Back in the San José boardroom

Each April, Lighthouse sits down for a working lunch with up to a dozen of Silicon Valley’s leading AR professionals to exchange views on that year’s hottest topic. Because we use the Chatham House rule, the discussion is candid.

Our 2005 discussion highlighted the increasing pressures produced by Gartner’s strategy. That remains the key issue. Three speakers introduced the roundtable discussion: my colleague Louis Columbus, and seasoned AR directors leading two of the Valley’s largest analyst relations teams. This note attempts to summarize the median viewpoint – of course not everyone has the same opinion.

Much of the discussion focused on Gene Hall: the Gartner CEO was compared to Lou Gerstner, another Harvard MBA and McKinsey alumnus who transformed a market leader after leading one of its client corporations: IBM. These two ‘intimate outsiders’ studied those organizations and then raised hell in them.

Hall was able to prevent Yankee’s attempted purchase of META, which would have given Yankee the opportunity to easily roll up a series of analyst firm acquisitions to produce a substantial competitor to Gartner. Hall paid more than META’s cash flow merited because of the opposition to defend Gartner’s price premiums, to increase its dominance, and to win a seasoned cadre of sales reps.

Furthermore, Hall has refocused the firm on expanding sales of its core research in the end-user segment comprising client firms with revenues exceeding $1 billion.

Of course, this is certainly better news for Gartner’s shareholders than for the vendors represented at this meeting. The increased leadership of a single analyst firm produces greater risk. The risks are different for each vendor because patterns of analyst influence differ between industries, countries and technologies. Some vendors face a market in which Gartner and Forrester hold the vast bulk of analyst influence. Others, especially those focused on international markets, face more dispersed influence. However, almost all leading vendors are attempting to balance Gartner’s power by building up the credibility of alternative voices like Forrester, IDC and Ovum.

Because of the continuing demand for alternative opinions, other analyst firms have had new business fall into their lap. They have reacted differently. Forrester seems to be getting “fat, dumb and happy” on the additional demand and content with its rate of growth. While its research processes have been reworked effectively through the integration of Giga Information Group, the firm shows little appetite to put in additional effort to seriously address the threatening gap between itself and Gartner. For example, Gartner continues to expand the sales force by around 10 each month: it added around 110 over the last year, of which 84 came from META. Forrester recruited just 34.

Hall’s strategy is tough on employees, competitors and vendors. As the management reasserts its dominance over analysts, analysts bear the brunt of these changes. Some Gartner analysts have had ‘the run of the house’, and felt that they could follow their own research agendas. Gartner analysts face demands for producing more content, focusing on end-users’ interests and helping the firm to meet its revenue targets.

Many vendors feel that this increased management culture is making Gartner more consistent: interactions with analysts become easier to anticipate; processes become more structured and rational; research findings become more predictable; vendors have to relate to Gartner business-to-business. All of this reduces the power of analysts, scares some of them and perhaps forces analysts to ‘toe the line’ where might otherwise not.

It has a massive impact by focusing on optimization: how to maximize analysts’ productivity; how to increase contract values annually; how to widen the gap between itself and Forrester, for example by developing its vertical services and with its plans to develop role-based services. It aims to be come the primary “go to” advisor for CIOs and those who report to them and, through widening that primacy, to have better control over their price premiums.

All of this is building a specific culture at Gartner of treating vendors. To some this is arrogance; others feel that Gartner has a strategy to drive its vendor business into greater profitability by ‘firing’ some unattractive vendor clients; setting expectations for the growth of each vendors’ contract value and by not staffing up some services of interest to vendors. This is reflected in surprisingly aggressive sales tactics and increasing restrictions on communication between analysts and vendors, partly because of the increasing amount of Gartner research being conducted in India. It’s also reflected in shifting the research focus towards issues of interest to end-users and away from topics of interest to vendors (although Gartner can still ‘throw a bone to vendors’ with services like the MarketScope.

The bottom line is that these changes are bad news for many vendors. Vendors have learnt that Gartner analysts give an even break to vendors that have to reduce or pause their spending with that firm. However, working relations and contractual agreements between vendors and Gartner seem to be breaking down more often. Vendors are increasingly comfortable in using alternative suppliers than Gartner. All of that produces new opportunities for other analyst firms.

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.