Running up to the Analyst Relations Forum 2015 we will be publishing interesting points of views on our topics. We are kicking off by a classic post by our own Duncan Chapple to share his view on the question of “Can Legacy Analysts Survive?”.
Industry analysts don’t need to have more industry experience than their clients – any more than accountants, management consultants or any other professionals – in order to add value. James Gardner and David Rossiter, who recently criticised analyst firms along these lines, ignore the glaring reality that analysts firms have continued to perform well. That suggests that their core business model isn’t broken, and that unexplored opportunities remain minimal.
Gardner argues that analysts are glorified journalists. Their reports are based on interviews with business people, but they don’t have the expertise of their clients.
“It always reminds me of the proverbial food critic. They can eat what the chef prepares and pass judgement, but don’t put them in a kitchen if what you want is something edible. There is value in the opinion, of course, but the point is the food. “
James has a second concern, that some analyst firms sell seats, rather than all-you-can eat enterprise pricing.
“They send their account managers in to visit with people who are not named seat holders, and start to sell them the benefits of having access to the research. Then, of course, we get a call from these individuals asking for access. It puts us in the invidious position of having to tell people that their needs are less important than those of others. We have a fixed budget for analyst research, not one that can flex upwards because it is convenient for the account manager.”
James mellows a little, saying that “there is some value in analyst research, and that the reports written by the superstars have a value that counteracts the journalistic reporting” … “But we need to be able to use that insight broadly in our business. And we don’t want named seats. It’s too hard to make it work. We also don’t want an “enterprise” licence, which amounts to buying a named seat for everyone.” His message to the top analyst firms he currently uses is: “your time with us is limited if you don’t make it easy for us to get value from what we buy. ”
James doesn’t have the budget to give access to everyone who wants it. He’d like to give everyone access, without having to pay extra. If he can’t get more, then he’ll go elsewhere.
James’ fundamental complaint is not about the quality of analysis, but about the pricing model in which you get more as you pay more. That is, of course, pretty much the dominant pricing model for everything. David picks up James’ complaints about quality, and runs with them:
I spend a large portion of my life educating people about the value of the industry analysts.
Then you set up a meeting – either a briefing or an inquiry call – and in strolls someone who knows less about the market than I do (never mind my CEO, CMO, product manager or technology guru). It is happening more and more frequently. It’s almost as if the industry analyst firms have a death wish.
Get wise guys. People pay a lot of money for your insight. You’re important because of your influence. You’re valuable because you’re the experts.
James and David seem to rest their views on assumptions which, as far as we can see, are mistake. This is how we see it:
Most analysts don’t need their clients’ technical expertise to be effective. Food critics need to be good journalists more than they need to be good cooks, because writing is the core task. Critics don’t need to cook at all, and analysts don’t need to code. It’s nice but, for most clients, not necessary. Analysts add value by offering insight that the client does not, and cannot develop easily, in the context of a single firm.
It’s a fantasy to think that analysts, who generally tend to focus on technologies in their growth phase, will either have the expertise of the people they meet, or will care to show that they do. It’s not necessary, but it’s also just not possible. It’s an unreasonable expectation to think that analysts who have to work across several technologies during their research career will be at the leading edge of any of them by the time they meet the client. Folk need to understand that that the reality of the analyst industry is that staff with different levels of expertise will be there in client-facing roles, as is the case with other professional services firms. There are veterans, there are experiences professionals new to a particular segment, and there will be entry-level staff.
Indeed, the fact that many analysts lack the client’s deep domain expertise is sometimes an advantage to analyst relations professionals and to clients. AR professionals have the opportunity to help develop fresh analysts understanding of the market, in a way they cannot do with industry veterans. And they bring fresh ideas and outside information.
Were this not the fact, then how could we otherwise explain the ability of top analyst firms to survive and flourish?As with other management consultancies, clients understand that the large analyst firms are more than the sum of their parts. They have not only individuals with serious professional backgrounds, but also unrivaled access into the whole IT supply chain and huge analytic and research resources.
All professional services firms have detractors among their clients: everyone likes to complain about consultants, accountants and other advisers. However the reality is that those firms have solid client retention rates and face no serious threat of losing their most valuable clients.
Market analysts are people in a continual process of remaking themselves as experts, because areas and technologies continually change. Both the research process and the client service process are aspects of refining their expertise. Both AR professionals and analyst clients have to realise that there is value in analysts, even if they are working as hard as you are to understand the markets.
Of course James does understand that: it’s just that he wants to get enterprise-wide access to the top analyst firms for the same price as limited seats. The reason why he cannot is a simple matter of market forces. By moving from community pricing to individual seats, the top analyst firms have doubled their revenue per seat without any substantial erosion in client numbers. Almost all that extra revenue goes straight to the bottom line.They would give that up, for no corresponding gain, by reversing direction. One might as well ask Microsoft or Apple to stop selling product by the unit.
What would happen, of course, if the analyst firms tried to follow this guidance? If they replaced all their staff with industry veterans, and then gave enterprise-wide access for the same cost as their current contracts? They would simultaneously increase costs and decrease revenues. That would be a lose-lose solution – the firms would go bust, and the clients would lose their guidance.
There are – certainly -many reasons to criticise analyst firms. However, there are 900 analyst firms. Most of them are tiny businesses run by experts that struggle to deliver the same value as larger firms – if they did, then they would make more revenue per employee. You don’t need to be a chef to know that the proof of the pudding is in the eating.
P.S. I have developed these points in a follow-up post (Like it or not, the analysts’ business model is not broken) in response to James’ comment below.
P.P.S. Gilberto Gil’s Touche pas à mon pote is online here.
This was originally posted in 2009 on InfluencerRelations.com.