Warning: Don’t use guesstimates of analyst firms’ revenue

Gartner Market Opportunity slide

Gartner Market Opportunity slide

The size and significance of different analyst firms’ share of pocket are among the longest-standing disagreements in analyst relations. Broad measures of the market, such as those shared by Gartner with its investors, are several times larger than conservative estimates from firms like KCG. Our view is that these disagreements will not be resolved and that managers should not use estimates of analyst firms’ market share for any serious resource allocation.

Revenue comparisons give an objective and calculable measure of market participants. However, if most participants are privately held, and if inaccurate definitions of the market exclude many, market share guesstimates can conceal the realities. Because different people have different propensities to pay, the best way to measure analysts’ influence is simply by directly measuring the influence of analysts rather than using proxy measures with a built-in bias. This need for direct measurement is why we have conducted the Analyst Value Survey since 2002.

It would certainly be more convenient if market share estimates were accurate calculations rather than guesses. Analyst firms would be better able to engage in merger and acquisition activity. Providers of technology solutions would have a sense of whose advice was worth paying for. Clients of analyst firms would be able to see which firms were growing fastest, and were thus safer bets to use. Sadly, the weakness of market share estimates as a resource for managerial decision-making means that there are few buyers who might pay notable sums for such estimates. As a result, no rigorous research process is underway that could truly show the revenue of analyst firms.

An easy test for accuracy of any estimate of analyst firms’ revenue is the market share ascribed to Gartner. Gartner employs almost 15% of the eight thousand analysts and advisors tracked in ARchitect. The Analyst Value Survey shows that Gartner punches above its weight: it creates around a fifth of all analyst value. However, as one of the very few public firms in the analyst industry, any market share estimate that fails to take serious account of the vastly-larger, privately-held, majority will dramatically over-estimate Gartner’s market share. Viewed only as the sum of the revenues of listed analyst firms, the analyst industry would appear to be almost exclusively composed of Gartner and Forrester. The other firms, which produce three or four times more value in most market segments, would be reduced to a tiny sliver.

If this fatal flaw was not by itself enough to kill the illusions in the usefulness of guesstimates of analyst firms’ revenues, another problem is the limited usefulness of accurate market share data, were that to exist. For example, the Analyst Value Survey shows how freemium firms can have as much influence as companies with ten times the number of paying subscribers. IDC, Gartner, Forrester and Frost & Sullivan are older than many of their employees. These are businesses which have relatively strong sales teams and have found ways not only to create value for clients but also to capture a fair share of it. That is not the case with the freemium firms. Even the most notable of these companies, such as HfS Research or Constellation, have revenues that are far smaller than the value they are creating. They are at the very early stages of professionalising their sales and marketing. Far from being proud, firms whose clients report a very high value for money, such as Digital Clarity Group, should be anxious: those analyst firms are failing to get a fair share of the value they are creating. By selling at too low a price, they are under-investing in themselves and making it harder for them to grow into the most valuable (and most contested) parts of the market. From an analyst relations perspective, if two firms are equally influential on a solution providers’ market but one has ten times the income of the other, there is no good reason to focus more effort on firms with higher revenue.

The market share lens is doubly distorted by disregarding international differences. The propensity to pay for analyst services differs greatly from country to country. Other things being equal, it is much easier to sell to a US firm than to a European one, and harder still to sell into emerging markets. I’ve used the AVS to study US businesses that spent hundreds of thousands of dollars on analyst services yet got almost no added value from their expenditure. Often, they have just a few Gartner seats while dozens of other firms were creating more insight through free-to-consume research. Conversely, I have seen firms in Europe and Asia that had to have a major mobilisation of internal power to get together the budget for a toehold of analyst services, but then squeezed every drop of value they could from that investment. If you focus on revenue obtained by the analysts rather than the value created by the analysts, you miss out on the much greater impact of smaller investments by clients outside the USA.

A further challenge is the use of categorisations which artificially reduce the scope of the market. There are different business models in every market, and the analyst industry is no exception. Because of the unique role of English as the world business language, firms with an English-speaking domestic market find it easier to develop the scale optimal for the development of syndicated research subscription schemes. Vendors have a different propensity to pay for subscriptions because of their day-in, day-out, need for strategic insight. Such providers differ greatly from end-user organisations. End users might use analysts only to support specific decision-making processes. An excellent example of this is the firms in the CXP Group: PAC, BARC and Le CXP. As a group, that business is among the most influential European firms. However, it gives away access to a lot of its research to enterprises in exchange for their participation in research processes. Counting revenue rather than value conceals their influence.

