Industry analysts don’t need to have more industry experience than their clients – any more than accountants, management consultants or any other professionals – in order to add value. James Gardner and David Rossiter, who recently criticised analyst firms along these lines, ignore the glaring reality that analysts firms have continued to perform well. That suggests that their core business model isn’t broken, and that unexplored opportunities remain minimal.
Gardner argues that analysts are glorified journalists. Their reports are based on interviews with business people, but they don’t have the expertise of their clients.
“It always reminds me of the proverbial food critic. They can eat what the chef prepares and pass judgement, but don’t put them in a kitchen if what you want is something edible. There is value in the opinion, of course, but the point is the food. “
James has a second concern, that some analyst firms sell seats, rather than all-you-can eat enterprise pricing.
“They send their account managers in to visit with people who are not named seat holders, and start to sell them the benefits of having access to the research. Then, of course, we get a call from these individuals asking for access. It puts us in the invidious position of having to tell people that their needs are less important than those of others. We have a fixed budget for analyst research, not one that can flex upwards because it is convenient for the account manager.”
James mellows a little, saying that “there is some value in analyst research, and that the reports written by the superstars have a value that counteracts the journalistic reporting” … “But we need to be able to use that insight broadly in our business. And we don’t want named seats. It’s too hard to make it work. We also don’t want an “enterprise” licence, which amounts to buying a named seat for everyone.” His message to the top analyst firms he currently uses is: “your time with us is limited if you don’t make it easy for us to get value from what we buy. ”
James doesn’t have the budget to give access to everyone who wants it. He’d like to give everyone access, without having to pay extra. If he can’t get more, then he’ll go elsewhere.
James’ fundamental complaint is not about the quality of analysis, but about the pricing model in which you get more as you pay more. That is, of course, pretty much the dominant pricing model for everything. David picks up James’ complaints about quality, and runs with them:
I spend a large portion of my life educating people about the value of the industry analysts.
Then you set up a meeting – either a briefing or an inquiry call – and in strolls someone who knows less about the market than I do (never mind my CEO, CMO, product manager or technology guru). It is happening more and more frequently. It’s almost as if the industry analyst firms have a death wish.
Get wise guys. People pay a lot of money for your insight. You’re important because of your influence. You’re valuable because you’re the experts.
James and David seem to rest their views on assumptions which, as far as we can see, are mistake. This is how we see it:
Most analysts don’t need their clients’ technical expertise to be effective. Food critics need to be good journalists more than they need to be good cooks, because writing is the core task. Critics don’t need to cook at all, and analysts don’t need to code. It’s nice but, for most clients, not necessary. Analysts add value by offering insight that the client does not, and cannot develop easily, in the context of a single firm.
It’s a fantasy to think that analysts, who generally tend to focus on technologies in their growth phase, will either have the expertise of the people they meet, or will care to show that they do. It’s not necessary, but it’s also just not possible. It’s an unreasonable expectation to think that analysts who have to work across several technologies during their research career will be at the leading edge of any of them by the time they meet the client. Folk need to understand that that the reality of the analyst industry is that staff with different levels of expertise will be there in client-facing roles, as is the case with other professional services firms. There are veterans, there are experiences professionals new to a particular segment, and there will be entry-level staff.
Indeed, the fact that many analysts lack the client’s deep domain expertise is sometimes an advantage to analyst relations professionals and to clients. AR professionals have the opportunity to help develop fresh analysts understanding of the market, in a way they cannot do with industry veterans. And they bring fresh ideas and outside information.
Were this not the fact, then how could we otherwise explain the ability of top analyst firms to survive and flourish?As with other management consultancies, clients understand that the large analyst firms are more than the sum of their parts. They have not only individuals with serious professional backgrounds, but also unrivaled access into the whole IT supply chain and huge analytic and research resources.
All professional services firms have detractors among their clients: everyone likes to complain about consultants, accountants and other advisers. However the reality is that those firms have solid client retention rates and face no serious threat of losing their most valuable clients.
Market analysts are people in a continual process of remaking themselves as experts, because areas and technologies continually change. Both the research process and the client service process are aspects of refining their expertise. Both AR professionals and analyst clients have to realise that there is value in analysts, even if they are working as hard as you are to understand the markets.
