Hidden Champions? Part 2: Four ways niche analyst firms can win

Hannah Hayes and Daniel Lowther discussed this in my recent webinar, and, in Hidden Champions Part 1, I specifically addressed the challenges of two niche analyst firms. However, these issues are not specific to Aite and Celent: they are general issues facing niche firms and specialist boutiques in every market.

The factors that hold back niche leaders, like Aite in finance, or Parks Associates in media tech, in the Analyst Firm Awards are worth explaining. They illustrate both real commercial challenges and unavoidable complexities in the use of analyst research observed by the Analyst Value Survey.

What factors keep most niche analyst firms out of ‘Hidden Champions’ lists?

We found four contributing factors.

  • Freemium users get less value than premium. The first factor that we looked at was use-cases. Analyst value is driven by the range of services that a firm’s users value. When we look at the performance and activities of Celent and Aite, it can be challenging to understand why they were not in the top 10 Hidden Champions list. From one point of view, it might be due to the ratio of freemium and premium users. Freemium users are those who are not paying for the research they consume from the firm, wither because of classic freemium (most content is initially free, and some pay for later services) or because or reprints paid for by vendors. Around a quarter of the people who use Aite or Celent say their organization has a subscription to it, but most of those people do say their organizations subscribe to Gartner and Forrester. That means the average user gets less value because they have less access to the full range of services.
  • Smaller boutiques. Those two firms were also pushed down by the “Other” firm option. That is a write-in category available for people to add the names of other analyst firms they value. In our analysis, the Other category is like an armada of little boats: collectively they create more value than either Aite or Celent. Their niche expertise has also played a role in my opinion, as these analysts might be more useful for the strategists, and industry insiders.
  • Value for money. Aite, most clearly, is not only out of the top 10 Hidden Champions lists due to their concentration on the freemium services. They do reprint their reports well and distribute it quite effectively. Another reason for them being out of the top 10 list is due to the value for money reported by their compact client base. Different Celent customers reported very different value for money from that firm, but most gave 8/10 or higher. In contrast, most Aite customers give it 6 or 5 out of 10 for value for money.
  • Fintech professionals don’t mostly use fintech research. Looking at the data, however, we saw another reason why these specialist firms did not do better. Fintech professionals more often use analysts for ‘horizontal’ research (for example, on AI, data analytics, cybersecurity and cloud technology) than for vertical research about fintech.

What can they do to rise?

These four obstacles can be turned around into four opportunities.

  • Turn reprints into paid freemium. One thing they can do to rise in the list could be to focus more on turning their core users into subscribers. They need to cater to the demand for services that will produce more value for their user base, in particular on growth topics: relevant horizontal trends that concern people in their niche, such as AI and data analytics. For both, I think they can go up in the Analyst Firm Awards if they focus more on premium, rather than freemium. I’m not saying that freemium and reprints is a lousy strategy. After all, it drives revenue, but it needs to strike the right balance. It’s much easier for a small firm to sell to a compact group of vendors and get those providers to get the research out into the hands of the readers. However, it conceals much of the value that analysts could give to the fintech industry.
  • Merge in the best boutiques. Clearly there are some niche players that provide value to the clients. However, these firms are often generating more value for clients than for shareholders and staff. Right now, with cash flow thin, the sales pipeline getting longer and interest rates low, there’s never been a better time to buy a well-run firm that just lacks the sales and marketing horsepower of a leader.
  • Value for money. Superficially, this is a non-problem. If Celent customers report Aite has worse value for money that means Celent is probably leaving money on the table and not finding ways to capture a fair share of the value it is creating for clients. I think analyst firms should aim for high value but average value for money. However, there’s a prisoners’ dilemma. If one major player provides higher than average value for money, it can destroy the profitability of the whole niche and fail to gain the profitability it needs to survive. As my strategy professor, Margaret Peteraf, explains: if you can’t sustain a source of advantage, it’s not a stable competitive advantage.
  • More, deeper, research into relevant horizontal trends. Many niche players write about horizontal trends, but they struggle to do so either deeply, to meet the needs of managers, or strategically, to provide content that helps managers to make the case for change. Few analyst firms take up the opportunity to develop joint research programs with horizontal specialists (Imagine, for example, Celent or Aite developing a joint service with BARC, the leading analytics boutique). We also note that, on the supply-side, many professionals who work for vendors and providers that consumer research on fintech also have an interest in healthcare, which faces some similar issues about regulation, identity, B2B onboarding, auditing and the data supply chain. Niche firms could leverage expertise in similar markets which might have experiences and use cases that are powerful guides in their own markets. Clearly, vendors’ analyst relations teams can play a role here by reaching out to vertical analysts with relevant uses cases for horizontal technologies.

Analysts can’t see lost value

Of course, AR people cant make this happen by themselves. Many vendors are already frustrated by the reprints they have to pay for, and they don’t understand why analysts themselves can’t find a business model to get their insights into the hands of readers who clearly value them.

A key issue is that most analyst firms lack the information they need to see the value gap and to understand how to close it. My webinar, How analyst firms can benefit from the Analyst Value Survey, highlights a unique source of that insight.

Duncan Chapple

Duncan Chapple is the preeminent consultant on optimising international analyst relations and the value created by analyst firms. As the head of CCgroup's analyst relations team, Chapple directs programs that increase the value of relationships with industry analysts and sourcing advisors.

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  1. March 27, 2020, 11:09 am

    […] A second post, with analysis and recommendations, is here. […]

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