Independence? Analyst firms get around a third of revenue from vendors

Analysts firms have different reliance on vendor income

Analysts firms differ in their reliance on vendor income

Where do analyst firms get their money from? As this chart shows, there’s a big difference between different firms, and many people assume that has an impact on independence. On average, analyst firms get 37% of their revenue from vendors. However, the data are not normally distributed.

What the data show

I used a histogram to chart the data for almost 800 analyst firms. It compares the percentage of their revenue from vendors (using market share data from the Lighthouse AR Intranet). More than three hundred firms, shown in the first three bars on the left, get less than 30% of their revenue from vendors.  More than 175 firms, those shown in the last three bars on the right, get 70% or more from vendors. As you can see from the dip in the middle, few firms have a balance between the two.

What these data also show is that vendors’ spending with analysts is concentrated, both geographically and with a fairly small top-tier of firms (as we commented before).  Of the 100 firms with the highest percentage of vendor spending, 85%  are in the US. At the opposite end of the scale, the percentage falls to around 65%. Firms headquartered in the US get, on average, 38% of their revenue from vendors, as opposed to 34% in the UK and 28% for firms in the rest of the world.

Who are end-users paying?

Non-US firms get a higher percentage of their revenue from end users organisations, especially because buyers are more sensitive to local language and business differences.

What does that suggest about the overall spending by end-user organisations? Gartner sizes its end-user market at $11.5 billion (Of course there are other figures, some as high as $15 bn for the total market and others as low as $3 bn.).  If Gartner’s figure is used, and since the average analyst firm has around 37% of its revenue from vendors, and the rest from end-user organisations, then one could estimate that end-user spending on analyst firms is $7 billion. However, given that’s larger firms that get vendor funding and smaller firms that get more revenue from the demand side and from regulators, the true number is almost certainly smaller.

What does that show about independence?

End users are pretty clear: they get more value from the firms that get less revenue from vendors. Independence matters. However, there are big exceptions. IDC and Gartner (for example) are highly valued even if they get the lion’s share of vendor spending. Indeed, the Analyst Value Survey data shows that vendors need to have their wits about them if they are looking for independent research that is also good value for money.

3 thoughts on “Independence? Analyst firms get around a third of revenue from vendors

  • Hi Dunc,

    Interesting post, I was wondering where the data is coming from?

    If I read this correctly, you’re saying whereas North American smaller firms are mostly funded by IT vendors (I would agree with this from personal observation), EMEA based independent analysts (just speaking of what I know, but doesn’t necessarily means it’s not true in Asia-Pacific) would get more of their revenues from other sources, specifically users.

    If true, the implication of these findings would be that although smaller analyst firms would be typically classed as Tier II-III for the purpose of an AR programme audience segmentation, they would still be influential in EMEA and thus need to be considered carefully for inclusion in an such programmes.

  • Hi Ludo,

    The data are from the AR Intranet. I’m not making a statement as strong as yours, but the general direction is the same. North American firms are funded more by vendors than end user firms.

    I am not sure the trend is so strong with regard to small and large firms. Of course, most of the firms in the sample are pretty small.

    However your conclusion is correct, especially when one adds in the impact of language. There are not, for example, many analysts in the Arab world, but they are the go-to guys for buyers there. There are far fewer vendors there so, even if they wanted it, it’s just not possible for firms like Arab Advisors to get a lot of vendor revenue as easily as a US firm.

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