Rethinking the Technology & IT Analyst Industry

Over my last twelve years working as a senior executive in the technology industry I have had an opportunity to engage with a broad section of technology and IT analysts and researchers – both from established firms (eg. Gartner, Forrester etc.), smaller more focused firms (eg. Altimeter Group) and of course the more recent phenomena of the blogger/independent analyst.

For the most part the people I have encountered are smart, have a good deal of  domain knowledge, are good communicators and care about providing timely and accurate analysis and advice.  But with all other things, there is a bell curve, there are some people that have amazing insight and I always learn from then, there are a whole bunch in the middle that are solid and sometimes can add good value and as always there are some that really should look to do something else with their time.

This post is not about the individual analysts it is about the analyst industry.

So the issue is not the people – the issue is the structure of the industry and the inherent incentives that lead to sub-optimal analysis and advice that is tainted by accusations of “pay to play”.  This is a topic that is not new, and has been discussed before.  The general complaint that analysts play both side of the game, they write about vendors and the industry but then also get paid by the vendors thus tainting their advice is an old one.

The reason I thought this topic was important to revisit is because (1) there have been some structural changes to the technology industry that make the current IT analyst model seem archaic and (2) I have some specific thoughts on how we might try and reform the industry.

Why Change is Even More Relevant Today: There are several important changes that have taken place in the technology industry that will require some rethinking of the traditional IT Analyst Industry.

Lack of Defined Categories:  Traditionally we have had very specific functional domain experts – the CRM expert, the BI expert etc.  I don’t think customers buy in categories any more – they buy solutions that transcend software category boundaries – thus making research papers focused on these categories less relevant.

Integration of Consumer & Enterprise: This is one of the bigger changes in the industry – the “consumerization of the enterprise”.  Now more than ever there is no classic enterprise software play.  As such, analysis and advice based on deep enterprise background, without the latest thinking on consumer sw trends (and just focusing on social media does not cut it) misses integrating a fundamental change in the industry.

The Rise of the Consumer as the Buyer: Traditional analyst work has focused on providing insight to the CIO and associated IT teams in enterprises.  Analysts spend a great deal of time with vendors and CIO – but the decision makers are increasingly the end users.  We still see very little end user based research at traditional analyst firms

Not Enough Focus on Start Ups: Research coverage is still based on large and medium sized vendors.  This is partly due to the influence of these vendors, partly because they can afford to pay consulting fees and therefore get more attention.  The reality is that startups is where the innovation happening and there is no effective model today to provide customers the timely effective insight on the innovation taking place with smaller companies.

What Can We Do – Some Suggestions: IT/Technology Analysts can play an important part in acting as sources of unbiased and informative research and analysis.  Here are some suggestions for the industry to consider.

Focus on Industry Segments not SW Categories: The buyer of software is seeking the solution to a problem. These challenges arise out of specific dynamics of an industry (eg. Retail, Banking etc.).  Analyst firms should build up much stronger expertise in industry knowledge to make the advice more relevant and specific.

Rate Analysts and Firms: The financial analyst industry has it partly right (notwithstanding the failure of analysis in the financial meltdown).  Equity analysts provide very specific recommendations and then based on their insight and accuracy they get a rating.  Top analysts and firms get paid more and have more influence – this seems the right approach.  I agree that it is marginally easier to rate the accuracy of financial analysts – but I am sure the industry can come up with a standard rating system that provides customers and consumers some insight on this topic.  There are plenty of examples and methods to choose from  - Yahoo even has a “Analyst Performance Center” for this purpose.  This would be a great business idea for an independent firm to provide analyst ratings for IT/Industry analysts – I bet customer and vendors would buy this research.

Transparency of Relationships: This will help address the “pay to play” topic.  I think specific analysts and firms should clearly make transparent their economic relationship to a vendor and this information must be attached to every report and visible on the firms website.  I think the preference would be to provide the dollar amount but that is probably going to far. A more radical approach to this problem – use “Buy Side” and “Sell Side” analysts.  You either work with customers only to advise them on deals etc. or you work with vendors only to write on their innovations.

