The two largest sell-side firms in our space, Gartner and Forrester (G&F), have been open about their policies of annual 5-7% price increases, plus no client discounts, plus other similar policies, perhaps assuming that the economy will thrive and that clients will not care about 5% here and there. This new policy hints at the possibility that G&F live with each other peacefully, and are not bothered by competition. I can understand the vendor clients accepting price increases because they’re hoping to buy public relations support for their products (we assume that ‘analyst relations’ employees are handling the promotional challenge quite well). 
But we might be at least somewhat surprised if large user clients are also taking the price increases lying down. My guess is that the Advisory analyst services are so spread out across so many IT departments within the F100 non-vendor and other enterprises, that there is absolutely no way for the client firms to evaluate, let alone measure, the magnitudes of the value which they are receiving. This situation will hopefully be reversed someday, but let’s not hold our breath. Perhaps the purchasers obtain so much more value from Advisory services than we’d guess, that they are insensitive to pricing levels. Or, perhaps both sellers and buyers are expecting a forthcoming inflationary economy. I’m guessing, and hope to obtain further insights on the issue of clients experiencing price increases, often combined with insufficient data about corresponding value received.
We may nevertheless soon be witnessing rationalization of pricing levels across the entire knowledge management field, which I assume includes the IT Advisories. The pricing differentiation between ‘information’ and ‘knowledge’ is defined as a discontinuity in their respective values, since knowledge is usually decision-relevant and therefore carries more identifiable value than information. One could assume that were users to go to the trouble of certifying research packages (which should grow in value as Advisory services increase the percentage of true knowledge components per package), they would then accept higher prices from their Advisories. I’ll go deeper into the information/knowledge distinctions in Part II of this post.
Knowledge should also exhibit inherent “positive price-elasticity of demand” from period to period; in other words, when the supplier’s price per unit of knowledge goes down, then demand for these lower-priced units should rise, normally resulting in increased revenue to the supplier. This is remarkably analogous to the known IT trend: when price per unit of computer and/or telecom power goes down, utilization of such power goes up disproportionately, and experience shows that as a result of this elasticity both suppliers and consumers will be reasonably happy.
Within the Advisories, few or fewer of the buy-side firms exercise the important but inordinately difficult discipline and process of measuring or at least estimating value-received. Some skeptics like myself might also believe that even while today’s overall prices seem destined to increase annually, the overall value (number of units of knowledge delivered times the average value per unit) may not increase commensurately. In fact, the overall value might well decrease!
From the consumer’s perspective, this would clearly be less than ideal, but there is hope that because of our expectation of further advances in internet functions new Advisory models are expected to appear whereby the clients’ value-received per dollar-spent will increase rather than decrease over time, as in the hardware sector. Should this occur, the viable and growing Advisory competitors would still have to demonstrate their new cost efficiencies. We might challenge the efficiency issue – could a new and well funded research firm discover methods to actually decrease costs and therefore prices of research bundles, while simultaneously providing superior services? If and when one or more newcomers figure out how, the knowledge component of their services may increase when compared with today’s dominant players, but who would likely and realistically catch up eventually.
Read Part II – Gartner & Forrester and Other Competition
Read Part III – Murray Gell-Mann
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