(I feel like I should apologize, one for the length, and also because there’s some vital points missing below that I can’t see in the bird’s entrails. Nonetheless, this “novella” has been haunting me for several months and I need to eject it.)
Never mind journalism, it’s industry analysts who are being disrupted
I keep coming across a new crop of IT industry analysts who end up getting compared incorrectly to journalists. It’s little wonder as most people have little idea what an industry analyst does; it’s not like analysts, hidden behind their austere paywalls, help much there.
People like Horace Dediu, Ben Thompson, and others are experimenting with ways to disrupt industry analysts. They’re using new business models and tools that often seem bonkers to the more traditional analysts wrapped up all warm and tight in their blue blazers.
Their models focus on narrow topics with broad appeal (Apple, vendor sports among high profile tech companies [you can call this “strategy”], and “social”) and they tend to make much, if not all, of their content free. What they lack is the breadth of the overall industry analyst world (they have no opinion on what type of identity and access management or CRM system you might want to use), but that can could be fixed as more “independent” analysts like themselves pop up. There’s also not a lot of “short-listing” (ranking of vendors and products intended to be used by IT decision makers and buyers) that these folks do; this an area where incumbents can easily defend themselves.
One way of looking at it is the “consumerization of industry analysis:” focusing on selling and serving individuals rather than enterprises. Indeed, current industry analyst shops sell mostly to companies and are near impossible for individuals to work with.
Imagine Ben Thompson times 50
While Horace is patient zero here, the best example of this trend in action is Ben Thompson, or “stratechery.” For whatever reason – and his self-proclaimed Midwestern modestly would make him blush at this notion – he talks about his business more and, thus, provides a better view into the business side of this trend.
In the first episode of his podcast, Ben lays out the model he’s trying to execute (and how, you know, the Internet and blogging makes all this possible); he later elaborated on it with his rain forrest layer cake metaphor; and in an even more recent episode goes over how his business has evolved.
How well do these models work? Well, we have some data points from Ben since he’s discussed his momentum by subscriber numbers a few times. Let’s compare it to what I’ve made as analyst over the years to get a sense of what’s “normal”:
This excludes a lot of thing: health insurance is the biggest and other non-cash compensation.
The point is to show that at the individual level, Ben is doing well. His business is performing well compared to what’s “normal” for analysts. The recent growth rate looks even more promising. I actually ended up at the high end of the analyst wage chart (I think). The average is a lot closer to $100,000 the more junior you get.
If this model can be replicated by other individuals , we’ll see the biggest disruption to the industry analyst business since the Web. What the established firms have is marketing reach, brand awareness, and lots of money and time. The first two are hard for individuals to achieve, but not impossible. The last two are harder.
I think there’s a lot of room for Gartner (the mega firm) and the RedMonks (boutique firms) of the world, but in the middle things will get harder. Forrester is always rearing to be a #2, but revenue-wise, they have a long way to go; IDC will probably keep winching the cost-cranks and double down on being Master of the PivotTable. My former friends at 451 Research have a lot of potential, but like all the other folks in the middle, they need to keep honing their strategies and go-to-market. I keep hearing that HfS is awesome, which could provide an interesting case.
With that bucket of points made for the tl;dr crowd, the rest is an extended treatment.
The Enterprise Gruber
I ran into Nick Muldoon a few years ago at a DevOpsDays (in 2012, right in the middle of my time at Dell) and he paid me a high compliment, loosely quoted from memory: “I always thought you could be the Gruber of enterprise IT.” Indeed, that’s what all my type dream about when we drive past those lottery billboards on the way to the airport at 4:30am: sitting at home, reading news, blogging, and being so awesome that it pays well.
To some extent, I did that at RedMonk; not at Dell, for sure: there’s no talking in public, really, when you work on strategy and M&A. And I did that on the pay side of the paywall at 451 Research. I loved it: writing up what I think about the IT industry targeted at helping my “audience” (we called them “clients”) make better decisions about IT, be it product management, competing, investing, or using IT. (There’s a minority that look towards analysts for entertainment, which is valid, but likely pays poorly.)
In part, that’s what I’ve been asked to do in my new job at Pivotal, except with a Pivotal bent, of course.
