Aarti Shah 21 May 2014 // 6:39PM GMT
In the age of PR disruption, much of the emphasis has focused on the advent of social media and the transformation of journalism. Yet, the digital revolution has also had an impact on tech industry analyst relations — a channel that continues to be hugely influential, in particular for decision-making around hefty IT investments.
The changes in the tech analyst sector started when world’s largest, billion-dollar analyst house Gartner gobbled up many specialty analyst shops like the Burton Group and AMR Research in late 2009. Gartner’s smaller, but formidable, rival Forrester had made some key acquisitions as well, most notably Giga Information Group and Jupiter Research.
The industry is now left with a new generation of firms born primarily from Forrester alumni — like the Altimeter Group and Constellation — that are challenging existing business models and revenue streams.
The Legacy Model
Tech analyst firms have typically had two revenue streams: those from end-users (or technology buyers) and those from technology vendors. Unsurprisingly, the buyer-focused firms, most notably Gartner and to a lesser extent Forrester, take the majority of revenues from advising and producing reports geared towards technology buyers. Meanwhile, the vendor-focused firms earn revenue via marketshare reports and consulting/advisory services to those selling technology.
According to the Knowledge Capital Group’s (KCG) annual report that segments and sizes the tech analyst community, approximately 60% of Forrester’s $297 million in revenues and 73% of Gartner’s $1.784 billion in revenues come from tech buyers. From 2010 through 2013, Forrester saw compound aggregate growth of 5.9% while Gartner saw an 11.4% climb in the same period.
While analyst firms don't publicly disclose their revenue split between end-users and vendors, KCG uses a number of factors in extrapolating buy side revenues, including historical revenue splits, current product mix, consulting/events/advisory ratios, changes in emphasis on vendor facing products versus end user facing products, among other factors.
For this story, Gartner confirmed its end-user revenue was "roughly 70%"; Forrester declined to cite a figure. “As evidenced by financial performance, Gartner has had compound aggregate growth around 11.5% and 12% — they’re killing it,” says Bill Hopkins, founding partner of KCG, who was formerly a Gartner analyst before launching his independent consultancy 15 years ago. “Gartner continues to grow and consolidate their hold.”
Also in the mix are specialized point players and consultants, such as competitive or investor intelligence firms, product testing firms and those that put out commissioned vendor reports. More than 90% of the firms that KCG covers fall in this category.
From an influence perspective, the traditional analyst model fosters an inverse relationship between influence on deals and media exposure. Typically, the firms focused on end-users wield the most influence on deals, meanwhile, the vendor focused firms tend to garner the most media exposure.
Analyst relations professionals typically look at the vendor-focused firms as “talking heads” that can generate substantial media exposure that’s valuable when buyers are exploring which vendors to shortlist. Whereas, it’s the end-user firms that are ultimately called in to advise on major buying decisions.
Are Costly Reports Still The Future?
As the news industry has long seen, the free-flow of information online has devalued premium content — even when it’s produced by seasoned pros. Has this bled into industry analyst relations? The revenue source for both buyer and vendor-focused firms has largely revolved around subscriptions that gate content behind expensive paywalls. Typically, these firms also keep tight reins on how and where their analysts talk about their work, further restricting the distribution of their information.
In 2010, both Forrester and Gartner implemented policies that restrict analysts from blogging on their personal websites. Now newer analyst firms are challenging this approach. After nearly a decade at Forrester, Charlene Li started the Altimeter Group in 2008 with a specific focus on social business. Most of Altimeter’s revenues come from advising and speaking engagements, but the firm also authors commissioned research for vendors, including one done recently for Oracle on social business. But these reports focus on strategy and refrain from endorsing the paying vendor’s solutions.
“Analyst firms have traditionally served one audience — the CIO — and it was Gartner that said the number one buyer of IT would be the CMO by 2017,” Li says. “So now you have a whole new group of buyers that didn’t traditionally have relationships with analyst firms.” Altimeter’s model is deviating from the legacy model in three ways.
First, it speaks primarily to technology buyers who don’t sit in IT; secondly, it takes most of its revenues from speaking engaging and advising companies rather than research (which it gives away); and finally it doesn’t limit the way its analysts can use their personal social channels. “There’s definitely value in research and it can be high-margin if you’re going to fuel your salesforce to put a lot of energy into it,” she says. “At Altimeter, we’re going against the machine and are disrupting that model by putting our research out for free.
The research does the selling for us and we do a lot more speaking and keynotes in the likelihood [companies] will bring us in for advisory.” There’s only a small market willing to pay the big bucks for research, Li argues. Unless a company builds complex, expensive technology solutions, its analyst relations resources are usually modest.
On top of this, because plenty of end users share opinions on their own purchases on forums, blogs and review sites, Li thinks many buyers rely on these peer reviews rather than spending hundreds — or thousands — on reports. More important to Altimeter’s business is how the firm wins over the coveted “end-user influence.” Since its expertise is in social business, the firm often starts its relationship with a tech vendor that produces some kind of social business platform.
Once this relationship is forged, Altimeter’s brief often expands to advising the company on its own social business strategy. For instance with Adobe, Altimeter initially came in to advise the company on its social business solutions, but expanded its scope providing guidance on what it should do to bolster its own approach to social business. “In nearly every tech company, we work both sides,” Li says, meaning advising them as a tech vendor but also on how to incorporate social business technologies into their operations.
Also, unlike the behemoths, she encourages her analysts to use their own social channels to promote their work and expertise — a decision that came from her own experience at Forrester. “I did all of my blogging under Forrester and was still able to start my own firm,” Li says. “What I lost was the ability to take my followers with me easily but I was still able to do it.” Similarly, R "Ray" Wang is a former Forrester analyst who initially joined Charlene Li in starting Altimeter. But in 2010, he ventured on his own to launch his own analyst firm, the Constellation Group, with a bent towards tomorrow’s CxOs with clients like Sony Pictures, Emirates, as well as PR agencies like Weber Shandwick.