Stop Using IT Lingo:  I have written about this in a previous blog posting “Why Words are Killing the Adoption of Innovation” Somehow we think that the more complicated the words the more insightful and important the analysis.  This could not be further from the truth.  The industry would be much better placed if they focused on the clarity and simplicity of the analysis.  Vendors already make it impossible to understand what they are really selling – sometimes analysts add to this confusion.

Foster Independent and Small Analyst Firms: The consolidation in the analyst industry has resulted in bigger firms with more market power – this is fine, but it should be balanced with smaller and independent firms that innovate on how they are trying to bring new research and analysis to the market.  Constellation Research is a new firm that is seeking to innovate in this area and I look forward to following their progress.

These are just a few suggestions for us to consider.  I am sure not everyone will agree with me and I am sure my analyst friends will have a relevant point of view based on their experience – I would welcome the feedback.

Hope this fosters some interesting discussion and “analysis” !

Zia.

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15 Responses

  1. Zia, Looks like much good food for thought. SMB Research is trying to fill the SMB void. I will give this a good read and then perhaps return with some thoughts.

    Bob Eastman
    Managing Director
    Wwwmsmbresearch.net

  2. Many good ideas and suggestions here, but I think we need to go back to first principles – what is the purpose of industry analysis in the first place? I believe the purpose needs to be stated in terms of various forms of intelligence:

    1. providing intelligence about technology, relevant to both supply side and demand side – identifying and explaining present and future opportunities and threats

    2. supporting intelligent reasoning about technology – making sense of technological complexity, supporting a broad range of technical decisions (not just planning and procurement)

    3. closing the intelligence loop – knowledge sharing, memory and learning.

    For more, see my post at

    http://rvsoftware.blogspot.com/2010/03/technology-intelligence.html

    • Richard.

      Thank you for your comment. I did read your post on the “first principles” regarding industry analysts. I pretty much agree with you – industry analysts have an important role to play and the purpose of their work that you outline seems appropriate.

      My post was rather focused on the current status of the analyst industry and what if anything needs to change to make this important stakeholder more effective.

      So, I agree with your purpose statement, I would take that as a given and then see my comments in that context.

      Thanks for your comment.

      Zia.

  3. Excellent blog – and very relevant. I agree with most of what you said.. Few thoughts, in no particular order where I slightly disagree.

    1. I disagree that there is a lack of “buying by categories” any more. I think it is alive and well – and Vendors and analysts just continue to feed into it.

    2. The integration of consumer and enterprise is definitely happening in pockets – but I think it is far from being mainstream to warrant a big change in behavior from analysts. The few analysts who make that switch tend to give “let there be world peace” type of advice, and restrict themselves to social stuff.

    3. The “buy side” is a classification that analysts – mostly those who left big firms and started their own gigs – gave themselves. Almost all of them have vendor affiliations too. People who use their advise do so with the full knowledge that they are not 100% “buy side”. In my opinion, a 100% buy-side or 100% sell-side person is not useful or practical – a good analyst needs to balance the needs of buyers and sellers in an objective way. Vendors hire analysts because they want a perspective on what customers want, and customers to the exact same thing in reverse. That being said, I fully agree with the need for transparency.

    • Vijay,

      Thank you for your comments. Let me share my response to your thoughts.

      1- I am not sure if there is more of a “buying by category” or do we see more a “selling of category”. Yes it is true that customers still buy CRM, but I would argue that CRM is no longer a nice clean category, nor should it be. As such, I see customers looking to solve a sales problem and that often leads way beyond just traditional CRM.

      2- On this one i would tend to disagree a bit. My point in the post was that analysts have to have a broader perspective – i dont think that ERP as a category is the right area of focus. We need to look at customers and their needs out, rather than software categories in.

      3- Any time that we can get rid of conflicts, or presumed conflict, in terms of advice is a good thing. I think it is not unreasonable to ask for analysts who focus on customer needs and therefore may be a bit more demanding of clarity from vendors. Not sure how exactly to make this practical but should be looked at.

      Thank you for taking the time to comment.

      Zia.

  4. Great topic Zia, and as usual, we’re of like mind.

    A few other thoughts:

    - Analyst firms do their customers a significant disservice with their predominant focus on the status quo rather than on new innovations that could provide to be real differentiators for their clients

    - Technology advisory firms should have more analysts/personnel who have actually implemented the stuff they write about. If I have to listen to another English literature major blather on about how Hadoop will change the world…

    - Analyst firms need to be more willing to expand the set of “labels” and “boxes” that they place service and product providers in. Sometimes the real innovators don’t fit in pre-established spaces!

