Users of analyst services are surprisingly canny. In many situations, where people over-rate what they have chosen in the past and undervalue other options. Academics call that confirmation bias. The Analyst Value Survey shows that users of analyst services are even able to score free research above the research they pay for
That is an interesting finding, but not a surprising one to those who know how analyst research is used by professionals. One of the most respected studies of how to counter this confirmation bias, by Hsieh-Hong Huang and colleagues, establishes the importance of alternative information in combating bias and producing better decisions. It might be reasonable to assume, for example, that people will tend to rate the research of the analyst firms they subscribe to more highly than those who do not subscribe to it. When we look at the data from the Analyst Value Survey, however, we see that is not the case.
The chart above plots the largest analysts firms in terms of how much value they are said to create in the opinion of two group of people: those who subscribe to those firms (their clients), and those who do not. The trend line slopes up, showing that companies that produce value for one tend to produce more for the other. However, what’s interesting is that most firms are creating more value for non-subscribers.
Many factors are at work here. For example, non-subscribers might have lower expectations that are easier to meet. More importantly, most subscribers are in organisations that subscribe to multiple firms and thus are less attached to one and more able to compare. Almost all are using several firms’ services. So for many reasons it’s not the case the clients have a bias in favour of the companies they subscribe to since non-clients rate also rate them highly and often even higher.
This fits with something we see with responses to the Analyst Value Survey that follow appeals by analyst firms to take part. Those responses are not very different from the other answers and often boost the firms’ competitors in the findings.
Of course, the key point here is about the value of freemium. Almost every business is creating additional value that it is not monetizing. In spreading their research more widely, they are reducing bias in favour of their competitors and reducing information asymmetry. That’s useful for analysts’ users and bad for those vendors who think that sweetheart deals with one or two analyst firms can keep them safe from more critical analysts.