Some day the Advisory Industry may look different than today, and an example of what’s possible may be the manner in which vendor and user clients compensate their Advisory providers. It seems worthwhile for segments of our industry to study this alternative compensation model, as it has been implemented successfully in the Wall Street Research space over many decades, being both useful and arguably more performance-based than what we’re used to in the Advisory space.
Discussion of an “alternative” payment model for the advisory business may seem quite theoretical, since its implementation seems unrealistic in today’s environment; yet lessons can be learned and a gradual conversion to the alternative approach described below is at least theoretically feasible.
On Wall Street, brokerage firms like Morgan Stanley employ analysts who produce content and advice for consumption by investment firms (all the banks, insurance cos., pension managers and foundations (called the “buy-side”) which purchase content and advice from the Wall Street brokers (the sell side) because they rely upon the brokerage firm analysts for inputs to their stock-picking, selling, hedging, optioning, and strategic decision-making. In fact the structure is almost a perfect mirror image of the IT Advisory industry!
Every buy-side firm employs financial traders who can trade with many or most of the dozens of sell-side firms, while the latter employ even craftier traders who are skilled in executing large orders quickly and at at the best price. The buy-side traders determine which sell-side traders to deal with, but no investment firm such as for example BofA (“buy-side” Bank of America) would think of funneling most of its commission dollars to a single large and responsible brokerage (say Goldman Sachs) for its advice; there are simply too many top analysts dispersed among the dozens of other brokerage firms, from the largest to the smallest, including Wall Street boutiques with specialized and very useful human resources.
Here’s the point of this discussion: trading volumes aside, how do BofA and the other buy-side firms pay the sell-side firms for their research and sales competencies? Through an interesting value-based system: Research payment allocations from the buy side are simply divided up among quite a few sell-side firms that are also their trading partners. (Note: for clarity, in our Advisory space an example of a sell-side firm would be Forrester and a buy-side firm would be any of Forrester’s clients).
So in the Wall Street model The buy-side “analysts” will work closely with their most helpful and favorite sell side analysts, and buy-side “portfolio managers” will work with sell-side salespeople who funnel ideas and information from their research departments to the buy-side clients. During the year, when investment issues arise (many dozens of times each day), the BofA money managers and staff analysts will call several(!) appropriate sell-side analysts, and may even effectively triangulate among them until a level of understanding an issue, or a decision to buy or sell stocks or other investing instruments with traders, can be reached.
Not until the end of the year do the buy side money managers and analysts “vote” for those individual sell-side analysts and salespeople who were most helpful and influential during the past twelve months; and when this process is completed and the numbers added up, the decision is made as to the percentage of trading volume (e.g. money) to be generated for each of the brokerage firms for the next year! Thus the compensation will vary somewhat each year based upon trading volumes and perceived relative performance. Most important perhaps, new sell-side firms and analysts are added to the list since innovative and effective research and interactions will be recognized! (the sell-side firm will have sent all its research, and its analysts will accept phone calls hoping or expecting that content and interactions will be recognized and therefore compensated for their value).
The IT Advisory Industry payment system is admittedly much simpler. The buy-side firms (vendors or users and in some cases investors) purchase one or several annual or multi-year contracts in expectation of services to be received. But these services may or may not meet the buy-sides up-front expectations. Granted, without careful monitoring the buy side generally cannot estimate the value received, and is often short-changed.
A cynic might conclude that some sell-side Advisories may laugh all the way to the bank as its clients get used to and/or depend upon the same analysts, content formats, and events year after year. Most sell-side analysts will have had industry experience, but as time passes can become somewhat obsolete as our technology evolves rapidly. Also, the best analysts will not be available to speak to many of the buy-side IT professionals because of growing management responsibilities, demand for speaking engagements, attendance at many vendor briefings let alone industry conferences, and simply being too busy to do much creative research (most reports may have been written by relatively junior personnel); they may not wish to “waste” time providing un-leveraged support for individual clients. Also, working with a single firm exposes the client to the old “80/20 rule” (80% of staff will produce 20% of a firm’s market impact), although I’ll concede that the ratio might be 70/30 or even less. There’s no question that some unknown fraction of a particular Advisory’s clients obtain their moneyʼs worth (in the old days, one mainframe rent/lease/buy decision could save a large client >$1M). Bottom-line: the added-value which any Advisory firm provides via its deliverables seems difficult to measure, and very few clients including the large ones track or even guess the value/cost ratio of their purchased advisory services.
Many buy-side firms (IT vendors, users, even investors) ignore most of the hundreds of alternative research sources, for example the many small advisories with very competent staff, and independent analysts. Like the Wall Street firms, a new pricing model could be quite effective for the marketplace, especially if the buy-side uses the occasional but significant Wall Street technique of discussing a single issue with several vetted analysts in order to help converge on a better buy/hold/sell decision.
The increasing use of the web for IT inputs works for some, but not for complex or key decisions. New semantically-oriented technologies, plus what I call “intelligent aggregation” (recently and reasonably labeled by Magnify Networks as “curation”) may help to some extent at the content level but not for decision-support needs. Increasingly, the client buy-side has been paying Advisories for “verification” of their already-made decisions but a more valuable use of Advisories is what we used to call “exploration”, where triangulating among several appropriate analysts or analyst firms in order to obtain “second opinions” before deciding, should be much more valuable!
My conclusion is that if the Advisory Industry were to shift from annual contracts to end-of-year payments based upon evaluation of sell-side firms’ relative level of prior assistance, then the buy-side which in making decisions must deal with hundreds of IT niches, would benefit from its broader choice of appropriate and available analysts.
Barbara French
on May 4, 2010
Gideon,
This is truly revolutionary thinking. Over the last few years, there’s been considerable discussion around “open” research methods and drawing the lines between premium and freely distributed content. These are important discussions and they do address certain aspects of innovation we’d all like the analyst firms to explore. Yet, they do not address the heart of the discontent with the current analyst advisory business model. Your idea for a new payment model does.
Most often, I hear 3 areas of frustration with the current advisory model from CIOs, SVPs leading IT right through software developers:
- Structure of service contracts: they must pay for expertise and information of no value to them during the period of the contract
- Availability of analysts/consultants: the experts aren’t available for consultation at needed times during the decision process, or are only available for a very limited amount of time
- Depth/type of expertise: analysts/consultants lack the hands on and/or indepth insight expected by the decision makers, given the richness of the information now generally available
- Costs: the high costs of analyst service contracts inhibits contracting with multiple analysts for multiple viewpoints
Delivering more of the same and in the same mode will not close the gap between IT expectations and analyst advisory services as delivered today. I fear the gap will continue to widen.
I can see where performance-based payment models would drive innovations in expertise, availability, curated content/networks, and more. Plus, a model that facilitates engaging with analysts in a collaborative manner is in perfect keeping with Web 2.0 and the shift to social/collaborative workflows.
This model is much more difficult and risky than what we’re seeing from analyst firms today — primarily, analyst-managed peer councils, roles-based packaging of services, M&A.
