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Analyst Value Survey says HfS, Gartner, NelsonHall and Forrester are rising

At the AR Forum on October 3rd I presented the summary results from the most recent Analyst Value Survey. It’s the only longitudinal survey about analyst influence, and both the results and the reaction to them are fascinating. Last year’s survey provoked a long discussion (indeed, one that continues), especially about this chart on analysts’ media influence. This years data are even more interesting, since we had twice as many respondents.

For me, one of the most interesting questions asks respondents which firms have risen in influence. Last year’s answers were Gartner, Forrester, HfS and Pierre Audoin Consultants. PAC remains in the top ten, but this year’s survey shows NelsonHall in the top group.

Depending on your browser settings, you might see the slides below. If not, please visit http://bit.ly/2013valuesurvey for the summary slides. To get a copy of the full findings, go to slideshare.

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How the new second tier of analyst firms can rise to the next level

A new second tier of analyst firms is being formed by the recession. Companies like Canalys, PAC and the newly independent Ovum are expanding into space relinquished or ignored by larger analyst firms. Their strategic asset is that their managers and analysts who evaluate investments over a longer period (in the jargon, with a longer time orientation) and desire closer relationships with clients. However, as their businesses grow managers need to qualitatively improve sales and marketing in order to take their businesses to the next level.

There is no shortage of proof of the growth of the savvy mid-size analyst firms. The Canalys Channels Forum has last hit record size, over 1,000, building on its Candefero community. With some vendors paying around a quarter of a million pounds each to access current and prospective channel partners, it was a powerful event. PAC continues to grow its community services, like the PAC CIO Board. Alongside its French homeland, the firm  is now the easy leader in the German market for software/services analysis, greatly outflanking Gartner and Forrester. Freed by Informa from its niche inside Datamonitor, Ovum has dramatically boosted its profitability over the last year and is expanding its reach.

In every case, these firms are making strategic choices which differ from those of the market leader. All of them are taking the freemium model to a higher stage: Canalys is giving away its data to around 4000 channel partners; PAC’s IT research board service give free access in exchange for CIOs deeper participation in research; Ovum is building on Butler’s experience with free events aimed at the end user community. These services work on multiple levels: they give new prospective customers a taste of the analysts’ value; they give the analyst firm more influence over the market; they allow the analysts to define their insight and make it more precise; they also raise the barriers to other analyst firms wanting to sell services to those firms.

One might term this Blue Ocean Strategy to the n-th degree. The big analyst firms look to monetise every interaction: Gartner now demands that even attendees at its updates for analyst relations professionals (which are during Symposium) are open only to ticket holders – even if those people are not actually attending Symposium. Look out for corkage fees next year if you bring your own soda. The new second tier is able to grow in niches because their strategy is too difficult for the big firms to imitate: it would liquidate the profits of larger firms, while the smaller firms don’t have profits to lose.

End-users benefitting from these services are not naïve. Unlike fattening pigs, they understand that since they are not the client they are, to some degree, the product. But the  growing analyst firms make this into a win-win. To understand how these firms ‘get’ their target audience, one had only to see the gleeful expressions of the male, 50something demographic lining up at the Canalys gala dinner to get photographed with the beautiful synchronised swimmers shivering in their little white swimsuits post-display.

Despite this success, these firms still struggle to monetise fully their strategic success. Many smaller analyst firms have almost no equity value because they depend fully on the personal contacts of the partners. That prevents the firm from developing a growth engine which can survive the departure of the owners. Often tenure is based on high remuneration for business leaders, which erodes profitability.

At the moment these firms have a perhaps temporary advantage caused by the inaction of the largest analyst firms. But they need to monetise and invest increasingly to maintain that advantage. To go to the next level, those firms need to invest in non-analyst executives: especially for marketing, process, sales and HR development. That allows the firm to build better sales pipelines, client relationships and client experience. Synchronised swimmers are not enough.

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PAC’s growth reflects both demand and money left on the table

PAC’s hiring today of John Leigh, a BPO industry heavyweight, reflects the general trends towards the growth in the market for custom consulting. Leigh, previously at BTGS, Gartner, META, Ovum and Vertex, joins Pierre Audoin Consulting at a time when numerous firms are also benefiting from the growing demand for more strategic consulting. Major new hires like this certainly show the higher profile and greater momentum of firms like PAC, which has consulting as a natural compliment to their research activities. But the real ‘story’ is about the way that larger firms are fulling back from consulting.

Some of this demand is simply tricking down to PAC from firms like Gartner and Forrester. Those two firms have experienced huge, long-term, upwards trends in their stock prices as a result of more profit focussed business policies, in particular price rises. Over the last two years, Forrester stock has more than doubled (from $16.49 to $36.98 today) and Gartner has quadrupled (from $8.38 to $38.53). A rising tide lifts every boat, and the recovering US economy underlies their performance. However, both firms have moved towards more profitable work. Consulting is generally less profitable than selling already-written research, therefore the price-to-value ratio of consulting offers at many analyst firms have worsened for clients, freeing up time for analysts to increase their research productivity.

In turn, that means that Gartner and Forrester are leaving money on the table, which clients are now spending on smaller firms. PAC is certainly not the smallest, but it remains the case that it is picking up some of the consulting projects that might have otherwise gone to Gartner, especially from vendor clients looking into go-to-market tactics and more strategic questions where a personal answer cannot be provided by off the shelf research.