    Best,

    Rick

    • Rick,

      Thanks for your comments. I agree with your comments. I think analysts who have had significant industry experience is a good thing. I do agree that the “labels” issue is a tough one. This is what I meant by software categories.

      Thanks for your comments.

      Zia.

  5. A good post by Dennis Howlett offering a perspective on the above blog post on analyst industry. A good read.

    http://www.zdnet.com/blog/howlett/time-to-rethink-the-analyst-firm/2901

    Zia

  6. Hello Zia,

    This topic seems to have become a vibrant thread within the blogosphere.

    You have raised some interesting observations in your commentary, some of which I can agree with.

    Some added observations, from my biased viewpoint as an industry analyst within traditional top tier firms, and now independent :

    - Narrow categories are mainly the creation of the traditional industry analyst firm to be able to foster increased research subscriptions. Independent analysts are not that concerned with these barriers because we have lean organization and more open research models.

    - Integration of consumer and enterprise is indeed evolving in certain industries, but I find that there is still a valid distinction among different needs in B2C and B2B business environments.

    -The decision makers for buying technology and services are absolutely shifting toward functional and business end user, which is another reason why the traditional industry analyst model is under stress. There is little end-user based research among traditional firms because a lot of quality research can be garnered from industry, independent and social media sources. Sales cycles for research are also longer for end-users, while consulting services are shorter.

    -Innovative start-ups are indeed under-served because they cannot justify a cost-benefit investment in traditional industry analyst research vs. a combination of research and consulting services.

    One further comment regarding your recommendation for full disclosure. Disclosure is a two-way perspective, It involves venture capitalists, technology vendors, service providers, consultants, analysts, market influencers and bloggers. There are many facets to a web.

    Bob Ferrari

  7. Bob,

    Thank you for your thoughtful comments. It appears that in your experience my observations seem to be on the right track. You are probably right on the transparency, that can be improved in many areas. But you have to start somewhere and why not with analyst firms.

    Again, thanks for the input.
    Zia.

  8. Zia, Again, a very thought provoking piece.

    I have some further thoughts here:

    SMB Research agrees with you there is an issue around the structure of the industry. In fact we think enough of this that we have started up our firm with the mission to scale the proven technology advisory services model to the SMB (small-to-medium business) sector. We are developing a model that leverages our experience and the proven technology analyst firm model, and scales this for the SMB sector. This solution eschews syndicated research, and instead focuses on efficiently creating and delivering research and analysis in real-time in a true demand-driven research model. We are betting on this model in the MassChallenge competition (http://masschallenge.org/content/smb-resear).

    The issue and concerns of “pay-for-play” will never go away, not so long as Analysys have to put food on the table, and have to come up with crearive business models to do so. We live and breathd by our integrity, and I think the best solution is transparency.

    Your point on categories is an interesting one. I believe that this may vary by business segment. Even the smallest SMB buyers know an eCommerce solution when they see it, but there is a good market for ERP solutions that still try to encompass a very large footprint. The largest technology buyers find it necessary to focus their investment dollars.

    SMB Research is working hard to fill the start-up and small business void that you identify. We are doing it by paying attention to the smallest as well as the largest vendors (particularly their focus on the SMB), and by training start-ups and SMBs that there is an analyst firm serving their needs. We are becoming increasing aware of just how revolutionary this is.

  9. [...] There are several important changes that have taken place in the technology industry that will require some rethinking of the traditional IT Analyst Industry. Lack of Defined Categories…I don’t think customers buy in categories any more – they buy solutions that transcend software category boundaries – thus making research papers focused on these categories less relevant. Integration of Consumer & Enterprise: This is one of the bigger changes in the industry – the “consumerization of the enterprise”…Not Enough Focus on Start Ups: Research coverage is still based on large and medium sized vendors.    http://ziayusuf.com/2011/02/20/rethinking-the-technology-it-analyst-industry/ [...]

  10. […] (Cross-posted @ The Right Question) […]

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