Wow!
Philippe Winthrop
on May 4, 2010
Analyst firms are risk averse. They love the subscription model because of the annuity stream that comes from the one to many model. That said, it’s a dying model in my opinion…especially in the context of the Twitter-verse, meaning the desire for free, real time, easily consumable content. Furthermore, most analysts are not of the “give to get” mindset which, ultimately, is more accretive to all parties.
There’s another aspect. Analysts are typically stronger in breadth of knowledge than depth of expertise. Most vendors will know their business better than will the analyst – however, great analysts have the portfolio of connections – and that is ultimately what the vendors are paying for…the information they have been able to collect.
Now what happens with niche social networking where like-minded people can learn from each other to gain both depth and breadth at little or no cost?
Jonathan Eunice
on May 4, 2010
Today’s contract model is not flexible for the customers, commensurate for the advisors, fair to a range of firm sizes, and encouraging of a range of viewpoints–among other problems. I’d love to have a more effective payment system.
But color me skeptical. Earlier in my career, I worked worked in a firm compensated on a “soft dollar” basis similar to what Gideon suggests. It’s no bed of roses, especially for smaller firms. The customer keeps your compensation in their bank account for up to a year. Eventually they will pay you–some unknown amount that they’ll decide, through an opaque process, maybe six or twelve months after the assistance is rendered, when memories of the contribution are much fuzzier. There is a tremendous amount of wheedling required at the end of the year to get “your fair share,” and large firms have tremendous leverage in getting disproportionate percentages.
I’d love to be compensated on a fairer, more flexible, more performance-based model. “Soft dollars” isn’t it.
Gideon Gartner
on May 5, 2010
Hi J,
There are several ways new models could obtain a “bed of roses” (compared with the $s independent analysts/advisories earn today). But there must obviously be contact between the sell and buy side during the first year and the analysts have to perform for the deal to evolve as “long term”.
One of several methods: a mgmt. co. negotiates the deals (for a % fee)which include first-year guarantees for the analysts at some percentage of expectations. At year-end the client can continue or not, but the analyst/ advisory was at least spared the painful up-front sales process and costs. Obviously, the management co. must possess marketing/sales moxie.
info
on May 6, 2010
We have posted something similar to this on our blog – ” The Evolution of Analyst Firms” and their revenue models. http://www.eval-source.com/blog
Dan Mahoney
on May 4, 2010
Over the years, the industry has tried to come up with some sort of “performance-based” pricing, and I do believe that it is a better, and fairer method of payment for what the client actually receives. The problem has always been quantifying the benefit.
In the Wall Street model the client’s product has always been dollars, and so it seems easier to translate a payment into $$. In the commercial world that is not always as easy to convert, and therein lies the rub. I think that the subscription model is a bit flawed because some clients get a lot of value out of it and some don’t, so it’s not evenly distributed.
I would go for an intermediate approach to some of the suggestions that Gideon has made. First, analysts should be people with experience in the field that they are covering. That was the basis for hiring at Giga, and served our clients very well. Then a more flexible pricing schema that allowed for the “almost free” access to information that is mass produced and then made available through today’s social technologies, with a higher price for the direct access in a consulting mode. Last would be using the social technologies to really allow clients to triangulate as Gideon suggests (remember Knowledge Salons?). Now that those technologies are widely available, that shouldn’t be too difficult to do, and would easily highlight the top analysts in the community.
Michael Schmier
on May 4, 2010
Great post and it has me thinking. I am not as familiar with the traditional analyst industry and current payment models but I do wonder . . . why not give the content away for free. When I talk about content, I’m talking about syndicated content that has applicability for the entire industry and has the obvious constraint of not being able to take into account the individual circumstances of a “client.” There was a time when it made sense to charge for this content, especially when there were barriers to accessing and distributing information. But the Internet is changing that. Anybody can publish and distribute information. Those anybodies include a lot of other experts out there who are willing to publish a lot of content, research as “give aways” in order to promote their individual brands.
If the analyst firms don’t do it, somebody else could beat them to the punch. You put your Waves and Magic quadrants out their to promote your expertise and then charge for custom access to the expertise on a fee-for-service (or a subscription model). In traditional analyst firms, this would be the consulting side of the business, whether it be in the form of phone calls, onsites, custom content creation, etc.
As a business executive with both a research and media background, I’d love to jump on the Rupert Murdoch bandwagon and charge for my content. I too would charge for it as long as I could. I just wonder if the model calls for even more radical change.
R "Ray" Wang
on May 5, 2010
Gideon-
Great post and some wonderful application of the Buy Side/ Sell Side dynamics. There seems to be a few fundamental changes to today’s existing model that could serve as a catalyst towards newer models. Here are some trends we hear from our clients:
1. More and more clients find less and less value in the pay wall for syndicated research as established bloggers, media, and other influencers share their research and shift to consulting based retainers. Clients want access to experts and expect interaction.
2. Analyst firms keep looking for leverage and have actively encouraged experts and experienced analysts to leave through lack of incentives, rewards and recognition. Firms feel they can keep pay at the same rates as they were 10 years ago.
3. Firms feel they can ride on their coat tails and brand name. They continue to favor the hiring of young and inexperienced analysts to write formulaic research. Clients have noticed and are starting to vote with their feet.
4. Next generation of technology buyers accustomed to seeking out their own research and checking with their own networks. They did not grow up with research librarians and other services reminiscent of the 70′s and 80′s. They trust their networks more than they trust an average analyst. They may even know more.
Based on your model, can you see a collection of buyers in an industry getting together to determine value? What barriers would be required to set up such a model?
R
Fred McClimans
on May 5, 2010
Ray – I love your comment about “research librarians”. One of the greatest hurdles I ever faced was getting past that immovable firewall! Not only did the librarian/gatekeeper control the content, but they controlled the budget as well. The key to breaking down that wall was providing access to all, via a multitude of channels, and convincing individual end users of the value/ROI. In the end, analytical firms live or die by the value they provide to individuals within an organization. Show me an individual who has profited from your advice and I’ll show you a loyal customer.
gideongartner
on May 7, 2010
Ray, you’re certainly blowing the whistle.
I recall that when starting Giga (long ago, in 1996) , a CIO friend of a large corporation said to me: “But Gideon, Gartner is spread so deeply throughout my organization that there’s no way to replace it.”
The most innovative competitors may or will improve their market share but the 2 big incumbent firms Gartner/Forrester are pretty well entrenched, and will come up with many features, pricing modifications, fresh thrusts etc., while not necessarily changing their fundamental model.
The king of change required will require capital and time.
Michael Schmier
on May 9, 2010
Ray,
Your points #1 and #4 have driven the evolution of our own research and expert network model at Focus.com. Our business and IT professionals tell us timely access and personalized interaction with “experts” is critical.
