Tuesday, 21 March 2006

Why Gartner and Forrester will NOT be Disintermediated

In the chatter around Will the Borg be dis-intermediated? and The Governor, ancient Iraq and Gartner it seems that the main points for disintermediation are a) information is readily available via Google searches and the blogosphere and b) the large analyst firms are slow to recognize new trends and their insights and quality are subpar.

While both points are true, they completely miss the point of why analyst firms are growing instead of withering away – they deliver business value to the vast majority of IT managers. Vinnie was right in his comment about what “heartland customers” want: “well packaged, affordable offerings.” Like it or not, that is what Gartner and Forrester deliver for the average IT manager: information succinctly presented with reasonable quality and in a timeframe that is in sync with their needs.

With all the IT layoffs since 2001, IT managers simply do not have the time or energy to systematically gather information including talking to many of their peers, vet blogs for accuracy and synthesize conclusions. So tens of thousands IT organizations outsource market, product and management technique research to analysts just like they outsource PC help desk outsourcing, hardware break/fix and janitorial work. Why do 20 or 40 hours of research when you can read a couple of research notes and do a 30-minute phony inquiry? Yeah, they might be cutting corners, but that’s life.

So what if the analysts are a little slow publishing about new trends? They are still months or even years ahead of when most of their clients need the information. I sat in on some presentations at last October’s Gartner Symposium rolling my eyes in disgust when the analysts were discussing “hot new ideas” that my company and our competitors were pushing two years earlier – only to look around and see IT managers frantically making notes and whispering excitedly with their colleagues. It’s not that these IT managers are stupid or luddites, but they live in a real world of deadlines, budget cuts, headcount constraints and installed bases of hardware and software – as well as having families and lives. The latest coolest technology or tech gossip is not necessarily relevant to their world, especially when much of the hot new stuff will flameout before it is widely deployed.

There is another group of IT managers for whom Gartner and its ilk deliver value – shrewd contract negotiators and political operatives. For them, Gartner is a bludgeon to use on vendors and internal opponents. In negotiations or political squabbles, citing some anonymous blogger or little known indie analyst does not carry the weight of an 800 pound gorilla like Gartner.

Bottom line is that there is plenty of upside with end-user community for the major analyst firms as long as they don’t do something blatantly stupid.

PS: Oh, one last item. Why is it always a major firm like Gartner that is going to be disintermediated, but not boutiques like Interarbor Solutions (Dana Gardner) and RedMonk (James Governor)?


alan pelz-sharpe said...

I agree with you up to a point, but the game is changing and Gartner do not seem to be recognizing this.
The ease of self publishing (web/blog etc) is lifting the visibility of many industry experts (in my space - Lisa Welchman, Tony Byrne, Janus Boye etc) to a level that only tier 1 analysts could attain some years back. These same people are now often the first choice for speaking events over the equivalent Gartner, Forrester etc analyst.
In tandem the quality of written deliverables from Gartner (in my space at least) has fallen noticably, and again the new kids on the block like CMS Watch are turning out the kind of deep dive quality research that only the likes of Ovum or Burton used to.
Things are changing, Gartner are still important and relevant, and they won't be going away fast. But their 'guru' status will be challenged.

Silicon Valley Guy said...

I agree with Alan’s comments about the quality problems that the larger firms are having. In fact, in the vendor community on certain topics, Gartner analysts’ reputations as gurus are already in tatters. Note I said vendors, not end users. There is no indication that any but a small portion of end users realize how far Gartner’s quality has fallen. Alas, the InformationWeek article focused on conflict-of-interest not quality.

I also agree that the ease of self-publishing has leveled the playing field for independent analysts and boutiques, just as the Internet has leveled the playing field in many markets. However, awareness is only part of the cycle of Awareness, Credibility, Interest, Preference, Selection and Loyalty for business-to-business selling. While IT vendors invest the effort to seek out independents and boutiques, many – but by not means all -- IT managers at $1bn+ organizations simply do not have the motivation or bandwidth to do the same search. The advantage that Gartner and Forrester have is their more than 900 reps strong, and growing, sales forces that are out there knocking on doors.

Plus, as ARonaut pointed out, Gartner and Forrester are much more than analysts publishing research notes with consumer data, conferences and summits, community groups and other attractive products that independents and boutiques do not offer.