The RedMonk Disruption
Just a few years into it, RedMonk decided to do away with their paywall and ended up showing one path to disrupting the industry analyst market: the idea of providing free analyst reports through blogs seemed crazy, but it worked. James captured the, uh, esprit de corps in the analyst world well in a 2005 post:
I was at a recent event when a well known industry analyst, who used to run a firm well known for writing white papers in support of vendor positions, sat down. I was discussing how blogs, RSS splicing and aggregation were going to change industry analyst and other information-based businesses. They sniffed and said that bloggers had no credibility. This from someone that sold their credibility down the river long ago.
Yup, analysts are a friendly lot…
As with VCs, one of the problems an analyst has is generating enough flow to get the raw materials you need for your day-to-day work: getting people to talk to you enough, frequently enough, and deeply enough to gather all the information you need to usefully pontificate. You need raw fodder for your content creation. Ben alludes to this is another way: you have to create a pipe (or an overflowing Evernote notebook) of content ideas, things to write and talk about…to analyze.
For RedMonk, having no paywall meant that their marketing was done for “free.” The consequence was (and still is) that RedMonk can’t charge for content, it’s all free. Most firms in the industry analyst business charge a lot for content. My last analyst shop, 451 Research, charges a bundle, and people seem to like it: 451 writes great stuff and their large customer base shows that people value it. But, it does mean that 451 needs to do marketing separately; they don’t get those “zero marketing budget” dynamics RedMonk does. Neither model is better or worse, just different depending on what and how you’re running the business. Both models still get paid for consulting, webinars, and a multitude of other things.
Let’s look at three firms to peek into the bushes of the business a little bit.
RedMonk thus differentiated itself from other analyst firms first by making all of its research free (at the time, very novel): it allowed RedMonk to build pull in the market, that is, it made marketing free. It wasn’t easy, and it took awhile, but it worked.
Their research topics matched this structural approach as well, namely:
- focusing on bleeding edge technologies and practices, which, leads to the paid work on…
- helping those bleeding edge companies talk to the “mainstream” IT world
- helping “mainstream” IT vendors (IBM, Microsoft, Sun, Adobe, etc.) understand how to profit from and strategize/product plan with/around bleeding edge stuff.
They still do that and do it well, along with some of the usual analyst business models (like consulting, webinars, events, etc.)…but all of RedMonk’s activities revolve around knowing about the new shit sooner than the next analyst and being able to explain how to fit it into client thinking. Their events business (launched after I left) looks like an an adjacent business to the “knowing what the fuck we’re talking about” strategy: the tried and true come “hang out with the smart folks and drink your face of” business model.
RedMonk is cheap compared to other firms. The entry level is $5,000 for startups, and goes up from there. Companies like IBM, SAP, and Microsoft pay a lot more (and get a lot more!) but still get a really good deal compared to what other firms charge. You can check out their client logo page to estimate their revenue if you do a little estimating for the larger account sizes and Excel swagging: not too shabby, eh?
THE 451 DIFFERENTIATION
451, structurally, is similar to other analyst outfits: there’s a paywall for most everything. As with any analyst outfit, 451 does paid consulting, webinars, events, and other usual marketing driven stuff. 451 also does data center planning (they acquired The Uptime Institute some time ago) and has some interesting data-driven businesses that are being marshaled into proper quantitative analyst products. 451’s key differentiation is mixing its scale with the “the new shit” focus (perhaps a bit less bleeding edge than RedMonk, but not much), all stuck in the speed blender of publishing velocity.
451 seeks out new technologies, not old ones, and writes a lot: each analyst has to write somewhere between 40–60 reports a year, basically one ~1,500 word report a week…not including other deliverables. For the most part, if you brief a 451 analyst they’ll write a report on you, vendors love that and it helps with content flow (and gives analysts inbox heart-burn). I was terrible at that cadence coming from the RedMonk school (which emphasizes consulting, which I did a lot of at 451 instead of writing), but the best performers at 451 rarely take a briefing that resulting in no report being written.
451 is slightly cheaper than larger folks like Gartner and much more expensive than RedMonk. I was delightfully shocked at how much 451 charged coming from RedMonk; which is more a reflection of how cheap RedMonk is (I’m not sure they’ve raised prices, at least at the entry level, since 2006 when I started there – great for clients!). You get a lot more content, of all types, however, from 451 than from RedMonk due to 451’s sheer analyst bulk and core process of weekly report writing.
