Analyzing the analysts

There was a time  in the mid-1990’s when getting time with a senior Gartner analyst was like trying to meet with royalty. They were independent, they were good, they knew it and much in demand. Today, the analyst community is fat, happy and largely dumb.

Last week, Gartner released its financial results. Among other tidbits, I learned that it feels NO price pressure for its services. How is that at a time when the tech vendor community is nervous and buyers have pretty much clamped shut their wallets? The answer is simple.

In a conversation with Carter Lusher, former Gartner analyst and HP AR point person, I learned that in his view: “Gartner owns 40% of the market as defined by total revenues earned and 70% of the end user market. It is, in effect, a monopoly. However, Gartner and Forrester (the distant number 2) between them only own 15% of the potential addressable market.” In other words, there is a long way to go but what these two titans already own provides a huge brand advantage. According to Carter: “Buyer’s don’t know any different. They cannot objectively qualify the value that an analyst brings to the table. That analysis doesn’t exist.” And it is hard to see how it can ever exist.

Analysts provide opinions but they are often couched as though they are facts. Customers, whether on the buy or sell side have come to believe that what an analyst says represents some kind of immutable truth. What’s more, they are positioned as independent when in reality they derive much of their revenue from the sell side. In other words they are in the tech vendors’ pockets. How is that independent? Recently a large tech vendor AR person said to me: “Whenever you meet with them, there’s a sales guy in tow. They’re always tincupping for more.”

On occasion, the tech vendors are only too happy to play along. How many times do we see press releases with the title (or similar) “X named as leader in the Gartner Magic Quadrant”? Here is a small example of what I mean:

e-conomic declares in a press release: “IDC identifies e-conomic as the leader in online accounting.” That’s not true. This is what IDC actually said was:

e-conomic has emerged as one of the leading European providers of SaaS-based accounting applications for smaller organisations. With annual growth rates in excess of 50%, e-conomic clearly resonates with its target audience and warranted a closer examination.

Let’s pick apart the spin. e-conomic like all other saas accounting vendors is an overall market minnow. SaaS accounting is a new market and therefore you’d expect growth to be well ahead of incumbent players. If it wasn’t then you’d be well advised to steer clear on the basis of vendor survival questions. This is what IDC asserts (PDF download):

Today, the company boasts 14,500 customers of which most have fewer than 25 employees. IDC estimates the 2007 revenues of e-conomic to be in the €1.8 million to €2.0 million range, of which more than half was sold directly to end users and the rest was sold to users via public accountants.

Note how IDC says ‘estimates.’ Then go check back on past IDC reports and see how numbers change over time. I recall when PeopleSoft was arguing with IDC over certain revenue breakdowns and how it annoyed them that numbers got magically re-written inn following years. Facts anyone?

Last week, Vinnie Mirchandani mentioned AMR’s Bruce Richardson:

Bruce is the most knowledgeable human being when it comes to SAP and other ERP vendors (that includes the population of industry analysts, financial analysts, consultants, bloggers who watch/work with SAP and 99.99% of SAP itself).  And if you have the pleasure of talking to him or meeting him, he will give you his honest, historical and hysterical (he has many a bar story) views on any vendor.

But when it comes to published materials, their stuff is often soft. And makes it way into vendor marketing materials. If they say negative stuff, vendors typically lobby, coerce and worse. Here’s the reality – the biggest customers of every industry analyst firm are vendors. Even the so-called buyer centric firms like Gartner and Forrester.

So here’s my 2c – ignore what analysts say in print. Schedule a call. Or even better schedule a visit and get them to talk without attribution.

I too know Bruce and can attest to his honesty when cornered in private. Vinnie has his own war stories from his days at Gartner. He says back then Gartner analysts would hold as a badge of honor when vendors complained to management about them. If it did not happen at least once every few months, your analysis was likely too “soft.” Here’s the problem.

Become too well known as an authority that calls it as you see it and pressure gets applied. Threats to withdraw places at events, being ignored in MQ’s and more are subtly or not so subtly suggested as sanctions that will be applied.

Can you trust the analyst community? Sort of. There are plenty of good people out there and so to corral them all as money grubbing leeches would be wrong. But collectively and when they have Wall Street masters to satisfy? That’s an altogether different story. As the enterprise ERP and business software market contracts to an effective duopoly you have to ask yourself: where will I find the best answers to my questions? The reality is that only customers can tell you what you need to know. They may not do so publicly but they will speak the truth of their experience. The analysts will give you a partial picture but remember two things: it is only an opinion and identify who are their true paymasters.

Tagged as: Forrester, Gartner, PeopleSoft, SAP