For me “access” is an interesting issue. I don’t see how open access can work for traditional analyst firms where you have a one-to-many relationship between employed analysts and subscription-based “clients.” You can’t give all clients unfettered access to your analysts. This is why the current analyst model tends to emphasize larger enterprises, is more seat-based, separates consultants from the analysts, etc. From a client perspective having many experts to serve many clients might be a better model. But from a ‘firm” perspective finding the right business model under which open access is economically feasible is a challenge (and where disruption could happen).
Another interesting point is what business and IT professionals want to “access.” At a macro-level I believe this has evolved from a need to access “content” to a need to access “people” or experts. There will always be a market for detailed, syndicated, quantitative research (and perhaps the star analyst along with it). I greatly admire the research from firms like Gartner, Forrester, IDC, etc. But increasingly I see the mass of professionals being interested (and even willing to pay) for more quick-hit consultations with and practical advice from relevant experts. They only care that the experts have credibility and experience with the issue as hand. And this means that the definition of “expert” is quickly changing as well.
So how do professionals find the right expertise in a world where you don’t always have the label “Gartner” over the front door? It’s the content (not just the resume, the # of followers, etc.). It’s the in-front-of-the-pay-gate blogs, Q&A, briefs, etc. that can point these professionals to the experts that can address their issues. Perhaps the experts’ “open” content directly addresses their issues. But many professionals will still need to have a more personalized exchange. And they’re willing to pay for it. They just don’t want to have to pay an XXX thousand subscription for the privilege.
Ross Dawson
on May 5, 2010
Very interesting Gideon!
Coming out of my role as Global Director – Capital Markets at Thomson Financial, I closely tracked the rise of the sell-side research ratings systems in the late 1990s, writing about them in my book Developing Knowledge-Based Client Relationships. I wanted to dig into this unique method for valuing and paying for content.
There was no payment for research at the time, only for transactions. However if the buy-side firms did not value the research, and allocate transactions to the firm on their panel that produced the best research, there would be no incentive to provide research. The buy-side firms wanted there to be a clear link between how they allocated transactions and the quality of research. However it is important to note that the rating mechanisms often favored custom research, conversations with analysts, and timely information rather than access to the printed research that everyone else had access to.
Then a whole array of factors shifted the industry, not least the rise of hedge funds as the most profitable clients, with their total disinterest in sell-side research.
Relating this model to IT research is difficult. There are no associated transaction fees, except for IT products and services, and any tie with vendors cast doubt on the independence of content. A stock or interest-rate spread trade is vendor-neutral, IT strategies often are not.
Voting on relative quality of research requires seeing it all. There are currently few analyst firms that would be willing to give all their research to a key client, on the basis that the key client would decide on the value it perceived at the end of the process.
So while a few lead clients could adopt this kind of model and convince their analysts to play, it is hard to see how there could be a broader-based adoption of these models. Which means that the problem of smaller and niche players not getting the recognition they deserve will remain.
Cost of sales is one key reason why analyst firms will remain significantly aggregated, despite many of the pressures pushing outwards mentioned by Ray Wang above.
In any case, a great analogy, food for thought, and hopefully a stimulus for new models in analyst remuneration.
gideongartner
on May 6, 2010
Ross, I left Wall Street in early 1979, and I well recall that the pay model mirrored what you describe in the last sentence of your second paragraph. What happened later was evidently force majeur. I was not promoting the buy-sell side payment-determination changes which I described; my motivation was simply to encourage the evolution of today’s Advisory models which would absolutely require thinking out of the box. BTW, I did not mean that each buy side analyst must see all the sell-side research; granted, the entire process is very subjective, but not completely. A group of the buy side analysts meeting together on this subject would likely result in some albeit small shifts in attitude concerning relative subscription price levels compared with the prior year, instead of the firm renewing everyone blindly except for the sometimes very subtle or hidden price increases.
Thanks for your interesting recollections!
vinnie mirchandani
on May 5, 2010
Gideon, kudos – glad to see you think and rethink the industry you created!
Let me nuance the discussion a bit and get your reactions
1) In my upcoming book The New Polymath – see FB page below – I point out the new “compound” solutions where companies are learning to bundle 3,5, 10 strands of infotech, cleantech, biotech etc to create solutions which are allowing us to solve problems we could not a few years ago. This is often coming from companies like GE, BASF, etc etc – what we traditionally used to think of as users. The expanded domain and the source of innovation (not from traditional vendors) calls for a new form of “analyst”
http://www.facebook.com/#!/pages/The-New-Polymath/107118402644262?ref=ts
2) Infotech, where most of today’s analyst focus is, as you know is mature and way too fat when sw margins ar 90%, printer ink $ 5,000 a gallon. We need an aggressive analyst there to point this out – but the reality is 80-85% of IT spend is now with tech and telecom vendors – and that is consolidated heavily to the top 50 global vendors like IBM, HP, AT&T etc. They can buy influence much more than buyers can. The model is corrupt but that’s the reality of where the dollars are.
3) Since I left Gartner and have been advising clients I find they seem to prefer a blended analyst/consultant model – more high touch than the analyst model. Not sure how scalable – but what I have seen.
Love to discuss further. Glad to see you look at various permutations to disrupt the industry
gideongartner
on May 6, 2010
Hey there Vinnie…
First, your book preview is very well done, I wish you the best with it! I’m also writing a book or two (actually, 5 in parallel, for the fun of it).
Re your point 3), I suppose every analyst is a consultant and every consultant is an analyst. Some analysts are not analysts and some consultants are not analysts. If you figure out the implications of the blended model (many Advisories urge their analysts to consult, no?) let me know!
Best,
G
Paul Burns
on May 5, 2010
Gideon,
You’ve posed some interesting thoughts and questions. You also highlighted some of the analogous structure and dynamics between Wall Street firms and industry analyst firms. In contrast, it also seems that you touched on a few key differences. I’ve listed and added a bit to those differences here:
Rate of interaction – buy-side clients may need insight multiple times per day or week with the sell-side on Wall Street; for industry analysts, the buy-side may need insight multiple times per month or year
Duration of interaction – Wall Street: minutes to hours; Industry analysts: hours to days (or weeks, but perhaps that becomes consulting)
Cost per interaction – Wall Street: dare I say “low” (?)(I think so based on the very high volume of interactions); Industry analysts: high (again, based on in large part on the relatively lower volume of interactions)
Length of commitment derived from the interaction – Wall Street: little commitment since the decision was to buy today, yet tomorrow (or an hour from now) the decision may be to sell; Industry analysts: high commitment since decisions often results in multiple years of commitment to a given vendor’s solution
Certainty of need for interactions – Wall Street: buy-side is highly certain of the need for a large number of interactions; Industry analysts: buy-side is less certain of the number of interactions needed, depending in part on projects that may or may not be known or approved when they purchase the advisory contract (& sell-side is perhaps more compelled to “lock in” a contract up front to cover this risk)
Some of the economics underlying these differences is likely to make it difficult to apply the Wall Street payment model to industry analysts. However, the idea is still excellent and thought provoking. As you say, it may be that a transition to a Wall Street like model would happen in phases. Or, by considering the Wall Street model, a new improved industry analyst model will be found.
