Analyst value drives analyst influence

Both analysts and analyst relations managers will benefit if they increase their understanding of how ICT buyers find analysts to be useful and influential. We place a great emphasis on research quality, partly because it was beaten into us as analysts. The most influential analysts are able not only to research, but to assimilate and synthesize the data and see where new developments can solve buyers’ problems. That last step is the hardest step in consolidating influence.

Jon Collins has written: “I agree that “influence” is a nebulous concept, and, we would add, so is “value” – both depending where in the procurement lifecycle the business finds itself. To maximise both, it is very important for all analyst firms large and small to ensure that they are making things easier for both sides (vendor and customer), rather than acting as a bottleneck. We see this, if anything, as the main issue that the tier 1 firms have to grapple with, and the main driver towards the “free” research model.”

Nebulous is a pleasing, and breathtakingly appropriate, word. All its meanings apply here. Analyst influence is scattered and abrupt. It is without finite form or limits. From afar, it seems cloudy and indistinct but, when subjected to investigation, it contains distinct objects and lines of force. There is also Kant’s nebular hypothesis, fashionable now because of its optimistic implications, which suggests that indistinct clouds can be conducive to the formation of solid bodies.

Lighthouse’s approach to analyst relations has been to analyse, map, quantify and correlate analyst influence. The company conducts and commissions more survey research, across analysts, vendors and IT buyers, than all of our competitors combined. Furthermore, that is the tip of the iceberg: we are the only firm to make a systematic and comprehensive market analysis of the analyst industry, breaking down the business models of hundreds of firms individually in terms of their customer base and focus areas. We are also the only firm to conduct systematic longitudinal analysis of analysts’ published research. Most consultsncies would not think this effort to be necessary, or even desirable: they could be right. However, we have found it allows us to better understand where analyst influence comes from and how vendors can benefit from it most effectively.

The key factor in analysts influence is its influence on the technology investments made by enterprises, investors, channel partners and the public and non-profit sectors. While there are top-level generalizations, the reality is that there are astonishingly deep specificities that give unique features to each major country, vertical market and client segment.

This influence on investments is, therefore, about value generally and, in particular, is aligned more closely to what accountants call contribution than to profit. This involves the optimisation of a portfolio of resources, and is an approach valued as much by IT managers as by investment bankers. The most influential firms are able to identify those opportunities for optimisation — and help firms to monetize them — and can sell themselves well enough to get a share of the value they are creating for their clients.

In fact, influential firms tend to have better profitability and better performance than their peers. For example, Forrester and Gartner have performed well on the NASDAQ. Compared to the NASDAQ 100, they have performed better than average over the last six years, and especially well over the last year. They are trading at 40 times earnings and have delivered profitability year after year. That is more than a one-quarter spike. Fundamentally, the analyst industry is not an especially attractive businesses, or at least that is what a simple Five Forces analysis suggests. So we have to admit that these analyst firms are delivering substantial shareholder value through their strategies rather than the generocity of their clients.

Of course, the key message there is that their success is also the success of the industry as a whole. For analyst firms to succeed, they have to create more value for their clients than for themselves. To do that more clearly, the benefit and influence of analysts needs to become less nebulous. As long as that happens, then the influence of analysts will continue to grow.

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