PAC is certainly one of the first best-places to benefit, since its business is perhaps three-quarters consulting. Even so, the hiring of people like Phil Carnelly, who previously led Ovum’s EuroView and software services, and Leigh reflects a certain upgrading of the consulting side in analyst firms. We might also mention Carter Lusher and Jonathan Yarmis, similar ‘big game’ hired by Ovum. This need to develop more strategic consulting capacities in the second-layer of analyst firms reflects not only clients’ need to work at a higher level but analyst firms’ needs to maintain a more strategic connection to their clients.

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PAC’s Berlecon purchase is a highly strategic move

As I’ll report on the IIAR blog today, PAC has bought Berlecon:

Today Pierre Audoin Consultants (PAC) bought Berlin-based analyst and consulting firm Berlecon Research. It’s a excellent choice for PAC, and a very natural partner for Berlecon because of the two well-established firms’ long period of cooperation and their similar continental cultures and the consulting-heavy business model which is essential to success in the German market.

Berlecon has long been a strong M&A target, something we which noted long ago; In 2005 I commented that both PAC and Berlecon would fit together nicely if Ovum wanted to expand. Despite the premature death in 2006 of the firm’s talented founder, Thorsten Wichmann, the firm has held on to a data-heavy approach (reflecting its distinct reliance on economic analysis).

Indeed, at times the firm is quite belligerent against its competitors’ data quality: I translated one of these broadsides, and it gives a good flavour of the firm’s pride. This evidence-based approach has allowed it to build strong relationships with public sector clients, especially regulators and those concerned with open source solutions. Its partnership with the Fraunhofer Institute gives it a capacity to evaluate emergent technology that’s rather different from larger analysts firms focussed on already-mature solutions.

Bringing Berlecon into the PAC family builds on already existing co-operation, and allows both firms to sell joint projects and larger deals more credibly. Most importantly, the two firms have worked together in SITSI, probably the world’s longest and widest joint project between analyst firms.

The various strengths of the deal are, at the same time, its weaknesses. As we’ve pointed out before, there’s a connection between the data-intensity and social media shyness of both PAC and Berlecon, which doesn’t even have a twitter handle. Both PAC and Berlecon sell heavily through personal relationships, and neither firm has interest in investing seriously in marketing and business development by global standards (even though, when measured against German peers, Berlecon does well). Being privately owned, they are focussing on building profitably (where they are strong).

Another result of this has been the low profile of both Berlecon and, until a few years ago, PAC in the English speaking world. Very little of Berlecon’s materials are available in English, even on the website of a flagship project like the ICT Research Board That makes it hard for AR professionals in the English-heavy tech industry to understand or communicate the very different value of the firm’s approach.

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Constellation Research is a wise move, but not a disruptive one

The analyst industry always benefits from choice, so everyone welcomes the launch of Constellation Research – even the founder’s previous firm, Altimeter. However, Jonny’s claim that it’s automatically a tier one firm has to be taken with more than a grain of salt. Ray Wang’s departure follows that of Martin Gartenberg, so it seems reasonable to muse that Altimeter is not attracting enough interesting and lucrative clients to retain such big-ticket names. Superstars do not spontaneously generate super-sized revenue.

Constellation is a group of ten independent analysts using a broker: a common go-to-market brand. That’s a good strategy, since analysts often don’t sell well. Using a common sales process, a broker such as Constellation or Valley View Ventures (which represents Altimeter) can win extra profile and extra sales.

However, the participating analysts remain affiliated with their individual firms. Broker organisations are often not the analysts’ main concern. While analysts will invest time into specific new business opportunities, it seems unlike that Constellation will do what a real analyst firm would do:  allocate clearly defined focus areas (eliminate areas of overlap and thus expand the scope of topics on which the firm can deliver research and guidance) open and close focus areas (reallocate analysts, against their will if needed, between areas of falling and rising demand) and develop consistent methods (research methodologies, base data and deliverable formats). Instead, Constellation’s analysts overlap in multiple areas, such as innovation, 2.0 technologies, social business, and ERP.

If Jonny thinks that Constellation is a tier-one firm, then Valley View Ventures must be tier-zero and Gartner must be tier-square-root-of-minus-one.

That said, there is some reason in what what Jonny is saying. Constellation will be quite unlike Valley View Ventures in so far as it blurs the line: it presents itself as a research firm rather than a broker. It will also provide syndicated research, so you can (I imagine) subscribe to one content management system and access the research of all the analysts. That will be valuable research and if they are able to invest and grow their sales campaigns then they will be much more successful together than these analysts are currently apart. However the narrow scope of the analysts’ research areas and the notable overlaps means that they are not a substitute for the real tier one firms, which have the full-time energies of several hundreds or thousands of employees, rather than the spare-time support of ten people working in other firms.

P.S. For an alternative viewpoint, look at Barbara’s comments. She quotes Altimeter’s Charline Li as saying that the firm has “touched 125 clients” this year. While I’m not sure that’s the same as 125 invoices, Barbara’s suggestion is that analysts who have left Altimeter do so because they prefer syndicated research to consulting.