What comes to mind is that smaller firms (any outside the top few) have a great opportunity to innovate around fee for service advisory while addressing challenges mentioned by other responses: buy-side being over-served (too much unnecessary fluff packaged in contracts), buy-side being under-served (lack of availability of key analysts; lack of deep knowledge from analysts; high costs (locking in buy-side spend); etc.
Those who find a better way to serve their customers will reap the benefits.
Paul
gideongartner
on May 6, 2010
Paul: good points, although I disagree with some of your Wall Street conclusions; most important is that on Wall Street the salespeople transmit lots of conclusions, the analysts spend more time holding the buy-side anayst’s hand as a decision is being researched, or suggests a new firm with good prospects to be followed which may never result in any action, certainly not before lots of research is completed (I’m not speaking of those hedge funds which are mainly trading oriented). Net: only the portfolio managers are fast-action oriented, and even then, seldom. The fast action is generally with the traders.
I understand and agree that there are many differences, but there were (!) many similarities which once upon the time had direct beneficiary of that system).
Fred McClimans
on May 5, 2010
Gideon,
You have raised two very interesting points:
First, the increasing flaw of the financial model used in the traditional analyst advisory sector, and
Second, the success of an interesting/alternative model that has worked well in the financial sector and that might – under the right circumstances – be of value to the analyst advisory sector (in fact, I’ve seen, and awkwardly used, such a model in the consulting space: “Pay me based on your cost savings as a result of my work”).
Your points are well noted given your experience in both sectors.
But there is a bigger issue that you indirectly raise, and which I have believed for some time, namely that the value proposition of the present “analyst advisory service” itself is rapidly becoming outdated (a by-product of both the cyclic nature of the sell-side analytical sector and the changing dynamics of the overall global information requirements of buy-side companies).
This process, which began in the late 1990′s with the arrival of alternative analytical models targeting different/emerging “buy-side” communities, and utilizing different delivery models to fit different types of content, has been hastened by evolutionary (almost revolutionary) developments over the past few years in the methods of content distribution, the perceived value of certain types of content and the availability of crowd-sourced information.
In some cases, you could easily argue that these developments have led to emerging “advisory alternatives” that have overtaken and begun to out-perform traditional advisory services in some sectors of the market (your thoughts on how buy-side communities could be “triangulating among several appropriate analysts” is a good example that some information consumers have already stumbled upon).
So perhaps a good follow-on question to your post is just how will the various sub-sectors of the “analytical” market (of which advisory services are just a part) evolve? I suspect that we will find that the changing and fragmenting of the analytical market will result in a greater diversity of best value/dollar payment models.
A very though-provoking post. I’m looking forward to your next.
gideongartner
on May 7, 2010
Fred, In many complex industry sectors such as the IT Advisories, new concepts can be introduced to improve the status quo for suppliers, customers, or both. These are generally initiated by the leading suppliers, and sometimes by elements of the marketplace with or without the incumbent suppliers’ support.
It’s impossible to predict how or how fast change will evolve. Evolutionary change is happening continuously, and there are many catalysts in place already. But revolutionary change which significantly alters the playing field generally requires substantial resources. Interestingly, I do not think we’ve seen revolutionary change within our industry, in 30 years.
G
Fred McClimans
on May 7, 2010
Gideon, thanks for your feedback.
You are absolutely correct that there has been no revolutionary change in the Advisory business in 30 years. As you pointed out to Ray, the “big incumbent firms Gartner/Forrester” will not easily be replaced without a fundamental upheaval in the industry.
That said, there are many sub-sectors of the analytical market where smaller firms (sub $20-30M) have been able to carve out, and defend, niches through the development of completely non-traditional analytical business models that don’t necessarily fit into the traditional Gartner/Forrester “Advisory” concept (and in fact I encourage emerging firms to find their own niche where they can shine and avoid the direct Gartner/Forrester comparison).
Moving forward, I think that the emergence of niche/alternative analytical models will continue to increase (social media, new forms of content management/distribution and the changing requirements of many emerging “buy-side” organizations that don’t require, or can’t afford, traditional Advisory services will help here).
But will there be enough of these players to up-end the market? Absolutely not. Some will survive, others will clearly not. And while the number of successful niche companies may increase, the big boys will adapt, refine or acquire to keep the overall status quo intact for the time being.
Overall sector change, when it ultimately does happen, will have to be fundamental in nature, may involve forces outside of the current market sector and will most definitely, as you pointed out, come at a very steep price.
Thanks again for your feedback and reply.
Fred
Louis Columbus
on May 5, 2010
Gideon,
I like the accountability, clarity and openness your model would bring to the advisory industry. In one sense it crystallizes what these firms need to be doing to survive.
Anyone running an advisory firm in an honest moment would say they would gladly produce fewer research reports and take fewer vendor briefings to have a higher P/E Ratio. That can only happen when the financial contributions to clients of top analysts become more important than the number of publications produced, vendor briefings hosted or conferences attended and spoken at.
As Ray Wang points out, top analysts already see this opportunity and successfully start their own advisory services firms concentrating more on value delivered and less on syndicated research. In a sense the fragmentation occurring of advisory services is already beginning to attain the model you write about. Clearly on a much smaller scale than Wall Street, yet trust is the catalyst of this growth and social networking is the accelerator.
Ironically advisory firms may have their greatest change management challenge within their own walls.
I’m looking forward to your future posts, thank you.
Kevin Krewell
on May 5, 2010
Gideon,
Thank you for writing this piece exploring new ideas for the analyst business models. I’d like to offer a few of my own observations as a former analyst at Microprocessor Report (In-Stat) and present industry research director at NVIDIA.
My own experience as an analyst at In-Stat aligns with Ray Wang’s points #2 and #3. But this experience may vary depending on the company. This may be an effect of a business model that pushed rather generic reports/data, at moderate prices, over deep analyst insights.
I agree with many of the comments that applying the buy/sell financial analyst model to industry analysts would be difficult. I don’t know how I would score my present analyst firms and allocate funds. Some firms are important for quant data (ex.: Dataquest, NPD), while many others provide industry reports, and some are important for their press visibility. I also have to mix many niche suppliers with the large omnibus firms.
I do feel that the existing, traditional model doesn’t work in favor of the clients. But I also feel an a la carte approach shortchanges everyone. I’m watching the Altimeter model of open research, but because of the well-established “star” nature of the founders, it may not be a model that can scale.
Please keep the discussion going!
James McGovern
on May 5, 2010
What prevents analysts from being more hands-on? They are given laptops with VMWare images and many of them come from practitioner backgrounds, so being hands-on isn’t so foreign. I am pretty sure that most vendors will provide evaluation copies of their software for this purpose. Do analyst not have enough time or do they think it simply isn’t a priority?
Maybe the lack of hands-on comes from many of the analyst firms hiring people with journalism backgrounds and not practitioner backgrounds?