To a certain extent, IT vendors do marketing for the analyst firms by pushing Forrester, Gartner and IDC reprints to the end user market, pushing reporters to talk to F/G/I analysts and sponsoring conferences like Symposium and pushing their customers to attend. All this reinforces market awareness of the majors and has an implied endorsement for quality.

My bottom line is that there is great opportunity for independent analysts and boutique firms to make money and grow. But that does not mean that Gartner and Forrester are going to shrink. This is not a zero-sum market. The potential end-user market is very under penetrated. Combine the green field opportunities with Forrester’s and Gartner’s investments in marketing and sales, means that there is significant probability that Forrester and Gartner will continue to grow quite nicely. The more Gartner and Forrester grow their end-user client bases, the more the IT vendors will feel obligated to spend with the majors for research, consulting, event sponsorship and so on.

My wish is that the independent analysts and boutique firms step up their marketing and selling to the end users in order to offer a counterbalance to the major firms. They also need to come up with a portfolio of products to make themselves more attractive. Finally, the independents and boutiques have to break IT vendors of the habit of usually turning to the majors for marketing content, which only benefits the majors.

ARonaut said...

This is an interesting conversation, really.

SVG said that the Gartner Borg will remain relevant essentially because users are sort of lost in a large mall and need to turn to familiar brands. It's the equivalent of "no one's been ever fired to buy IBM".

Except that James reminds us that familiar brands like Big Blue can go with sluggishness and that "Back in the 80's, IBM's bloat nearly killed it."

So, where do we stand?

James makes an interesting contribution to the debate by reminding us that it's all about communities and people.

I guess this is very true when you live in a nice Tuscan village with small boutiques. Does that apply too in B2C or 1:many situations?

I have to agree with both Alan and SVG for the bottom line: the Gartner Borg will be challenged ; the marketplace craves for alternative user-facing analysts (as we said before, a monopoly is bad for Gartner too).

Vinnie Mirchandani said...

sorry SVG, the disintermediation began with web 1.0 and is accelerating with blogs, sourcing advisory firms, offshore analytical firms.The fact that Gartner, Forrester research revs have been flat for the last several years says so. The "Other" category has been growing - no strong brands yet, but collectively a big wave ...we have a bit of the Stockholm syndrome here - AR folks get frustrated with the Gartners, but have to defend them too...better the devil you know?

James McGovern said...

I would say that the masses within the enterprise aren't reading blogs but the trend towards having a few, especially thoughs with strategic responsibility are.

Likewise, the one thing that is also rising the ladder is that analyst firms need to think like software architects and not just analysis markets in terms of share.

Silicon Valley Guy said...

Vinnie and Alan, are you predicting that Gartner's revenues will decrease because of the disintermediation? If so, by how much per year over the next three years?

Silicon Valley Guy said...

Vinnie, Perhaps Gartner's revenues issues from 2001 to 2003 had nothing to do with Web-centric disintermediation but with:

a) The tech recession which caused many vendors to slash all marketing spend, including Gartner contracts, sponsorships, consulting which often come out of the marketing
b) 9/11 which cut back on IT manager travel, decreasing attendance at Gartner conferences leading to vendors cutting conference sponsorships
c) Consolidation in the tech market which leads to fewer vendors
d) Incompetent executives like Michael Fleisher and Bill Clifford who cut Gartner Sales headcount and budget

-------------------- Prior ----- 2000 as
-------------------- Year ----- base
1998 --- $641 --- 125% ---- 67%
1999 --- $734 --- 115% ---- 77%
2000 --- $954 --- 130% --- 100%
2001 --- $952 --- 100% --- 100%
2002 --- $889 ---- 93% ----- 93%
2003 --- $858 ---- 97% ---- 90%
2004 --- $894 --- 104% ---- 94%
2005 --- $989 --- 111% --- 104%

It will be interesting to see whether Gartner’s revenues accelerate with the acquisition of META’s sales force and organic sales hiring. In 2005, Gene Hall added a net 110 sales reps. In 2006 and beyond, Gene’s plan is to incrementally growth sales by 80 to 120 headcount. Hall is concentrating on increasing sales to the end user community, which has a less volatile spending pattern than vendors.

Bottom line: rather than seeing revenues decrease due to disintermediation, Gartner will likely see 10% or better growth over the next few years due to competent management and increased investment in sales.

alan pelz-sharpe said...