Of course James does understand that: it’s just that he wants to get enterprise-wide access to the top analyst firms for the same price as limited seats. The reason why he cannot is a simple matter of market forces. By moving from community pricing to individual seats, the top analyst firms have doubled their revenue per seat without any substantial erosion in client numbers. Almost all that extra revenue goes straight to the bottom line.They would give that up, for no corresponding gain, by reversing direction. One might as well ask Microsoft or Apple to stop selling product by the unit.
What would happen, of course, if the analyst firms tried to follow this guidance? If they replaced all their staff with industry veterans, and then gave enterprise-wide access for the same cost as their current contracts? They would simultaneously increase costs and decrease revenues. That would be a lose-lose solution – the firms would go bust, and the clients would lose their guidance.
There are – certainly -many reasons to criticise analyst firms. However, there are 900 analyst firms. Most of them are tiny businesses run by experts that struggle to deliver the same value as larger firms – if they did, then they would make more revenue per employee. You don’t need to be a chef to know that the proof of the pudding is in the eating.
P.S. I have developed these points in a follow-up post (Like it or not, the analysts’ business model is not broken) in response to James’ comment below.
P.P.S. Gilberto Gil’s Touche pas à mon pote is online here.
Duncan,
For me – the customer- the business model is broken. I don’t doubt that some firms are doing well as they increase prices without increasing value.
As a PR person, though, you should more sophisticated in the way you represent your clients. Your post has made me more certain that my bank at least is one that should make do with rather less – instead of more – analyst spend.
Nonetheless, thankyou for your interesting rebuttal.
[…] Gartner and Forrester would underperform their competitors: that’s the key point underpinning our recent defence of analysts. In fact, the top firms are increasing their lead. Their approach is producing unhappy customers […]
Duncan, I normally agree with you (as you know!) but this time I have to disagree. Sorry, but IMHO the best analysts are those that have done the job, and have real experience of real buyer needs. That’s why I and my colleagues continue to consult, and get heavily involved in our customers work. Rather than spend all our time in vendor demo’s and briefings.
Some analysts (as you mention) focus on early move/start up technology – and there is a niche job to be had in doing that. But most of the buyers I see and meet with have real problems today, that need real technology and real advice to help them move forward – they need more than a crystal ball. They are not getting this down to earth advice from the big firms, they are getting non-committal ‘high level’ direction, that they could get from reading industry magazines.
That’s not to say there are no good analysts at the big firms, there are – and I am lucky enough be know and be friends with peers at Gartner, Forrester and AMR (for example) people I truly respect. But there are many more at those firms who have little practical experience of the reality of managing and progressing real IT projects – and even less experience of gather user requirements and managing change, let alone actual product experience!
The model is broken, though their market share and hold is strong (agreed). I think in this economy people are going to expect more than they are currently able to deliver.
You confuse ‘value’ with revenue – at CMS Watch we are one of those tiny 900 analyst firms you mention, and yet we do very nicely thank you. We could though do even better financially if we were to consult to vendors, and compromise our work with end users. But we don’t and so we measure value differently than yourself, we measure value through satisfaction and a good job done. That way we all sleep soundly at night 😉
Best!
Alan
Alan Pelz-Sharpe
Principal
CMS Watch
Hi Alan,
James and David make the point that the dominant model – pay per seat – for the large analyst firms is broken, and that unless the top analyst firms improve they will lose revenues. I think that is mistaken; certainly it is not reflected in current financial performance.
The *business* model is one in which revenues have to exceed expenditures. So that is a model in which we have to see how to both optimise two variables: the value to customers, and the analyst firm’s ability to monetise that value, in order to maximise shareholder returns. That’s business.
You make the point that more experienced analysts make better analysts: I don’t disagree. I also agree that it’s better to speak with end-users, because that gives better insight. There’s a niche, but nothing more than that, for firms like your which are 100% end-user-oriented veterans. The ability of your firm, and hundreds like it, to grow in an expanding market does nothing to undermine the reality that Gartner and Forrester have grown revenue by much more. They are better at monetising customer revenue. That’s business.
