Who Analyzes the Analysts?
In times of consolidation, sometimes the big just get bigger: Look at technology research giant Gartner, which made multimillion-dollar deals for smaller firms Burton Group and AMR Research late in 2009. Barbara French, president and managing editor of Tekrati, a publication covering the analyst industry, says the moves were of such interest because we’re at the end of a quiet period that began after the dot-com bust nearly a decade ago.
Other analyst experts say an acquisition (or two!) by a market leader is always worth noting, but this is pretty much business as usual. “Acquisitions and spin-offs…have been an essential element of the analyst ecosystem since Day One,” says Carter Lusher, a strategist at analyst relations firm SageCircle.
A recession helps drive growth-minded companies to invest in and snatch up good deals, says Jim Zimmermann, director of research products at Books24x7, a division of SkillSoft. In fact, he says, for a firm that’s already significantly penetrated the Fortune 1000, acquisition may the best—if not the only—way to grow. That meant Gartner had to expand into the small and midsize market—hence, the acquisition of Burton Group, a firm that focuses on the 90 percent of technology workers on the front lines.
Consolidation may be the nature of the beast, but that doesn’t mean the beast doesn’t bite back. “It’s never good when you start having consolidation,” Lusher warns. “There’s less opportunity for innovation…especially in the analyst space, because you’re eliminating independent voices.” Gartner says it intends to retain the Burton Group brand as a separate entity, but, as Lusher says, “once they all start talking to each other, they start to reach a consensus”—consciously or not.
William Hopkins, chief executive officer and founding partner of analyst relations firm The Knowledge Capital Group, argues that the industry is downplaying the shift’s impact. “This is a huge deal,” he says. “It’s a game-changer.” Silencing two more voices in the market, he says, dramatically impacts technology sellers. “What [vendors] value most from analysts is an independent voice,” Hopkins says, “but the dark underbelly of that is they want an independent voice that will say good things.” In terms of influence, he says, the horse race is down to just a handful of thoroughbreds. (In addition to Forrester and Gartner, the few remaining majors include Aberdeen Group, IDC, Ovum, and Yankee Group.) But is a shrinking roster of Tier 1 players really cause for concern? Analyst opinions, after all, should only represent a contributing factor in any decision-making process.
The analysts providing those opinions don’t always stay with the analyst firm, either. Lusher says that, especially after major acquisitions such as Gartner’s, it’s not unusual to see a wave of analysts switch firms, or for single practitioners or boutique firms to set up shop. (See “Drive-by Poaching” for a look at how one firm tried to capitalize on the chaos.) “A lot of people look at the analyst game and say, ‘I’m smart, I could do that,’” Lusher says. “And analyst firms, even larger ones—Gartner, Forrester, IDC—can’t possibly cover every possible market [or] technology that’s out there.”
Those gaps, however, are where firms such as The Altimeter Group—founded by ex-Forrester analyst Charlene Li—might shine. Even for Altimeter—stacked with what Zimmermann calls “celebrity” analysts, such as Li’s fellow Forrester veterans Jeremiah Owyang and Ray Wang—long-term success is hardly guaranteed.
There have always been alternatives to the top-tier firms, Tekrati’s French says, but these days “the barriers to entry have dropped”; anyone with a laptop and a blog can call herself an analyst and add “thought leader” to her business card. Acquiring a client base hasn’t gotten any easier, though, so most who head off as independents typically go with a couple of clients (read: “a revenue stream”) in tow.
Hopkins recalls a comment by Gideon Gartner, founder of Gartner and GiGa Information Group (now part of Forrester), who once said it takes roughly 10 to 12 years and in excess of $250 million to build a buy-side analyst firm. While acknowledging the potential of firms such as Altimeter, Hopkins seems to consider any attempt to dethrone leaders as quixotic. “They’re tilting at windmills,” he says. “Everyone wants to be an alternative to the big guy. Maybe someday—in 20 years—we’ll see this actually make a dent.”
Lusher notes the recent activity has largely involved acquisitions, and says he expects to see mergers kick in shortly. “Boutiques may be approaching other boutiques and saying, ‘Let’s combine,’ [to get] big enough to survive,” he says. “Ironic thing about that is that [being bigger] makes them more attractive as a target.”
Most boutiques or independent analysts rarely compete against corporate firms. “People call you because they’re looking for something different,” says Maribel Lopez, founder and chief executive officer of the eponymous Lopez Research. Most clients, she says, still keep their corporate analyst-firm contracts primarily for the industry research, but they come to boutiques looking for a deeper engagement, one that’s more customized and highly flexible.
Lopez started her own company after years at vendor and analyst firms, including a decade at Forrester. “Most of the people I talk to [who left larger firms] all left because we wanted to change the way we do business,” she says. “We can have a sane existence and do something that we really enjoy, but do it at the pace that was going to allow [us] to live a decent life.”
One group French sees gaining traction in the business world is academia, especially the business schools of Harvard and Stanford universities and the Massachusetts Institute of Technology. She says she noticed the trend at Supernova, a conference, produced in partnership with The Wharton School of Pennsylvania, which is billed as focusing on the “transformation of computing, communications, business, and society in the Network Age.” “Technology is penetrating the enterprise much more broadly,” French says. “There’s new technology and new ways to use it…. There’s great work being done in [university] research…[and] pilot projects.”
Today’s analysts are essentially required to have a grasp of social media. “Someone effective with social media could be truly independent, and they could build…a sort of lead-gen machine around social media, the press, and public speaking,” Lusher says. As an example, social media has certainly helped establish Altimeter’s market reputation. Li, Owyang, and Wang all placed among the top 15 of twitterers in the TweetLevel rating system developed by public relations giant Edelman. In fact, 12 out of Edelman’s top 15 are analysts, not firms. Owyang’s blog often receives more traffic than the Web site of an entire analyst firm.
“If you’re a senior analyst who’s been [at a firm] for 10 or 15 years, [you] develop a loyal following,” Zimmermann says. “Some companies say, ‘I don’t follow Gartner, I follow this analyst at Gartner.’ And when that person leaves, that client will follow along.” A personal brand can make for a powerful analyst—even at a large firm. But some firms believe they retain any intellectual value created under their auspices. In a 2009 letter to the governor of Massachusetts, George Colony, Forrester’s chairman and CEO, argued in favor of contracts prohibiting firm-jumping or analyst-poaching: “Forrester is an idea factory and we invest in people,” Colony wrote, “which we are only too happy to do knowing that noncompete agreements help protect our investments.”
The quality of a given analyst may reflect positively on his firm, but the impact is felt more at small firms than at large ones—and the large ones keep getting larger. Retaining high-visibility analysts can lead to tension around status and compensation, Lusher says—one reason the firms don’t mind losing their stars. Leaving can be a boon for the analyst as well, opening the door to growth that the bureaucracy of a large firm makes all but impossible. As Zimmermann points out, however, big firms provide a safety net that some analysts prefer.
Analyst firms typically want clients that are profitable and that can claim high renewal rates and high customer satisfaction—i.e., large enterprises. Midsize clients—often seen as costly and unprofitable—have made scant use of analyst relationships, but represent a huge untapped market. Working with a smaller firm, experts say, enables the client to engage the analyst at a more-intimate level, sponsoring custom reports and opting for on-off consulting gigs or contracts without having a team of experts on retainer.
When it comes to determining analyst credibility, French says, all the standard evaluation metrics apply: number of reference clients; published research; accurate forecasts; venues for (and reactions to) speaking engagements; press mentions; association membership and participation; and professional-network status.
Hopkins sums up the value proposition of an analyst into three words: insight, influence, and exposure.