Forget about end customer rants regarding payment models. After all, if they aren’t using what they pay for then something else is amiss. Why not figure out why customers aren’t using analyst services and the relationships they already have. In the same way that vendors have analyst relations firms such as Tekrati and SageCircle, maybe the end-customers could benefit from something similar?
Have you ever thought about how the notion of a seat is inefficent from the perspective of the end customer? Most enterprises will only have a few seats at best which means that all analyst inquiries need to be routed through these same individuals. Does this feel like a good usage of a resource if you are an end-customer?
I think Burton Group has it nailed. They eliminated the notion of the seat so anyone within the enterprise can engage in a dialog. More importantly, not everything requires a dialog. I have on multiple occasions emailed Burton analysts with a single question and they respond in a timely manner. The method of responding to a customer is equally important.
If I can be bold, I would love to see the next set of blog entries address the following questions?
1. Instead of talking about folks unseating Gartner, I would like to know if you believe Gartner could unseat large consultancies such as McKinsey and Accenture? Gartner has the talent and the connections, they simply aren’t leveraging in this manner.
2. While I am employed by a large enterprise, I have been romanced the notion of becoming an industry analyst. I can find no public guidance on the fastest path towards this goal and any insight you could provide is appreciated.
3. Would be great if you could also share an opinion of whether the analyst ecosystem is doing a good thing by hiring journalists over practitioners. While each brings something to the table, what do end customers of analyst firms prefer more?
gideongartner
on May 7, 2010
James, your last sentence of paragraph 3 is a terrific business idea; there are many more end-users than vendors, and they are spending hundreds of million $s on analyst services; one would think that a business could be developed to teach them how to measure the values which the Advisories provided therefore improving their negotiation strengths.
I wish I’d saved an idea I had in Europe in the 1980s which described how to do such measuring of internal usage and value while hopefully avoiding embarrassing results, and instead to allow us to show prospects how other unnamed firms obtained net benefits from our services.
Laurence Lock Lee
on May 5, 2010
I’m currently exploring the IT analyst space through publishing some unique perspectives on the IT&T market place using relationship mapping processes I developed in my PhD research. The analyst community, including Gartner have acknowledged the uniqueness of the approach and the potential value it can add. My challenge is that the market is used to buying analyst guesses on market shares and how many PCs might get sold next quarter etc.. My approach is a strategic niche, no doubt, and I’d be happy to be remunerated based on the accuracy of the forecast. I can tick off some winners already. So I’m open to any ideas as to how a “small guy” gets attention in a mature analyst market.
At the moment I’m doing the conventional write a report and try and sell it …. but there has to be a better way.
My research approach with examples can be seen at http://www.visualmarkets.net
Gideon Gartner
on May 7, 2010
Thanks Dr. Lee,
Your visualization technique of the IT space would of course be very valuable but as you point out, very difficult to create. However, addressing the Advisory space ( the “sell side” including Advisories over, say $500K revenue) and the “buy side” (b oth vendors and users larger than some other very much higher revenue measures) would be much simpler.
Laurence Lock Lee
on May 9, 2010
Thanks Gideon …. it naturally works out that way anyway. I tend to look for data sources that others may have already compiled, like a contracts data base, but failing that I’m into “mining news articles” … and most news services only like to cover the bigger guys most of the time, so its a natural filter.
Merv Adrian
on May 6, 2010
Gideon, as always, you’ve thrown a big rock into the water, and it’s fun to watch the ripples. There’s no doubt that a good shakeup is always good for the market, and I agree that it’s been in some turmoil for a while as the big firms wrestle with the disruptive power of social media, self-branding by savvy stars, and the explicit desire (expressed to me often) of IT vendor clients to move more of their spend to independents.
In part, the latter point is the result of a rather typical dynamic: aggregation at the top and innovation at the edge. You’re spot on when you point out that it doesn’t extend to how pricing and payment are done; the abandonment of subscription fees for written research as a basis for a company has worked well for many of the upstarts, but that started years ago. Nonetheless, the growing power at the top has led to price increases, tightened policies, and (some say) increased arrogance by the big firms that reinforces the move of more spend to the boutiques and independents.
I believe one of the reasons payment innovation lags is the nature of the offering. Unlike the customers of Wall Street firms, IT research buyers (both user and vendor) typically do not have a concrete, granular methodology for evaluating the benefits received. Q. What is a research report “worth”? How about an advisory session? A. What you paid for it.
Arguably, the answer ought to be in the results they generate. But that is not nearly as easy to measure as, say, the financial results one gets from changes to a portfolio based on Wall Street advice, or the outcome one gets on the sell side from an offering she uses a broker for. Those things are under constant, explicit scrutiny.
Moreover, following the input buyers get from analysts, they have a time lag till results are achieved, even in the most immediate example: guidance on procurement activity. In the case of guidance about deployment or operation of technology, the effect of their own execution after receiving the guidance complicates value assessment further. So the time lag implicit in your payment model runs squarely up against a number of effects that make “what have you done for me lately?” a difficult question to answer.
It’s no accident that IT analysts spend a lot of time advising on defining and using metrics – for most firms, the careful analysis of value to be received that leads up to signing a contract stops at the moment the signature is obtained; that, after all, is the real objective of the exercise. The actual business results are owned by someone else, not procurement.
And the same applies to IT research – the *users* are not the buyers, and research firms constantly struggle to demonstrate their value by secondary measures such as the number of hits on their web page, the number of inquiries, press quotes, etc – not the actual value received. To some degree they can sell users and vendors alike on procurements affected, but that remains a tiny slice of the business: notwithstanding the new “Influencer Relations” label, most analysts don’t spend much of their time directly influencing specific purchases.
In the vendor side of the business, a similar model applies: AR typically owns and manages contracts, but doesn’t buy for itself – the AR consultancies noted by James McGovern above are tiny by comparison to the IT research firms because AR doesn’t spend money on itself, but on behalf of others (as I learned in building Forrester’s practice to serve AR – its monetary value to the analyst firm is more in its indirect contribution via anchoring the relationship.)
“Proving value” to AR is generally about demonstrating reach and clout with buyers (always a challenging proposition) or demonstrating that the firm’s analysts are simpatico with the executives AR works with inside the vendor firm. The “sales-AR linkage” issue has been a meme for the last couple of years within AR as a way to demonstrate AR’s own value within vendor firms – but Sales is not often the majority constituency or funder of AR.
So finally, what is sold most of the time is not research, but access. And implicitly, access is about people – the people that large research firms prefer to anonymize to make their own brand stronger. That motion is evident in their groping for ways to exploit, but not truly participate in, the blogosphere. I talked about that last year in my post at http://bit.ly/tOHjw
The continuing exodus of the recognizable names from the big firms is not nearly as dramatic as some believe; every year a few leave, and slowly new names rise to take their place. What is interesting is that despite the difficult financial times we have just gone through, most of those independents did fine. And the newly independent ones seem to have weathered the storm quite well; I count myself fortunate to be among that population. There’s plenty of room out here, and new collaboration models are evolving through social media. Perhaps payment models will see similar changes; perhaps the bloated bureaucracies of big research firms will give way to smaller, nimble, loosely coupled practices that form and dissolve partnerships around opportunities to provide carefully defined value and then move on.
