450 analyst firms get less than half their revenue from vendors

Our post on growth opportunities for competitors to Forrester and Gartner has triggered some discussion, both in our monthly ‘Advisor Spotlight’ webinar, another blog and on our Boardroom. In particular, there’s a real discussion about how far other analyst firms have a toehold in the end-user market from which they can grow.

In the Boardroom discussion, a number of participants discussed frustrations with Gartner. Going around the table, it seemed that the more you spend with Gartner, the more frustrated you feel. The stories are generally familiar: rising contract prices, higher prices for fewer seats, increased pressure on internal market intelligence teams, and a feeling that the role-based research is less able to meet vendors’ needs for research that is defined by integrated solutions, horizontal technologies or, in particular, vertical markets. Initially, the quality of role-based research is uneven as analysts without deep domain knowledge (Dataquest analysts get mentioned here) develop a role-based understanding. It was a powerful discussion, which we’ll run again in six months.

In the Boardroom there was a lot of agreement about the opportunities for other firms and in particular for IDC and other firms with bases outside the English-speaking markets. In the blogosphere, however, there is some dissent.

Some observers discount the influence on technology buyers of IDC and NelsonHall. NelsonHall clearly has a major service buyers’ service. Financial Insights, a long-established business, clearly has a well-established base but, as it was a pre-exisiting business bought by IDC, we cannot assume that the other Insights businesses are as well rooted. However, IDC’s influence on buyers is not only through the Insights businesses. It has tens of thousands of end-user attendees at its events. Its research is widely circulated. It is the major provider of analyst firm consulting outside the English-speaking world. Even its tracker service is used by buyers: at IDC’s recent Forum in Berlin I had dinner with one of the equipment buyers for a $20 billion manufacturing multinational. He told me they use IDC’s data to better negotiate with competing suppliers, and to understand the components and functions of differing systems.

Many AR professionals, in an attempt to simplify the problem, like to pretend that only one, two or three analyst firms get most of their revenue from end-user organisations, and the rest get most of their revenue from vendors. That’s not the case: we track around 750 analyst organisations, and over 450 analyst firms get less than half of their revenue from vendors. There are 270 firms that get less than 20% of their revenue from vendors. Of course, that leaves a similar number of firms that are largely dependent on vendors. However, it would be quite mistaken to think that other firms don’t have a beachhead in the end-user community from which some can grow rapidly.

Picking up the money Gartner and Forrester leave on the table

Gartner and Forrester’s increasing focus on global $1bn-plus firms is leaving money on the table for firms like IDC, Berlecon, NelsonHall, Burton, Pierre Audoin Consultants and Springboard to pick up. That’s the conclusion I’ve come to after a lunch with Rahme Mehmet where we talked over Thursday’s Boardroom discussion.

Around 20 senior AR and marketing directors have registed for the discussion on Thursday, many of whom will be going on to the IIAR’s meeting later that afternoon. Changes at Gartner and Forrester will be the major topic in the discussion.

In short, the two most influential analyst firms both aim to get an increasing share of their revenue from large multinationals. Both Gartner and Forrester have met with success with that strategy: Forrester’s 15% leap in revenue reflects that. However, a number of firms are able to benefit from the business that these firms are turning away from. In particular, new opportunities exist for work outside the English-speaking countries, in consulting engagements and in building deep niche expertise.

  • IDC‘s recent European Forum reflected the firm’s continuing leadership in emerging markets in Asia, Africa and Europe, especially in eastern Europe and the Middle East. As the analyst firm with the second-largest revenue, IDC has been able to develop a uniquely broad footprint on analysts ‘on the ground’. That makes it the only analyst firm with a serious presence in most developing markets, and its is clearing away local resellers in order to go directly into high-growth markets such as South Africa. IDC knows that its verticalised Insights business are a long-term project, but are staring to deliver real credibility in some end-user markets. Our webinar will discuss that more this Friday.
  • Berlin-based Berlecon is also finding better opportunities. This boutique has a tight focus on two connected areas: mobile business communication (topics like mobile devices, VOIP and the web-extended enterprise) and IT services (including outsourcing and SaaS). In the German-speaking market it has won a leadership position and, since most of its research is in German, its valuable niche is well off the radar of a number of North American firms. Even Gartner is wising up to the value of the German-language market (it’s the largest tech market in Europe, after all), and it is organising a major German-language event. Just don’t try and get there from www.gartner.de.
  • Services boutiques NelsonHall is fast outgrowing its BPO niche through niche services for banking, insurance and other areas including outsourcing. By recruiting leading Ovum professionals, including Katja Grimme and Katy Ring and account manager Rob Hughes, the firm is now respected as a high-quality outsourcing player in Europe.
  • One of the few firms able to hurt Gartner’s pocket might be Burton Group. While we don’t take seriously the idea of an analyst price war, their DropASeat.com website shows a real appetite to win business. ‘Drop a seat’ offers enterprise-wide access to any one of Burton’s six advisory services for the price of one role-based Gartner seat. Interestingly, Burton is also tightly focused on service niches. Since Burton was the only firm to pick up notable business from the closure of META Group, we expect this campaign to also win real traction.
  • Springboard is a firm we’ve mentioned a few times before. It was massively benefited from Gartner’s consulting close-down in Asia-Pacific. Springboard is also building up its geographical reach across regions that Gartner is less interested in, such as Africa and the Middle East. It’s also now part of a major international network, headed by PAC.
  • Pierre Audoin Consultants is another firm we will highlight as a beneficiary of choices at Forrester and Gartner (and at Ovum). For several years PAC has been a highly credible provider of strategic consulting on IT services in the German and French markets. It has followed its growing into the US and UK markets by announcing a major leap forward in providing local presence in 13 countries, including partners in Latin America, Africa and Asia-Pacific.