As in other markets, the analyst industry’s growing number of viable business models means that the customer and the consumer are increasingly different. End-users, for example, use much research that vendors have licensed for their content marketing. Over the last decade a major shift has happened in the use of analyst research in end-user organisations: growing numbers of executives, especially people outside the IT function, are using enormous amounts of insight without paying for it. They are the consumer, but not the customer. The research is paid for either by vendors supporting the free distribution of research or by analyst firms that want a broader audience for their material. Either way, many end users of analyst research do not know or care, if their firm has a subscription relationship with the analyst firms whose insight they are using.

The most problematic approach we have seen taken towards the categorization of the analyst industry’s revenues is to focus only on research paid for by end-users, and within that to overestimate the 20 or so firms with a business model closest to Gartner. With this lens, those firms become nine-tenths of the market. As a result, the influential research and insight produced by boutique firms, third-party advisors, consultancies, nationally-focussed firms, freemium researchers and vendor-funded content is almost totally discounted. It would appear to be one-tenth of the industry, even though it accounts for a much larger share of the research being used by people in end user organisations.

The diagram above aims to show what this lens places into the foreground (end-users’ subscriptions to Gartner and other firms) and what it conceals: Most of the analyst value being consumer by end-users remains uncounted by market share figures.

The failure to account for the majority of analyst value is a profound weakness. Sadly, it is not the only weakness. This approach to categorization also lays the basis for rhetoric to be mobilized to justify marginalizing, discounting or simply ignoring what is left uncounted. For example, the mentions of vendors in the research that analysts subscribe to is described as “influence” by KCG, while the mentions in other research is “exposure”. The implication is that only the research obtained through end-user subscriptions is influencing end-users and that the rest, while not providing influence, offers the sort of brand name exposure that could help vendors to build basic awareness. Imagine, for example, a group of executives selecting some new technology. Those in the IT department have a subscription to Gartner, but are not allowed to share the relevant Gartner research report with their colleagues: that research is “influence”. Their colleague does not have access to the subscription, but is using research from several other firms and also found the same Gartner research for free: that, however, is only “exposure”. This way of viewing the market concedes to competitors with a broader perspective a huge space in which to better build analyst relationships. It produces missed opportunities to influence the market.

The Analyst Value Survey quantifies that.  The survey shows us how many different points of connection there are between analyst firms. The survey gathers the opinions of hundreds of professionals. On average, they use 6 firms each. Of those, 56% are in organizations that subscribe to at least one analyst firm. On average, they subscribe to five firms; 49.7% of all the connections that end user have to analyst firms. That means that just under half the analyst firms being used by end-users have sold subscriptions to those enterprises. However, very often those end users are accessing research outside of those subscriptions because of the limited numbers of advisory seats. Almost seven percent of the end-user connections are between Gartner and consumers in organizations that subscribe to it. Gartner, obviously, is much more influential than that: it generates around one fifth of all analyst value.

Market share guesstimates conceal that reality. If you think that Gartner wins almost all end-user organisations’ spending on analysts then it’s tempting to imagine that it has almost all share of voice in enterprises.

This rhetoric is undoubtedly tempting for hard-pressed analyst relations managers. Anyone with too much work and too little time has to allocate priorities. If managers can convince their managers that only Gartner matters (or perhaps Gartner with Forrester and IDC), then they can more than halve the number of analysts they serve. Sadly, that is a false economy because so many other firms are making the same mistake. It’s like the first day of the sales: all the stores have bargains, but the biggest stores have the most. However, since almost everyone goes to the biggest stores, those are the worst places to find what you want because of the higher probability that someone else got their first. Similarly, If a majority of analyst relations effort is focused onto Gartner, then it becomes the very hardest firm to influence because extra effort being expended by competitors. It is like trying to air condition a room with the window open.

Measurement is a powerful tool for analyst relations targeting. There’s certainly a debate to be had about the relative influence of analyst firms. However, the view that Gartner has most of analysts’ influence on end-users worldwide is simply mistaken. Although Gartner continues to be the most valuable analyst firm, it is growing more slowly than the long tail of firms that are growing up around. Analyst relations managers can take advantage of that growing influence by allocating their resources in line with which analysts their prospective clients value, rather than just the half they pay for.

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