Show me the money: Recession shifts analysts’ focus from vendors to buyers

Show me the money! AR professionals need to start talking more about changes on the industry side, on the analysts’ side. How things are changing for analysts – as businesses – is key. I think a lot of what AR folk are comfortable talking about is really about the interaction between the analyst and the user of analyst research. It’s important to understand how are things changing in the way that analysts, and end-users, consume information, and how are they deciding on the themes that are emerging. However, there’s an interaction between demand and supply, between consumption and production, and so I think the two perspectives really need to fit very closely together. If we don’t do that, then we’ll struggle to understand the way analyst firms are changing.

The first point that I want to make is that there’s a growing demand for analyst services and that that growing demand is particularly seen at the division level. That conclusion comes from is the survey that we’ve done over the last couple of months. We’ve been speaking to analyst firms, and trying to find out what’s the perspective of industry analysts about how the analyst business is changing. Actually, analyst firms are very open about discussing – well at least they’re open with us – about discussing what kind of changes are they seeing in the market. We’ve had about 55 firms so far respond to our survey.

We’re in the middle of a very cautious economic climate. We’re seeing some analyst firms under some price pressure, but what we’re also seeing is a rising demand for analysts’ services. So this means that organizations that are using industry analysts are using them more; they’re using them more deeply, at different stages in the decision making cycle. Even if, at the same time, they are trying to squeeze analysts down on price.

People in organizations that are subscribing to analysts are typically trying to either keep pricing stable or push it down. But, actually, what we’re seeing is that the use of analysts is really growing, particularly in the areas where analyst research is seen as being most critical for business outcomes.

One thing I found interesting in our research, is that many analyst firms in the past have spoken about insight as being very much about the future, very mission-critical, all about the big picture, but actually that is not what we found when we’ve asked analysts about where value seems to be highest to clients. Actually, the value of analyst insight seems to be highest at the level of the division, at the level of a business unit, so, sometimes, strategically at a relatively modest level, but actually very profoundly aligned with the current business problems that people are facing. So what we’re seeing is less use of analysts on the big picture things, and people really trying to focus on the decisions that they’re doing now, trying to see what they can do to make them right, and, in that space, it really seems to be growing demand for analyst services.

The complication is that the organizations that are using analysts are often under very substantial stress, so they’re really pushing to cut budgets on everything as much as they can do. This also means that organizations are trying to make the most of what they already have. So it might mean, for example, that instead of a company that’s got a question about something going to a niche firm, say, in the banking industry, instead of paying extra to go to a specialist firm as they might have done in the past, like going to somebody like Aite or Celent, instead, they’ll be going to a big firm that they might already have a retained arrangement with, like Ovum or Forrester or Gartner, some other organization with all you can eat inquiry time.

People are trying to spend less, additionally, and they’re trying to get more out of their additional subscriptions, and obviously they are also negotiating much harder; there’s big disputes over a number of contracts that people have got coming through, and we’re seeing a lot of people saying that they wanted to take a quarter off, or they wanted to cut analyst firms off their roster. Some analyst firms are trapped: they’re being pressured from two sides at the same time; upward pressure in clients’ demands, which pushes up the cost to service the clients of analyst firms, but then also, generally, most buyers of analysts services are putting a cap on their spending – they can’t afford to increase their investment in analysts, even if they are increasing their use, so it’s really a very unfortunate time to be an investor in an analyst firm, unless you’re something like Gartner or Forrester where you’ve got relatively inelastic demand for your services, which means that you can actually continue to raise prices even if, overall, the demand for analyst services is growing modestly.

What does this pressure mean for AR people? Our conclusions include:

  • Analysts influence on clients will increase;
  • Analysts will be less interested in emergent technology, and will have to focus more on technology that’s already in use;
  • AR people will have to shift their focus from telling analysts about new solutions, and towards helping analysts answer their clients’ questions.
Duncan Chapple

Duncan Chapple is the preeminent consultant on optimising international analyst relations and the value created by analyst firms. As SageCircle research director, Chapple directs programs that assess and increase the business value of relationships with industry analysts and sourcing advisors.