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.