Heard in a San José boardroom

On Friday I hosted a lunchtime seminar for several Silicon Valley analyst relations professionals to assess the challenges that the META-Gartner acquisition produces, both for analyst relations professionals and for the analysts. I took some notes of the discussion which average out the views there – of course not everyone there had the same opinion…

Generally, the feeling is that Gartner wants to jettison some vendor business. A number of vendors are experiencing some sharp prices rises and more aggressive, revenue generating, business practices from Gartner. This doesn’t seem to be targetted (in the way that some analyst firms simply ratchet up pricing on selected, difficult to service, firms that consume disproportionately greater resources). Rather, it’s an attempt to increase the profitability of their vendor business, to pay more attractive salaries than their competitors, and to increase share of pocket – something which also reduces the disposable funds available to spend on competitive suppliers.

This, in turn, produces challenges for Gartner’s clients, staff and competitors.

Pressure on vendor clients. While Gartner is ostensibly sharpening its ethics and independence through mechanisms like its office of the ombudsman, these mechanisms seem primarily to be tools to dissipate and deflect vendor concerns. A number of vendors feel that Gartner staff are more likely to hint at the possibility of favourable placement on the Magic Quadrant as a result of deeper commercial relationships with their firm [more likely than they previously, that is]. Indeed, for some, the MQ is now a tool with which Gartner threatens vendors.

Pressure on people at Gartner. Of course, this sharpening up at Gartner is producing some internal pressures. This pricing means that staff there are increasing accountable for the generation of revenue: of course, analysts have targets (even though their SAS targets are not compensated for). Former META analysts are dealing with goals and dollar targets in a qualitatively different form. Some analysts there are making a lot, and some are not. Comfort with sharper targets is understandably uneven. Even though firms like Forrester can’t match Gartner’s salaries in every instance, something like a ‘revolving door’ is developing at Gartner (though there’s few people coming in).

Pressure on Gartner’s competitors. How should Gartner’s competitors respond, both in terms of pricing and commercial pressure? If Gartner’s list price for a day’s consulting rises to $13,000 (which can be haggled down to $12,000 or lower by larger customers) then should Forrester, for example, match their pricing? If they price to match Gartner, then they will win and lose, in different ways (see footnote). It’s a difficult judgement for most analyst firms, especially the mid-size firms which have poorly equipped general managers with weak business skills. Aberdeen’s low price model could give it scale — or Aberdeen could become the new Bitpipe. Gartner’s competitors have less commerical pressure to leverage, principally because of their lesser size. It would be easy to image a ‘roll-up’ of mid-sized firms that could gain greater scale (AMR Research and Yankee Group, as examples, could be appealing partners to both Ovum and to Forrester Research), but who (other than Monitor Clipper) has both the appetite and the cash to make it happen?

Footnote: Forrester makes less than 5% profit before tax. Imagine if an analyst sells 20 advisory days a year at $10,000 a day, making $500 profit on each: that will produce $200,000 in revenue, but only $10,000 in profit. Forrester could raise the price of an advisory day to $13,000, to match Gartner. Each day would have no more costs, so they would make an additional $3,000 profit. Of course, demand would go down with a higher price. However, the additional profit would allow Forrester to survive an 85% fall in demand: If that analyst could sell 3 or more advisory days per year then Forrester would make more profit. This issues are these — would anyone buy advisory days from Forrester if its prices matched Gartner? And what would happen to Forrester if it sold less advisory time?

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.