“We are a network model for people who aspire to be a CxO,” Wang says. Both vendors and buyers pay to be a part of the network and have access to research and advisory services. Wang adds, the model “prioritizes” end-user revenue and the firm has two end-user clients for every vendor. He maintains the legacy firms “lost their way” first by restricting analysts from building their own brands. Now, he says, Forrester is struggling to find a model that works for them and Gartner is too focused on “rubber stamping what’s already happening.”
He doesn’t, however, believe the free flow of information online is hurting the reports business. “Peer reviews are one set of opinions but in that case you only get one point-of-view,” Wang says. “We’re scanning 50 to 100 deals a year.” KCG’s Hopkins agrees, pointing to Gartner’s double-digit growth on the end-user side shows IT buyers are still spending money with Gartner and using peer reviews as supplementary information. Research still makes up 73% of Gartner's revenues (with 11% coming from events and 16% from its consulting business).
“What they’re buying from a Gartner is not, this guy bought X and it worked OK for him,” Hopkins says. “What you want to know is, how does this company stand behind what they do? They are buying the analyst’s view on a company’s viability as a business partner.”
Gartner Still Dominates
Even with new firms like Constellation and Altimeter on the market, the “big three” analyst firms still dominate the market. Gartner, Forrester and IDC makeup 56% of the analyst market — or $2.502 billion in revenues. Meanwhile, KCG's Hopkins estimates new players like Altimeter and Constellation only comprise a small fraction of the overall pie. In 2013, Gartner grew 9.4% and Forrester 1.6%. During the same period, KCG estimates that Gartner’s buy-side revenue went up by 13% while Forrester’s decreased by 2.3%.
Forrester has been grappling with its business model in recent years. Initiatives like the Forrester Wave, a challenger to Gartner’s venerable Magic Quadrant and a “roles strategy” that adapts its counsel based on one’s role within an organization, have been tried to varying levels of success and most recently Forrester has been looking to boost its vendor revenues by also providing social business advisory.
“I think Altimeter and Constellation are taking business from Forrester,” Hopkins says. “Right now there is tons of money to go around on social media between the analyst firms, PR agencies and others. [This approach] does ignore the traditional IT market, but Gartner is still thriving here.”
The reason there’s so much business to go around is tech companies (the typical source of vendor side revenue) are looking at a two-pronged influence battle: gaining mindshare and securing deals with buyers. And increasingly, social media is where the mindshare game is playing out. “The more mindshare you do at the top of the funnel should — theoretically — result in more things coming out at the end of the funnel,” Hopkins says.
Analyst Relations Vs. Media Relations
Because the analyst world remains relatively opaque, some companies prefer to handle the bulk of AR in-house. In the interviews done for this story, many in-house analyst relations professionals warned that outsourcing AR to a PR agency that’s not sophisticated enough to handle the complicated function can result in the agency working as schedulers rather than a valuable connecting point between the analyst and client. “Media can be a bit more of a transactional relationship,” says Tracy Sjogreen, co-founder of the PR firm Nectar, who has also worked in-house on AR at BEA and Siebel. Nectar now manages the function for clients like VMware. “But with AR, it’s really a long-term relationship.”
There’s also the trap of PR agencies seeing analysts primarily as mouthpieces to support press materials with quotes and references for journalists. While this approach might influence deals on the consumer side, Hopkins emphasizes, multi-million dollar enterprise contracts typically don’t get signed only because of positive news stories. For PR people too focused on mindshare, there’s also the lure of the “pay to play” analyst firms that produces reports for hire that endorse the paying vendor. While these reports have their place, for instance, as collateral at trade shows — sponsored reports are unlikely to close deals.
“I’ve never heard of anyone making a business decision based on a pay-for-play analyst report,” says Mona Faulkner, an AR consultant whose clients include Cisco. “People know and there’s a lot of money at stake and there’s only a handful of analysts who have established themselves [as credible].”
Unlike media relations, Faulkner says, AR work doesn’t culminate in a published article. Rather she says “there’s no end point, I always need to be two steps ahead of the analysts. I need to be able to say, here are the only analysts to care about — others will knock on your door, but don’t listen to them — it’s just noise, it won’t drive top-line growth.” On top of this, weighing how many resources to put into AR versus PR is hard to outsource since companies have to make these decisions based on their own solution’s price-point.
The more complex and high-ticket the solution or service is, typically, there are more resources that need to be allocated specifically to AR. “Media relations and analyst relations can be very complementary but they are very different,” says Mark Stouse, VP of BMC Software’s Connect function that oversees analyst relations. “Even the kinds of people who go into one versus the other varies."
"Analyst relations requires really deep domain-knowledge influencers, they tend to be six inches wide and a mile deep, whereas PR is typically the opposite.” Josh Reynolds, CEO at Blanc & Otus, is a former Gartner analyst who founded the firm’s analyst relations practice in 2003 then went onto to lead Hill + Knowlton’s global tech practice before returning to the fellow WPP shop B&O last year. He points to a B&O survey from 2012 that spoke to 813 tech purchasers around the world. It showed both analyst relations and peer-to-peer word mouth rank highest in driving sales, followed closely by media relations.
Yet, even blogs and comments posted on social media sites weighed into decision-making.
“This is a mix and the biggest mistake is people think about them as disconnected silos,” Reynolds says. “While your audience does not recognize the artificial silos that you do — they do recognize one message, one voice, one impact. You have to carefully integrate PR, AR and social media into a connected program.”