Will advisory services recover from current sluggish levels?
Whether sold commercially, or distributed internally, knowledge produced by for-profit companies (as compared to information available for free on the web) will continue to be under strong pressures to be priced, because knowledge costs money to produce. In fact, we are now witnessing a rationalization of pricing levels in the area of knowledge management. Here’s a possible basis for an evolving pricing theory of knowledge:
The differentiation between information and knowledge is assumed to be a discontinuity in their respective values; knowledge is usually decision-relevant, and therefore carries more identifiable value. So when we certify a unit of information as being in fact “knowledge”, we may be able to estimate its average value, usually through some informal negotiation or historical experience between supplier and consumer. Just as in the hardware segment of our industry, there would exist an inherent “positive price-elasticity” of demand from period to period; in other words, when price per unit of knowledge goes down, then utilization of such lower-price units goes up more, resulting in some reasonable
increase in revenue to the supplier. (This is remarkably analogous to the known IT trend that when price per unit of computer power or of storage capacity goes down, utilization of such computer power or capacity goes up disproportionately.)
Experience shows that the result of this elasticity, is that both suppliers and consumers are happy. But today in practice, with amazingly few if any clients exercising the discipline of measuring the value of knowledge received, prices per unit of knowledge can and often have actually increased from period to period. For example, I believe that on average, when one bothers to differentiate between its production of information and knowledge, the price of a knowledge unit produced by Gartner Inc. may have increased. This is fine as long as the client continues to essentially pay more for less.
This situation works as long as there is no truly viable competition, with the marketing and sales required to compete effectively across the board. But the current state of affairs, not really long-term rational from either the supplier’s or the knowledge consumer’s perspective, begs to be rationalized. There may still be hope that based upon the Internet and resulting new models which assure that prices per unit of value-rich knowledge should and will decrease over time, then using elasticity arguments, this would lead to increased utilization and ironically lead to more sustainable revenues from knowledge providers such as hopefully Gartner, but as likely from a few of the smaller but ambitious Advisories. And such a revolution in the propensity of individuals and organizations to consume lower-priced knowledge, may in turn accelerate the development of new knowledge-oriented service firms.
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