Deep practical experience in IT is very useful, but what would happen if Gartner, Forrester, IDC or the Informa firms made the transition to having only seasoned veterans? A whole series of things would break down: the division of labour; the career path; the opportunities for promotion; and the cost basis which supports the current profitability.
And what about that profitability? It has been accomplished by turning those firms away from the labour-intensive, ‘stick’ consulting that firms like your offer. It’s much more profitable to sell more online access to research and short telephone inquiries — even if it leaves money on the table for firms like yours.
If the top firms business model was broken, then they would not be obtaining such fantastic improvements in their business operations.
Duncan.
Duncan,
I fully understand your views, but my point is that to sell large seat deals you have to deliver value. IMHO many people are starting to question that value.
Frankly long may it continue from my point of view, for after quickly exhausting the published research of the majors, firms (in our niche) turn to us. I think if more firms followed our model we would not be such a niche, in time we would be the majority.
There is a mindset that industry analysis = Gartner and Forrester, we forget in real terms how recent the entire Gideon Gartner model is – there is plenty of change to come in the market, and better models are evolving. I think to imagine that the traditional mile wide, inch deep model is the only one, and will remain the only one is a limited vision.
When I started out in this industry 10 years back, Gartner were held in awe, both by buyers and other analysts. That just is not the case anymore, things have changed.
And from my personal perspective I know that many of the better analysts at those firms would thrive in a fresh environment.
So to be clear I am not saying that the subscription model is broken, but like James I am saying that the depth and quality of both the research and the analysts has to match the cost, currently it falls short in many areas.
Best
Alan
[…] who runs AR firm Sunesis and who was surprisingy supportive of James’s negative comments. Duncan Chapple, who runs AR firm Lighthouse, was unsurprisingly firm in his rebuttal. Read these posts to get a […]
Hi Alan,
Different clients want different things. That means there that’s space in the market for multiple firms with different value propositions. James is making a comment about the business model of the top analyst firms. The dominate the mainstream of the market, not the niches. So we can’t evaluate James’ claim by looking at low-grow niche markets.
In the business context, what is value? It must be largely signalled by the monetizable increment realised by a profitable business activity. Can we really say that, under the previous model, where the services provided by Gartner generated less revenue and less profit, it was more valuable?
There’s a difference between a valuable business model, and ‘satisfaction and a good job done’. If you want the latter, become a professor, pharmacist etc. But do appreciate that, far from the tide turning against Gartner, it has been hugely successful under Gene Hall.
Nor is it a question of supply and demand. You say “I think if more firms followed our model we would not be such a niche, in time we would be the majority.” That is tautological. Forrester and Gartner have succeeded with role-base research and higher pricing, and because of a lack of supply of alternatives. It’s because their value – which is reflected in the brand equity that underpins the inelastic price-demand experience – is high in the mainstream market.
Duncan.
PS We should run a webinar to discuss this. It’s a great way to get ideas of strategy and pricing discussed in the community.
Excuse me for bing a bit late into this conversation Duncan. As you remember, our model at Giga was toward experience. We felt that people would only listen to someone who has “done it”, and that talking heads were just that, and our clients were smart enough to tell the difference. I still believe that, to an extent.
At Forrester, we had a different model (and that was one of the concerns of the Giga analysts during the integration in ’03). That was one of data analysis as the primary input to predictions, analyzed of course by experienced individuals. I truly believe in that model, even though it meant that some of the people involved were less experienced than their clients were. The key is a mix of both.
With all of that in mind, it’s inmportant to understand the analyst as critic, the same way that a food critic does their job. Their value is in perspective and looking at situations in context. Not in knowing the details of the technology (or cooking). How will it “play in Peoria”. Is it priced correctly to achieve the objectives that the vendor or user wants? Are there better solutions for the client – and every client is different, so a sophisticated technical solution is not necessarily the best in the end.
Being able to understand things in context does not require someone to have been a CIO in the Financial community, for example. It requires them to have a critical mind and the ability to disect a situation, understand the implications, be able to come to a conclusion and communicate that to someone else.
I used to have a fun process when interviewing prospective analysts. After we determined that they knew their stuff, Iwould go off on a tangent asking them about a recent favorite movie, and to convince me that I should go see it as well. It is an interesting insight about how a good analyst/critic thinks. You don’t need to be in the movie business to do that well.
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