This month Lighthouse will be running our annual Gartner webinar. It’s part of our Advisor Spotlight analysis, reviewing changes at the largest analyst firms. Investors have their own analysis, which is why the stock halved in value during the last year, from $28 in May last year to $14 in January. Lighthouse is not in the business of offering stock analysis, but we also feel that Gartner’s opportunities for growth seem to us to be more limited than it seems to acknowledge.
It’s a great opportunity to discuss the firm’s evolution more widely than the changes many AR people focus on: the content and pricing in the core vendor products. It’s also a good time to do it, since the recent sale of Gartner’s Vision Events business brings to a close a cycle of changes which started with the purchase of META Group.
Increased emphasis on sales, and the continuous enlargement of the sales force that started with the purchase of META Group, has been a good idea. It’s allowed the company to connect at lower levels into customer organisations. However, we think that Gartner is still a ‘hub and spoke’ organisation which is too centralised in Stamford, the firm’s home town.
Even so, one thing we do approve of is Gartner’s appetite. The firm sizes the research market at $11.5 billion dollars. That shows that there is a great opportunity for growth, which is also reflected in the firm’s market share. However, we stick by our initial assessment of the META purchase: that Gartner’s market share cannot be transformed qualitatively: but its profitability can be. Not everyone can love Gartner. What’s more, many people will always want a second opinion. The growth in the number of clients will always be limited, and so the main lever for growth is driving up the value of existing contracts, and focusing on the more profitable services. That is reflected in the sale of closure of Gartner’s customer research, Vision events and APac consulting businesses.
For that reason, we feel that the big danger for Gartner is in listening to its own propaganda. For example, we feel that Gartner comes close to suggesting that its revenue has increased largely because of the increased size of the sales force allowing it connect to new clients. To our mind, growth in client numbers in the last few years is partly because of the META Group acquisition. META had highly effective sales representatives: 80% of them have been inherited by Gartner. Some increase can also be attributed to the winning over of META Group’s contracts.
The performance of the sales function can also be affected by change. We think the perceived move away from global sales reflects Gartner’s interest in deepening its relationships with a second line of clients in existing client organisations. To some people, centralising sales simply increases the power of the central buyer. That would suggest that Gartner was losing the ability to meet the needs of buyers outside the centre, if the central buyer put their own needs first.
Decentralising sales has forced Gartner to allocate multiple salespeople to the same firm with the aim of selling directly into the second layer. Gartners role-based services have become a key tool in allowing that to happen, and to make these new salespeople seem to be offering valuable services to the new buyers. The only way that many of these role-based specialists benefit from the impact of the new role-based services is if they pay themselves: not all central research buyers care about the new role-based services.
Of course, decentralisation has displeased a lot of central research buyers. It also poses questions of how to consolidate invoices and orders globally, and of how then to target and bonus local sales staff. For Gartner, the difficulty is that the success of the technoque is being judged on a client-by-client basis. By now, either clients will have been convinced centrally of the value of these role-based services, or the pressure will be building up to retire them as clients or transition them to a higher price point. The account management of those firms will probably swig back towards centralisation. For those sales people, it’s the classic Gartner scenario of permanent change.
Although the stock halved in value during the last year, from $28 in May last year to $14 in January, the firm’s recent results were strong. The sale of Vision Events helped boost the price back to $21. Of course, Gartner’s strategies have strong reasons behind them, and we point people to their investor relations pages. It certainly has real room for growth over the next few years.
Nevertheless, Gartner faces high production costs in its research business and a deep challenge in sales force management: much of the market is uncovered by Gartner’s sales force, who are often physically remote from key, under-penetrated, markets. But while Gartner continues to focus on its existing customer base, and while Forrester mimics its focus on $1-plus multinationals, the big winners will continue to be the boutiques.