Thanks for getting this discussion going. I look forward to continuing discussion on the topic, and I hope it focuses on ways to assess (I don’t dare to say prove) value; only a clear picture of that will make a rational selling model work.
Gideon Gartner
on May 7, 2010
Merv, tackling the above would be a long discussion.
If I told you to let the clients come up with their own measure of value, would that not be an interesting experiment?
If someone came up with a simulation of the more major trends you mention, then the exodus of big sell-side analysts you mention above (if you think that’s significant) and many other important variables, might lead to an interesting matrix of results (once someone plugged different combinations of data into the model, each combination of which will lead to different Advisory growth rates).
That’s of course one for a university exercise. Your analysis is terrific as always and one of these days there will be some quantification of many of the possible variables.
Phil Fersht
on May 7, 2010
Excellent article and insight into some smarter ways to serve up research in the tech world. There’s definitely a sea-change going on with how people purchase research in the tech/services space.
I believe this change is going to be (and already is) more pronounced from the IT vendors – many of them are moving the research spend away from corporate and into the business units to allow them to make their own decisions. The decline of value from the analyst relations function is partially to blame for this, as vendor executives are increasingly demanding they manage their own analyst relationships and choose the analysts with whom they actually want to spend time. As more analyst rock stars, such as Ray Wang, set up their own shops, this trend will accelerate.
This is actually good news for eager analyst firms, because they can now pitch their wares to a larger array of budgets within vendors, as opposed to begging for a piece of the corporate analyst budget, which is normally plagued by internal politics and biased relationships that aren’t centered on value. They can compete more on analyst and research quality, and avoid getting squashed by the 800lb Gartner gorrilla.
Another critical issue that is impacting the analyst business is the dramatic shift of the research buyer away from lengthy, dull research reports and towards rapid, actionable, compelling intelligence. Our brand new study of shared services and outsourcing practitioners highlights how dramatically the research landscape is changing, with the move to more collaborative research delivery and more socially-networked insight.
I wrote up these new data findings on Vinnie’s blog yesterday:
http://dealarchitect.typepad.com/deal_architect/2010/05/the-real-deal-phil-fersht-on-relentless-advisors-for-relentless-times.html
Regards,
Phil Fersht
Gideon Gartner
on May 7, 2010
Phil, sometime during the 1980s at Gartner, I was faced with a dilemma: IBM wished to transfer all our deals with different divisions (domestic and international) into Corporate HQ, and this would have created the real risk of IBM renegotiating our aggregate revenue from this giant. My recollection is that we won that battle.
The above lesson leads to a corollary: If analyst firms (including Gartner if appropriate) pursued a strategy of demanding that they deal only with individual divisions (if not departments) instead of corporate, would that not boost revenues? I don’t know how many analyst firms have insisted on that already.
Perhaps that’s a dumb idea, but I couldn’t resist offering it.
Fred McClimans
on May 8, 2010
Gideon, “Perhaps that’s a dumb idea” is NOT so dumb after all.
When I launched Current Analysis in 1997, I ran into the same “corporate” gatekeeper/firewall that you described above (disclaimer: yes, I served my time as a Gartner analyst during the early 1990′s). I found that major firms had adopted a centralized gatekeeper of analytical content and utilized a single point of funding for advisory expenditures.
In response, and leveraging Current’s status as a “non-traditional” analytical firm (we did NOT offer “call me when you need me advisory services”), I chose to aggressively target individual divisions and groups within larger organizations, where we could demonstrate demonstrable value (increased sales, lower IT expenditures or improved investment ROI) and bypassed the traditional “advisory budget” locked in by firms such as Gartner, Forrester, IDC and (the original) Yankee. By 1999, this had become a mandatory requirement for our sales team – find individual groups within a client to fund the overall corporate budget.
To this day, this type of an approach (which I often recommend to emerging startup firms in both the analytical and consulting/services sectors), has proven to be an effective way to derive multiple revenue streams from a single client and mitigate the risk losing all ACV (annual contract value) from a “single” client.
Kudo’s, btw, on winning the battle with IBM back in the 1980′s – I’m guessing it was a battle of epic proportions.
Fred
Gideon Gartner
on May 8, 2010
Congratulations Fred on pursuing and succeeding with the approach of avoiding vendor AR and user centralization procurement, and instead marketing to sub-departments which would benefit from direct (and relatively immediate) interaction.
Phil Fersht
on May 9, 2010
I think most of the large IT vendors control Gartner/Forrester/IDC contracts at a corporate level once their annual spend gets to a certain point. There are some famous stories where individual departments in some vendors would try to faciliate their own analyst contracts in order to avoid having to deal with their own corporate people (even though they knew the research they needed was already purchased by corporate).
Sadly, as AR has become more process-focused, so has the way analyst firms are managed, and it’s pretty tightly controlled from corporate with the big analyst firms these days.
This has let to a “commodotization” of analysts too, with AR frequently serving up whatever analyst was made available to vendor executives and having to internally “sell” that analyst’s capabilities internally. However, as many vendor executives grow tired of some analysts with little to offer beyond a grid position, they are increasingly finding creative ways to invest their own budgets in relationships that provide value for them, which is where the new breed of analysts / influencers are plying their trade.
The research industry has always thrived on the passion, innovation and vision of individuals. Take those elements away, and people will look elsewhere for it.
Phil
David Dobrin
on May 7, 2010
I already use a soft-dollar pricing mechanism for much of my analyst work; I find it wearing, but manageable, though it would be impossible (I think) to scale. As Ray points out, even though my analyst reports are little short of magnificent, literature that leads many admirers to call me in one afternoon rally held in Trinity Place a “latter-day Montaigne,” the real value is in the interaction, not in my carefully honed reports.
This begs the really important question, though, the one Vinnie brought up in his post above, the question of who is paying for what value. Even eminences like Gideon may not actually realize how much money flows in from vendors to “reputable, but cooperative” analysts who, effectively protect the vendors from negative comments, true or false.
If you want to know more about this dynamic in many markets, not just the industry analyst market, you need to follow the work of Marc Flandreau, a brilliant French economist, from whom I draw the term, “reputable, but cooperative.” According to Flandreau, in markets where people with money need to protect themselves from negative attacks–it doesn’t matter whether it’s movie stars, bond issuers, or technology companies–the strategy people use is to funnel money into the reputable, but cooperative information sources. who then effectively blunt those attacks. In the market he studied, the amount of money funneled in was truly astounding; it accounted for roughly 1/3 of the revenue that came to these firms.
So, Gideon, if 1/3 of the money needs to come from vendors who want to make sure you can mute any attacks on them, you’re giving up a big revenue source if you try to base your revenue on value delivery.