You’ll recall that my personal revenue was much higher at 451. I think that’s a reflection of the “leverage” a larger group of analysts can have: selling the same thing (reports and knowledge) over and over more.
Gartner is giant. It has breadth and has captured much marketshare. In analyst sales calls you often hear a variation on this:
Well, we’re signing up with Gartner because we have to, and IDC next because we need their PivotTables…the rest of you get to fight over what’s left (want to write a white paper for me?).
Gartner is really good at being the Microsoft of the analyst space…and I mean that as a compliment.
One of the key activities they do is ranking vendors. That may seem trivial, but it’s huge. Gartner tells you what the safe bet in IT acquisition is. It may not be the growth bet, or even the anti-disruption bet for your industry, but it’s the safe bet. And really, with the way most people use IT, that’s all they want. People don’t want to be Uber, they’re forced to compete with Uber, and they’d rather Uber didn’t exist at all.
If this beguiles you, think about your own buying habits outside the realm of computers. Do you prefer to buy your building materials at Home Depot, or some experimental shop on the side of the road? Like lumber and Shop-Vacs, most people look to computers for a function, not a complex belief system (I could have typed “paradigm”), let alone putting a business strategy in action.
(We at Pivotal like to think we help companies who are wise enough to take the first mover advantage when it comes to using IT to gain competitive advantage. This is shockingly not everyone in the world, which is fine: so far there’s been plenty of wise customers out there.)
Throw in their relative scale, and Gartner is in the hollowed “don’t fuck it up” position.
Gartner is expensive, from what I’ve heard and encountered when I’ve been on the vendor side. However, depending on what you need their content is good and the ability to influence (that is, educate, not make them parrot your messaging) analysts through working with them is nice. The IIAR seems to like Gartner, that group of analyst relations folks having ranked Gartner as #1 most every year since 2008 (it’s interesting to note that individual analyst winners are much different). Enterprises seem to like Gartner a lot as well from anecdotes I hear.
The New “Bloggers-cum-analysts”
The new (or “new new,” if you’re RedMonk and crew) crop of analysts follows the “make all the good stuff free” rule of having no paywalls (though Ben Thompson is following a sort of open core model). And in making all that stuff free, they’re doing much of the type of work that industry analysts do now, mostly of the qualitative sort. Horace gets into forecasts and market-sizing a bit, actually, which makes him even more of a threat; the other folks don’t seem to spend time on that. (Of late Horace has been mixing in market numbers from traditional analyst shops as well, but he also doesn’t do surveys.)
Again, the reason this new crop of “bloggers” are threatening to industry analysts is because they’re serving some of the same purposes, with much of the same tools and outputs of traditional analysts. And for those analyst activities they don’t currently do: it’s not too far fetched to think that someone soon will. The core differences are similar to previous disruptors (RedMonk and 451 – see, that’s why I outlined them above, all you tl;dr ding-a-lings!), but with some tweaks, namely:
NARROW FOCUS, BUT WITH BROAD APPEAL
Most of these analysts have a very narrow focus that appeals to a mainstream market. One individual can only cover so much, but if there’s a large audience for that topic, it will suffice.
Horace ostensibly is the world’s premier Apple analyst. That’s a bold claim as I don’t read any Apple analysts you have to pay to read, so maybe there’s some better than him locked behind paywalls; at the very least, he’s a big deal for his size. As a side effect of being an Apple analyst, he covers the mobile space in general. There’s two more tricks for him that build off this seemingly narrow focus:
- In that smartphones and tablets are taking over how compute is done, he sort of covers “PCs of the future” and, thus, computers broadly.
- “Innovation” is actually his main focus area, namely, figuring out what and how great companies actually do great things (as the intro to his podcast says, more or less). Apple is a wise choice for this question, but you can see his engineering-like “break it apart to find out how it works” curiosity at play when he looks at how Hollywood works (with Pixar as his Apple there), Amazon, and the mysteries of Google (cf. “The absence of a purpose rooted in profit makes Google resistant to analysis.”).
The combination of Apple, “PC of the future,” and “innovation” all amounts to a very large “audience.”
