Gartner’s purchase of Burton is a ‘double-whammy’, so the fight’s for second place

Gartner’s purchase of Burton Group continues the M&A process flowing through the analyst industry under the impact of the recession. The initial analysis that I found most interesting was by Phil Fersht. As always, Carter had a good summary of the bits and bytes.

I don’t think Gartner “needed” Burton but I think it is a smart move by them for a number of reasons:
a) Burton was the last decent-sized enterprise-side IT analysis business on the market but its desired price in the past was off-putting (more than they sold for now, of course). I would be shocked if Forrester and other firms had not been considering it. Datamonitor has announced an enterprise push and has naturally been considering acquisitions that would support that. Corporate Executive Board (CEB) is one firm that should be looking at purchasing firms like Burton: is has deep and strong relationships at the board-level but not lower down in its client base. Gartner has struck a ‘double-whammy‘ blow at almost anyone’s ambitions of becoming an equal-second player alongside Forrester, as an full-range alternative (technical analysis and executive programs) to Gartner across the Enterprise space, and at Forrester of closing the gap on them. I wrote almost because CEB, having bought Tower Group, could establish a position similar to Forrester. It should be remembered that Forrester has 3 practise areas (Vendor, Sales & Marketing and Enterprise IT – where Burton sat). If you break the $240m in 2008 up Forrester maybe has around $100m in Enterprise IT (and of course $85m of the $240m is consulting, data and events so it might be less than that). Burton had revenues of over 30m almost all in Enterprise. If you take the Outsell 2008 ITTRRS segment analysis you will see it listed CEB Tech (which is all enterprise) at 70m, and that was prior to CEB’s purchase of Tower.

b) Gartner have an expressly stated ambition to move clients to list price. Clearly 2009 is a bit of a tricky year all round for everyone but if you look at their 2008 earnings it was at $834m in research revenue which was up 11% during the 1st chunk of the recession. They obviously lost some clients in trying to increase price but more than compensated for that ‘churn’ through the increased contract value and new business. As we commented in the past, Burton and its aggressive pricing was one of the few firms potentially able to hurt Gartner. By buying them they not only take them out as an alternative, whether for a few seats or general negotiating leverage by buyers, but also now get to apply price pressure to all Burton’s clients too. In contrast, the assassination of META Group was purely destructive on Gartner’s part whereas this one has leverage for them I think albeit at a much smaller scale.

Of course it will accelerate the “analyst cycle” as we call it, of analysts splitting off from the core (what ComputerWorld calls ‘whack-a-mole‘). Some boutiques get a very small share of spend from clients (but with better profitability). Many of them are also vendor focused.

For the overall market, Gartner’s purchase done not improve competiton in the short term. It certainly makes the battle for the main alternative opinion in the enterprise space interesting now. Will clients go to Forrester for its depth and strength? Some enterprise IT people will see Forrester’s consumer and role-based focus as too narrow.  Other will see it as broadly the same as Gartner. The ‘new’ Ovum, even with its integrated Butler and Datamonitor Technology businesses, has really a tiny portion of enterprise IT client base (even if we count telecoms as enterprise in their numbers which inflates it substantially). Some might find CEB’s best practice-based approach to be similar to Gartner’s in that it’s often backward-looking and based on the ‘early majority’.  We also see a boost for boutiques focused on Burton’s market segments.

What does this mean for research buyers? The answer is partly dependent on what IT users are looking for.
a)  If they want to replace Burton with one supplier or two. If it’s two I think this potentially helps CEB and Ovum was well as Forrester. Forrester is larger and perhaps its approach is most similar to Burton. It’s the easy place to swap your spend to. However, some enterprise buyers could be persuaded to look at genuinely different approaches: if other firms really respond to the Burton purchase quickly, they can make major gains. Missing from all of this is IDC, whose reaction is so far unclear. Of course if companies want to have one supplier, with that strengthens Forrester versus smaller firms but at the same time strengthens Gartner, which has the widest offer.
b) If they are looking for technology purchase decision guidance or more strategic support. If it is the former then Gartner strengthens further. Where an alternative is being sought it probably gives Forrester and Ovum a uptick as Burton gets pulled out. If it is the latter then we can;t see much of an impact. Burton were at the lower end of the stack and, despite its aspirations to build executive traction, there will be little budget spilling out from Burton into more strategic providers.

We’ll be keeping an eye out for an revised positioning that comes out from the main players through in response.

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