR to maintain its research quality (perhaps even add quality through the integration of Gartner’s methodologies) and gain a wider audience for its analysts. And it’s not necessarily bad news for AMR’s competitors, as we discuss below.

One of the striking things about the purchase is the price: $64 million. That looks like a great price for an established brand with a great reputation for quality, even if the purchase is in cash rather than stock (A wise choice by AMR’s owners).  It’s only twice the price that Forrester paid for Jupiter last year.

Any acquisition can be testing but, in this case, we think AMR had a lot of points of similarity with Gartner, including the fact that its 40 or so analysts were outnumbered by the salespeople. However, there will be some points of tension for AMR analysts, especially when Gartner looks for productivity gains. The pace of work will be cranked up. While there’s a lot that Gartner could learn from AMR’s excellent advisory services, it’s likely that Gartner will want to ensure that ex-AMR analysts give a similar level of service as Gartner analysts. 

So the big gainers will be AMR shareholders and existing Gartner clients, especially those who can stop buying AMR Research by demanding Gartner gives it for free next year.

That said, it’s important to note the big reality: Last year Gartner grew its revenue by $111 million. Gartner added business three times the size of AMR Research organically.So while a purchase like this will get some people bleating about how the empire is eating up all the little kingdoms, the fact is that Gartner is increasing its lead over the huge analyst firms mainly through its own efforts, and not mainly through purchases.

That said, we’re really not sure Gartner is really increasing its market share. Because of what we call the Analyst Cycle (named after the Water Cycle) we think that every firm merger leaves buyers looking for a new source of second or third opinion. That calls new firms into prominence, or into being as experienced analysts peel away from their new employers. As a result, we disagree with the reaction of those self-styled gurus who say that this has to be bad new for Gartner’s competitors. We think the market remains for a second opinion, and that business will leak from ARM in several different directions.

P.S. Tony Law and I will be hosting a webinar to discuss how end users should react to the purchase. It will be at 10 am Eastern Times/4pm Central European Time.

P.P.S. Carter has now posted on this, with a great analysis and his structure is very useful. The motivation for the purchase he misses out is that it’s a great deal for Gartner because of the straightforward impact on the bottom line. $64 million is a great price. Gartner will be able to strip overhead out of AMR, improve the productivity of analysts and salespeople and get more value from the wider audience it provides for the insight of AMR.

It’s a good thing that AMR also had more salespeople than analysts. Sales people bring in more money than analysts. One analyst and two sales people is much better than the other way around. It’s just that most analyst firms are run by analysts, and they value the analysts more. But most potential clients have not had a serious pity from an analyst firm, other than Gartner, so the added sales effort really makes an impact.

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6 Comments

  1. Beth Barling December 1, 2009 Reply

    With one less independent analyst firm to choose from it’s not bad news for us smaller analyst firms at all – quite the opposite in fact. I’m not overly sure how pleased AMR’s clients are going to be (being ‘different from Gartner’ and being relatively more nimble were certainly USPs) but there will definitely be benefits to be had thanks to synergies and scale. Also as a former AMR bod (so biased no doubt!) I can say with confidence that Gartner’s taking on a great team of people – there’s some real talent there. Perhaps other analyst firms will benefit too if that talent decides to move on.

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