We have always been skeptical of the view that the fundamental trend in the analyst industry is one of consolidation. While it’s a lot easier to think that the number of important influencers gets fewer and fewer over time, our research finds that end-users continue to value a second opinion, a third, and often even a fourth.

For the past couple of years, we’ve spoken about an ‘analyst cycle’, based on the water cycle we all learnt at school. Our experience is that, no matter how large the largest analyst and vendor firms are, when the industry warms up some of the best talent either moves on of its own accord or gets replaced. This produces a number of free floating analysts who often come together in pairs, networks or start-up firms. However, as these upstart firms grow, the gravity of the market pulls them into mid-sized firms and then into the larger ones. Then the cycle starts all over again.

We think this is the best way to explain how the pace of mergers and acquisitions continues to grow, even while the collective market share held by the largest analysts firm fails to grow. Our research of end-users suggests that the range of firms being used by end-users is not only wide but it is even growing in some countries, even if the number of suppliers temporarily falls. These research findings are not universally agreed with. Indeed, we have seen some estimates that one firm alone holds almost four times more influence on sales than all of the other added together. Our research does not replicate those findings. Our research suggests that the nature of CIOs seems to abhor a vacuum, and if one firm disappears, more spring up to replace it.

Gartner’s purchase of META Group is simply an example of this: by creaming off at most attractive two-fifths of META’s people, Gartner has produced a diaspora of entrepreneurial energy. Furthermore, the feasibility of starting up is also becoming easier every day. Firms that might not have existed ten years ago are fully viable in today’s environment.

A great example is MODT, the niche European analyst and consulting firm focussed on Advanced Telecom Computing Architecture. Owned by ex-Motorola veteran Lars Johan Larsson, this microbusiness is advising many of the leading operators and suppliers in the region. Larsson has spent five careful years developing standard reports and projects for a number of clients who want to evaluate telecoms technologies and markets.

His market opportunity is only partly driven by the changes in commercially available, off-the-shelf, solutions. The passivity of the largest firms, the power of the internet, the growing power of informal networking and the increasing intelligence of the buyers of industry analysis make the prospects for niche analyst houses increasingly attractive. Indeed, for larger analyst houses the most attractive market segment will increasingly move from the ‘early adopters’ to the ‘early majority’ unless they continue to acquire these niche firms.

But what ever happens, the business environment will continue to encourage the development of niche firms, especially outside the US with its exceptional economies of scale.