The common threads here are easy to spot: geographical expertise or sector expertise — most powerfully both. Firms like these are making rapid progress.

One final thought: it would be quite mistaken to think that these trends will make Gartner and Forrester anxious. In fact, by leaving something on the table for this high-growth firms they encourage them to focus on the mid-market, on consulting services and on vertical markets. Of course, this also encourages them to leave Gartner and Forrester unchallenged in their core markets, selling role-based services to multinational giants.

Opening up our boardroom to discuss Forrester and Gartner

One of Lighthouse’s traditions is the Boardroom, a free and private off-the-record discussion for AR managers. We have been holding these discussions in San Jose every April for a few years: on Thursday, September 20 we’ll start to hold boardroom discussions in London.

The topic for the invite-only discussion in September is the changing business strategies for Gartner and Forrester. Both firms have instituted price rises, re-aligned their salesforce, moved to role-based views and started identify further specific revenue opportunities in the analyst relations functions of vendors.

Generally, these changes are in the interests of AR professionals, including Lighthouse. Higher pricing by analyst firms segments the market, and pushed Gartner and Forrester out of the mid-market. That produces greater opportunities for AR managers who can identify top analysts at a range of firms. Better salespeople and role-based research seems to increase the value of analyst firms, which means AR managers are targeting and audience with increasing impact. More services for AR managers can only help, especially since AR functions in firms with one or fewer AR professionals needs greater support.

However. these changes also has potential risks. Not all client see extra value reflected in the higher prices. Some of services for AR managers are problematic; for example, Forrester’s AR guidance is based partly on research that ‘overfits’ the needs of Forrester analysts and clients, a concern we have shared with several Forrester representatives, and so far has a partial and uneven usefulness.

Boardroom discussions are conducted using the Chatham House Rule: attendees are free to use the information received, but neither the identity nor the affiliation of participants may be revealed.

The meeting will be held from 2.15 until 4 pm in central London, allowing plenty of time to travel to a nearby meeting of the IIAR, which starts at 4.30 pm.

If you’d like an invitation, please get in touch. Seats are limited.

AR meet-up in Chicago, and elsewhere

Lighthouse organized an informal gathering in Chicago for people with an interest in industry analyst relations in August 2007.

As one of the founders of the Institute for Industry Analyst Relations, I’ve found casual, out-of-work discussions to be highly effective: they help people with an interest in AR to network — and help us all to better understand how the IIAR can help AR professionals. When we’ve organized similar discussions elsewhere in the US we’ve always had a high-quality discussion, even if only a handful of people make it along.

The meeting was at Wednesday August 22 2007 at the Hyatt Regency from 6.30 pm.

If you’d like to work with others to organize an AR meet up in your locality, then get in touch.

Maximizing the Value of Analyst Relations

One of Lighthouse’s traditions is the Boardroom: an annual working lunch for AR professionals, hosted in San Jose, CA, the week before Gartner’s Symposium. In April 2007, we met to discuss ways to maximize the value of AR in a recessionary environment. Geoff Roach is an wonderful host, and arranged a private boardroom for us in the Silicon Valley Capital Club.

From Europe, it’s hard to understand how deep the recession anxiety is here. Much of the anxiety has a personal expression for home-owners because of the long general decline in Bay area house prices, and in the number of houses being sold, since May 2006. Bankruptcies have doubled from 2006 to 2007. However, a number of local business indicators also show a downward trend over the last year: passenger travel is down, while air freight is at its lowest level for nine years. Also down are hotel occupancy rates and revenue. Since August 2006, consumer prices have risen much faster here than in the rest of the US. Over the last month, both the Nasqaq and the SV150 stock index are down, the amount of business space to let has risen to 17.4% of the total, and even the population of Silicon Valley has dipped. On the bright side, the Administration has succeeded in bring the dollar to a 26-year low (discouraging Americans from importing) and the weather’s lovely.

However, our feeling is that this recessionary anxiety will be maintained for some time. Wall Street shares that feeling, and the future values of US tech stocks are falling. Our discussion was very wide-ranging, but there was general agreement that AR managers need respond more to analysts’ needs. A lot of ‘communication’ is actually one-way broadcast. Rather than simply ship out their own corporate information, AR managers need to better understand what analysts really want.

I think that Geoff’s book, coauthored with Lisa Perri, is an excellent guide to that. Their book outlines a survey of hundreds of analysts, across over 100 firms. They use their experience as analysts to show what analysts do, and then use their research to show the analyst firms’ business models. They show some useful approaches to quantify the value of AR, and Return on Investment, including a worked example that show one small firm showing a $8,597,179 return from analyst relations.

The two chapters I found most valuable were ‘What drives analysts crazy’ and ‘Secrets of the inner sanctum’. Those use comments and statistical data from analysts who show what analysts hate, and love, in their interactions with analysts.

Obviously, a book based on extensive bottom-up research will cost more than one based on anecdotes. However, their book gives great insight into the needs of the US analyst. It’s an excellent companion to Efrem Mallach’s book and seminar, Win them Over, which is the original and best book on analyst- and consultant-relations programs.

The eBook version of Geoff and Lisa’s book is available online. For the same price, Analyst Equity readers can get a hard copy of the book, and a copy of Efrem Mallach’s book. Just email us your order.

P.S. You can also read up on the 2006 and 2005 boardroom discussions.