Gideon Gartner
on May 7, 2010
David, independent analysts or small analyst groups could theoretically use a specialized manager or small management firm to market/negotiate first-year deals with the buy-side. It’s terrific that you don’t need to do that, and I understand your wear and tear. Across the entire sell-side landscape, the larger firms would fight the possible trend, but might be forced to reprice their services downwards..
With regard to your last paragraph I’m well aware of the so-called analysts who are effectively shills for vendors, and I expect that eventually they will be identified publicly.
Curt Monash
on May 9, 2010
Great thread, but let’s get a little more concrete here. So far as I can tell, the small analyst firms generally live off of some subset of the same list of revenue opportunities. No small firm can sell and market effectively to all potential target markets, so in practice most of our income comes from only a few of these areas, and which few it is will be individual to each of us.
The list I’m thinking of includes:
* Consulting to vendors (project or subscription/retainer)
* Consulting to buyers (project or subscription/retainer)
* Consulting to investors, public or private/VC (ditto)
* Creating and delivering content for vendor pay (written or oral)
* Creating and delivering content paid for by single users (this isn’t really a separate category so much as a style of consulting)
* Creating and delivering content paid for by multiple users (subscriptions, reports sold “by the drink”, organizing conferences, whatever)
For most of us, it’s easier to just give away our content, and let people pay us for consulting. Advantages of that tactic include:
* Our content becomes our advertising.
* The more readers and leaders we have, the more influential we are. That improves our access to information. It also, frankly, is a lot of why vendors spend money with us, whether or not we are as “cooperative” as they would like.
* We don’t need a sales or lead generation machine to sell content.
In my case, I do get some money from the trade press for columns, blogs, blog syndication, whatever — big names my work has appeared in in recent years include Computerworld, Network World (online mainly), and Intelligent Enterprise/Information Week (online only). But my cash income from those sources is, to steal a phrase from Josh Whedon, “trivial and cute.” But that’s my only true content-sale revenue, and will probably remain such unless I partner with somebody to organize conferences of my own.
The real money comes from whichever of vendors, users, and investors I’m doing well with. (Mainly vendors the past few years, although users are finally on the rise.) That said, a reasonably large chunk of that business comes from vendors paying me to say out loud — usually, by Murphy’s Law, on days I’m coughing up phlegm — in somewhat more detail what I also write down and post for anybody to read for free.
The point in the original post on triangulation is a good match for something I’m eager to try — selling time by the hour to end users I may never have met before. With vendors, I refuse to do that, for at least two reasons:
* I can’t advise them on their business without putting in a certain minimum amount of business.
* If they’re paying me not for my advice, but rather just in the hope of somehow buying me off, I don’t want to make that too cheap for them.
But for users I suspect it’s an excellent fit. And for investors I’m sort of already doing it through a third party anyway, although that’s more for sentimental reasons (I used to be a sell-side analyst myself) than because it generates a non-trivial amount of income.
(Horrific recent conversation — a vendor expressed interest in buying my advisory services, then proposed said services be evaluated by lead generation metrics. I was so offended I didn’t push the concept of “For just $10K more, you can have a nice lead-generating webinar as well.”)
Bottom line: We’re in a freemium business, where the premium part is personal services. And the personal services are best packaged quite differently for different kinds of customer.
Thanks for the great thread,
CAM
gideongartner
on May 9, 2010
Hi Curt, I recall you from our Wall Street days in the 1970s! Are you in NYC?
Curt Monash
on May 10, 2010
Gideon,
Not exactly. After 15 years in Manhattan, I’ve been in the Boston area for well over a decade.
We’ve met twice. The first time was at the original IBM PC announcement. I’d been at Paine Webber Mitchell Hutchins exactly a week. (I actually started August 10, 1981.) Sandy Garrett and I sat next to you. We shook hands; I asked what you did; Sandy started laughing.
The other was at one of the parties at Christine Comaford’s house.
Nancy Shapira
on May 10, 2010
A wonderful conversation which will take a while to digest;however, as we discussed in Tel Aviv a few weeks ago Gideon, the movement towards open content and sharing is pretty unstoppable and will impact the big analyst firms sooner rather than later. However, most of my clients (B2B Tech vendors) are not interested in the reports/content–they are interested in the influence that Gartner, Forrester and a few others have over the buying process. The Magic Quadrant still has a magic power over endusers in many industries who doubt the value of a vendor if they are not in the Magic Quadrant. This is Gartner’s power over vendors, although as you told me, it was not the original intention of the MQ but rather an internal exercise among the analysts to create a discussion about the vendors. When endusers stop asking Gartner or Forrester or other influencers in the Analyst market which vendors to use–that is when they will have to start really evaluating their model.
Laurence Lock Lee
on May 10, 2010
Is there such a thing as analyst firms “buying” analyst work from other specialist analysts?
From the thread so far I am reading that:
- Vendors are more interested in the influence analysts can have on their potential clients.
- Opportunities exist for targeting individual user groups to avoid the “corporate buy”
- Investors (I assume in IT firms) may be interested in due diligence aspects of vendors i.e. what are their future prospects.
My selfish interest is that I believe I have some unique market analytic techniques that I am interested in monetizing, but at the moment, its not my “main game” and therefore I am using only ‘frientds’ to market it informally, so there will be no “sales force” targeting individual clients etc..
So should I be “selling” to analyst firms that have the sales capability? I have made tentative steps in this direction in the past, but largely found that the firms currently prefer to do their research themselves, rather than partner or buy it in.
Any suggestions?
btw…look at http://www.visualmarkets.net to see more about the analytical technique.
gideongartner
on May 11, 2010
Ross Dawson whose email address I could not find (but I just reached out on Facebook) wrote a comment on his own blog which in turn catalyzed yet another comment. I print them below (unfortunately my picture keeps coming up!!!!!
gideongartner
on May 11, 2010
How IT analyst firms can learn from investment bank research pricing models
by Ross Dawson on 05/05/2010 09:40 1 comment , 406 views
Categories: Dealmakers, Finance
Tags: finance, it industry, analysis, pricing models
Gideon Gartner has just posted a great article titled Advisory Industry, a future redesign: the “Payment” Model, in which he draws on investment banking research pricing as a model for IT analysts and their clients. Gideon writes:
So in the Wall Street model The buy-side “analysts” will work closely with their most helpful and favorite sell side analysts, and buy-side “portfolio managers” will work with sell-side salespeople who funnel ideas and information from their research departments to the buy-side clients. During the year, when investment issues arise (many dozens of times each day), the BofA money managers and staff analysts will call several(!) appropriate sell-side analysts, and may even effectively triangulate among them until a level of understanding an issue, or a decision to buy or sell stocks or other investing instruments with traders, can be reached.
Not until the end of the year do the buy side money managers and analysts “vote” for those individual sell-side analysts and salespeople who were most helpful and influential during the past twelve months; and when this process is completed and the numbers added up, the decision is made as to the percentage of trading volume (e.g. money) to be generated for each of the brokerage firms for the next year! Thus the compensation will vary somewhat each year based upon trading volumes and perceived relative performance. Most important perhaps, new sell-side firms and analysts are added to the list since innovative and effective research and interactions will be recognized! (the sell-side firm will have sent all its research, and its analysts will accept phone calls hoping or expecting that content and interactions will be recognized and therefore compensated for their value).