Whether Gartners revenues decrease is as much due to how they decide to run their business as it is the growth of 'new competition'.
My observation is simply that many vendors are getting a bit fed up of Gartner, and particularly their 'guru' like status and questioning how justified it is.
One firm I know - did a win loss analysis of past year sales. This in their owns words after spending " the best part of $700K to get in the top right quadrant.." (they had been advised by the Gartner Analyst that they might 'benefit' from the services of Gartner Consulting, a common enough practice). At the end of the win loss analysis, they could find not one firm that credited Gartner with having influenced the deal. Plenty had read the MQ etc, but nobody felt this swayed things one way or another.

In my work now, I am more and more often finding buyers aware of niche firms and in some cases blogs. (Of course they are also aware of Gartner etc). But more than one in the past few months has quoted directly to me about something either Janus Boye or Tony Byrne has written - and they are now being seen in the WCM world as the real 'Guru's' - they are if you like 'new analysts' with real world credibility - and frankly a real passion for their topic.
My point is simple, my blog and article writing now literally means that my views are seen by more now than when I was a real analyst at Ovum. I am asked to speak at more events now than when I was a real analyst. Though it is beneficial to my work at Wipro - it is not my day job. So something seems to be hapening.
Buyers don't have to go digging far to come across niche 'guru's' who challenge the big vendor centric views of Gartner - in the world of google you find them with ease.
None of this was planned - its just happening, and Gartner just doesn't seem to take it seriously.
My prediction is that over the next 5 years Gartner and all the others will see subscription fees continue to fall - and will have to rely on building up their consulting revenue. Something they have all long talked of - but as we know a good analyst does not neccesarily translate to a good consultant.

Vinnie Mirchandani said...

SVG, I said research revenues, not from all other consulting, events etc. Without Meta acqusition or Forrester with Giga, I would argue the revenues have been flat while the need for research has continued to grow.

Alan makes a point I have made before. Analyst firms are one of several sources buyers increasingly consider in the eval cycle. Also most of the influence is in the short listing process, not in the demos, reference checking, engotiation. From that lens the price is steep just to get validation of s ashort list...

Vinnie Mirchandani said...

I particularly meant buyer side revenues...realize vendor revenue has been grwoing for many of the firms, but that has its own challenges if buy side revenue and influence is not growing

Silicon Valley Guy said...

In response to Vinnie's comment about research revenues being flat. The numbers don't show it.

Research contract value at Gartner has recovered from the significant dip during the tech recession. Up nearly 17% in the last year and almost back to the Internet Bubble peak of 2000.

Research Contract Value
------------Year ---- Prior ---- 2000 as
------------End ----- Year ---- base
1997 ---- $450
1998 ---- $511 ---- 114% ---- 85%
1999 ---- $560 ---- 110% ---- 93%
2000 ---- $599 ---- 107% ---- 100%
2001 ---- $556 ---- 93% ---- 93%
2002 ---- $489 ---- 88% ---- 82%
2003 ---- $482 ---- 99% ---- 80%
2004 ---- $509 ---- 106% ---- 85%
2005 ---- $593 ---- 117% ---- 99%

Where is the $84m in 2005 increase in research contract value coming from?

I can’t say for sure, but anecdotal data from my peers at other vendors shows that none of us are spending more on syndicated research contracts with Gartner. It’s either stagnant or even a decrease in spending on syndicated research. Those that are spending more with Gartner are doing it with SAS and conference sponsorships. I’ve heard that a major vendor let its multi-million dollar syndicate research contract lapse in Gartner’s Q4 so maybe the total vendor spend is even lower than the typical 25% to 30% in the past.

It’s not just picking up META contracts either. Gartner has been retaining about 55% of META clients. META contract value at year end 2004 was only $71m so maybe $39m is from META. That leaves $45m or 9% of organic growth. This is very respectable growth. Oh, and most of this META pickup is probably end user as my company and many of my peers did not roll over the META contract value to Gartner.

So if the research contract value increase is probably not from the vendors, then the conclusion has to be that end users are stepping up their purchases. Which means that Gartner's influence with the IT buyers is growing. Not a pleasant thought.

Stiennon said...

Check out this post http://netawaremedia.com/blog/2006/03/24/jupiterresearch-google-report-125-per-page/

Someone who is not familiar with the research model commenting on Jupiter charging $750 for a report on Google.


ARonaut said...