(Recently, Horace went to go work for a think-tank; it’s hard to tell if that invalidates some of the “this independent blogger-cum-analyst thing is a thing” thinking here or not.)
While Ben Thompson started out seemingly as another Apple/mobile analyst, I’d argue he’s become more of a “third platform” analyst, discussing how the “consumerization of IT,” is effecting the tech industry.
THE EFFICIENCY OF VENDOR SPORTS
This narrow focus means that both (and most of these new types of analysts) cover “vendor sports”: they don’t give buyers advice about what products and services to buy, they instead tell you how various tech vendors are doing and explore the strategic possibilities of new types of technology.
There are very few of these new analysts that are prescriptive when it comes to buying. I’m not sure why, but I’d theorize that it has a lot to do with the cost structures of doing such work (in the cycle time of analysts learning, collecting epiphanies, publishing, and then collecting money form clients for sharing the results). This is a large part of why I think Gartner’s scale and established position is and will continue to be hard to beat, head on at least.
There are some challengers here:
- I look towards folks like WiseGate, TrustRadius, Peerlyst, and even Spiceworks to sort out short-listing out.
- Folks over at places like The Virtualization Practice can help in their niche; if you wade through sites like BrainMadden.com you can get a sense of wise virtual desktop choices; and Horses for Sources seems like they’d be spot on for outsourcing short-listing.
Once these new bloggers move beyond vendor sports – if they can – and start recommending what to buy, the dynamics will change a lot. Until then, they’re nibbling at the industry analyst business…but that’s how it all starts.
Back to the “Enterprise Gruber”
On that quest to find an enterprise Gruber, there’s been a rash of sites of late that go for that. There’s still a giant gap in the market for good enterprise tech coverage.
- TPM started up EnterpriseTech which seems to have taken the ethos of his wonderful IT Jungle (which seems to purposefully hide behind its ancient-feeling aesthetic – it’s some of the best coverage and analysis of IBM that you’ll find out there), and just announced a new site, The Platform.
- The Diginomica gang is having a run at enterprise applications.
- My friends at thenewstack.io are getting close and will soon give a view of how native advertising works the industry analyst business model blender.
I watch these sites closely to see how they pan out and if they fall into the usual journalistic traps that start to preclude good analysis.
How the small and mid-sized firms can react
What you’d really like to see is some dramatic business model hacking in the mid and small section of the industry analyst market. What would it mean to have a Ben Thompson or a RedMonk approach at a place like 451, or Forrester even? Those shops would have huge cultural issues to deal with (analysts are, ironically, a lot who’re the least interested in doing new things in their own processes: they hate changing), but the established brand/reach and capital (in money and time) those larger firms could bring to the strategies of the micro firms would be interesting.
How the big firms can react
The problem with the big shops taking in the blogger-cum-analysts is that big shops don’t like to create rock star analysts. The rock stars leave to become independent because they can make more money, or, at least have more freedom. They, like me, also get snatched up by vendors who can pay much more including something rarely seen in the analyst world: those mythical stock options which could worth anything between the title for a large house, the cost of a college diploma, or pack of novelty cup-cake papers.
Larger firms are better positioned to cement their position by upping their game by deeply evaluating and short-listing technologies. There are two examples right in front of us: OpenStack and Docker. Both of those vacillate between IaaS utopia (sometimes people come down from their buzz and realize that Docker often aspires to be a PaaS too) and shit-shows cracking in tire-fires all the way down.
Someone like a Gartner has the time, money, and (potential) authority to run labs to test technologies like these out and give solid recommendations on what to use and not use…per business use case, even. To quote the meme, one does not simply build an enterprise cloud…so how could you expect anyone who just creates PDFs about cloud to actually be credible?
So, what’s your problem, Coté?
With all this glee, you may be wondering why I’m now at a vendor. Good question, as they say when they’re buying time to think. The core of it is that my fixed expenses are too high. I have a family, a large house, and even a new dog (I resisted as long as I could – promise!). And, I’m the single earner for all that.
While I would love to bushwhack my way through this emerging analyst jungle, I don’t want to Mosquito Coast my family; and let’s be honest, myself either. The warm, bi-weekly embrace of a vendor is very comforting. So, like the analysts themselves who observe from the sideline, I’ll be eagerly watching how the industry analyst sports-ball brackets play out.