He wraps up:
My conclusion is that if the Advisory Industry were to shift from annual contracts to end-of-year payments based upon evaluation of sell-side firms’ relative level of prior assistance, then the buy-side which in making decisions must deal with hundreds of IT niches, would benefit from its broader choice of appropriate and available analysts.
There are some great comments on the article, and given this is something I’ve looked at for a long time, I had to add my own:
Very interesting Gideon!
Coming out of my role as Global Director – Capital Markets at Thomson Financial, I closely tracked the rise of the sell-side research ratings systems in the late 1990s, writing about them in my book Developing Knowledge-Based Client Relationships. I wanted to dig into this unique method for valuing and paying for content.
There was no payment for research at the time, only for transactions. However if the buy-side firms did not value the research, and allocate transactions to the firm on their panel that produced the best research, there would be no incentive to provide research. The buy-side firms wanted there to be a clear link between how they allocated transactions and the quality of research. However it is important to note that the rating mechanisms often favored custom research, conversations with analysts, and timely information rather than access to the printed research that everyone else had access to.
Then a whole array of factors shifted the industry, not least the rise of hedge funds as the most profitable clients, with their total disinterest in sell-side research.
Relating this model to IT research is difficult. There are no associated transaction fees, except for IT products and services, and any tie with vendors cast doubt on the independence of content. A stock or interest-rate spread trade is vendor-neutral, IT strategies often are not.
Voting on relative quality of research requires seeing it all. There are currently few analyst firms that would be willing to give all their research to a key client, on the basis that the key client would decide on the value it perceived at the end of the process.
So while a few lead clients could adopt this kind of model and convince their analysts to play, it is hard to see how there could be a broader-based adoption of these models. Which means that the problem of smaller and niche players not getting the recognition they deserve will remain.
Cost of sales is one key reason why analyst firms will remain significantly aggregated, despite many of the pressures pushing outwards mentioned by Ray Wang above.
In any case, a great analogy, food for thought, and hopefully a stimulus for new models in analyst remuneration.
What do you think? How can the IT research and analysis industry find new pricing models that increase the quality and value of the industry?
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# | by Peter Auditore on May 05 2010, 17:57
Ross:
Its not about pricing models it is about innovating their business model which is now nearly twenty years old. Since most people on this site are SME they don’t even know who Gartner is let alone this information is really not relevant to them. In the upper mid market of SME their are some that know of Gartner but really can’t afford them. They can no longer protect their IP and should encourage their analysts to build their own brand instead of driving analysts away like Forrester did.
Price is always equated with value especially in large enterprise and the value of knowing IT features and functions becomes less and less everyday and the siloed nature of these firms prohibits them from innovating their business models. Furthermore they really don’t tell us anything that we don’t already know, what I call rear view analysis. We are working with a new hybrid called the business influencer, this means that the he/she is part technology but really understands the business value of technology and how to implement it. Most traditional analysts have never implemented a single system they actually claim to know and in today’s world companies of all sizes would rather work with someone who has walked the walk.
In conclusion the Internet has become a major distruptor of traditional analyst models of information delivery and will continue because of the evolution of social media and web 2.0. I view the world of analysts like Jurrassic Park, they are extinct but don’t know it yet. So its not about the price its about business model innovation and the business value of IT not IT itself, many of these firms create hate love relationships with vendors just because they have a culture which gives them a license to. They also walk a fine line when it comes to conflict of interest, they take money for services and they help their clients negotiate against you. This is the nature of the beast and it not always a friendly one, Gideon created perhaps the greatest extortion tool of all time with the rear view mirror picture of the market in the form of a Magic Quadrant.
Best
Peter
Gideon Gartner
on May 16, 2010
Luckily, I can claim the last word. During my 12 years at Gartner, the only way the Magic Quadrant was used was for internal meetings (infernal too), when the analyst had to defend his/her idea in front of all the analysts and usually got beat up. Somebody else made it public, and didn’t know that it might become a public embarrassment. On the other hand, most clients (NOT all) still seem to like it.
free style music
on June 6, 2010
Thanks for your nice experience to share with us. Really awesome article with plenty of informative things to be known for us.
David Hatch
on June 7, 2010
Gideon,
Great discourse here… I wish I had been pointed to it earlier. There seems to be a new evolution happening that aligns to your thinking: independent analysts are in fact dependent on the “buy-side” customers “voting” in their favor in order to earn a living. The voting is taking place in the social media sphere (Barbara French’s blog at http://www.barbarafrench.net/2010/05/11/of-rock-stars-and-analysts/ provides an excellent read on this). Independents are growing in number while research firm-employed analysts are shrinking. Many of the independents have established themselves through the years while at the firms, so it is not surprising that while one increases the other decreases. This shift is likely going to be the genesis of the new business model you envision.
gideongartner
on June 8, 2010
David, it’s always a pleasure to hear new views on where this business is heading. I assume that you’re the David who runs research at Aberdeen. You say: “Independents are growing in number while research firm-employed analysts are shrinking…… This shift is likely going to be the genesis of the new business model you envision”.
I’ve not seen any quantitative evidence of such a trend. Plus, I’m not sure that numbers are a more important parameter than: broad coverage, quality of the best available analysts (where Gartner generally has >100:1 edge vs. the small Advisories), the 12-month lock-up which is growing to 24 and 36 months, the reputation, and the broad spread of client seats which is one factor of several, in clients being change-averse .
There are undoubtedly new models, but they would require at least a long term view, redesign of deliverables, definition of the market components to be targeted, pricing, superior responsiveness and decision-support quality, and costs to implement all this (among others, I’m sure).
gideongartner
on June 8, 2010
David, it’s always a pleasure to hear new views on where this business is heading. I assume that you’re the David who runs research at Aberdeen. You say: “Independents are growing in number while research firm-employed analysts are shrinking…… This shift is likely going to be the genesis of the new business model you envision”.
I’ve not seen any quantitative evidence of such a trend. Plus, I’m not sure that numbers are a more important parameter than: broad coverage, quality of the best available analysts (where Gartner generally has >100:1 edge vs. the small Advisories), the 12-month lock-up which is growing to 24 and 36 months, the reputation, and the broad spread of client seats which is one factor of several, in clients being change-averse .
There are undoubtedly new models, but they would require at least a long term view, redesign of deliverables, definition of the market components to be targeted, pricing, superior responsiveness and decision-support quality, and lots of cash, to implement all this (among others, I’m sure).
Suzanne Langdon
on July 13, 2010
The business brokerages network will provide you with access to some large pool of individuals who have the information about companies for sale and buyers or investors looking for any company venture. By producing great use from the info you’ve, you may be cutting a provide and make a handsome profit out of the transactions.