Stiennon's link on the $125 a page Jupiter report

Bottom line: less is more (could also be the title for this thread)

Robbie Allen said...

"less is more" is an oversimplification. Simply providing less does not allow analysts to charge 10-20 times as much for their content as technical book publishers.

Research content is deemed more valuable by consumers and corporations. I've been a user of Gartner and Burton reports for many years so I'm very familiar with what they offer. Generally, the authors of technical books are considered much more of the industry experts in the field than analysts. Sure, the book authors may be focused at a lower level, but I don't think there is much that separates their thinking (and content) from analysts.

It is all about how content is packaged.

Anonymous said...

I think Robbie makes a point - but in fairness its also about volume. When I wrote huge reports/books for Ovum we didn't plan or exepect to sell thousands of them (would have been nice) but more like a couple of hundered, to a very speciliazed audience (either niche buyers or product managers).
A book needs to sell in large numbers, to a broader audience - hence the lower price point. Basic stuff really.

However, some reports from Forrester and Gartner in particular are not worth the money - contain little of value and lack insight...

And many industry experts are not analysts, and some analysts are not experts....

alan pelz-sharpe said...

sorry - anoymous tag about was in error- post was from me.

Silicon Valley Guy said...

Agree with Alan on his points on his post from the 27th.

Another point is availability. If there is a book by a non-analyst expert and an analyst report on exactly the same topic, then it would make more sense to buy the book. However, if there is no book available and a person needed some analysis to help them make or justify a decision, then the $750 report could be perceived as a bargain.

Something to take into account is that the major firms do not get a significant amount of their revenues from individual report sales. They have already created the content for their syndicated research clients so they leverage it through e-commerce for one-off sales. Sort of a "cherry on top of the sundae" revenue stream. Thus it is important to price each individual report so as not to encourage syndicated research clients to drop annual contracts for one-off report purchases.

Alan, how much of Ovum's revenues came from single report sales?

Robbie Allen said...

Sorry, but I'm not following the logic of the last two comments.

It isn't all about volume. It is about what people are willing to pay. Are you saying that if you expected thousands of people to pay for a certain report that you would charge book-level prices? I seriously doubt it. The fact is people (or more appropriately, corporations) are willing to pay more for research.

Second, I don't think it is about availability. Using your logic, if there were no research reports available but there was a book available on a topic, then you should be able to charge $750 for the book because it is the only thing available.

The comment about charging a lot for individual reports so corporate customers don't cherry pick does make sense to me. I'd love to see some figures on single report sales vs. subscription sales.

alan pelz-sharpe said...

Robbie with all due respect it is all about volume and price. That is how capitalism works. Analyst firms sell reports priced at a premium and effectively restrict the volume - its a model that like it or not works for them.

Where I agree with you is that the author is just as likely if not more so to be a real expert than the analyst at times. However they are often looking at things from a different perspective.
For example if I am a Product Manager at a large software house, the market oriented and competitive intelligent approach of an analyst is of more value to me ($$$$$ per report) than a deep dive high quality book. Likewise a buyer of a business application will get more value from a high priced deep dive analyst report such as Ovum Evaluates or CMS Watch or Burton type reports than from a book - however the person in charge of the implementation will get much more value from a technical book. Horses for courses.

Silicon Valley Guy - not sure what Ovum's revenues for one off sales of reports are these days. But it is a very low percentage. Revenue comes from subscriptions, consulting and analyst access.

Anonymous said...

Gartner and Forrester will shrink over time. As the thought leaders leave due to frustration over pay, recognition, and management ineptness, we'll see a ton more departures. The key issue for both firms is their inward focus. Gartner just wants its analysts to serve as figure heads for events and inquiry. The whole peer review process makes it so hard for us to get any doc out with out all the bs politics.

At the same time my sales friends at Forrester are worried that if the top analysts (mostly the Giga folks) leave in the next 2 years, the younger generation will really not be able to carry the weight. In fact, the only reason most of their clients stay is for those star analysts who are so much nicer than, well, my colleagues.

Anonymous said...

As an I.T. Project Manager working on multiple projects concurrently, I have neither the time nor desire to research 15 vendors in detail for the 10 projects I have going on at any given time. That would mean 150 contacts (repeatedly) with sales people to gather the information that a Gartner or Forrester report provides.

Many of their analyst's reports are invaluable and have saved me a ton of time and frustration.

They are worth it!