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Same same, but different: Are Gartner and Forrester really in the same business any more?

The IT analyst business used to be pretty easy to define – we differentiated firms that influenced end-user organisations from those that worked for IT vendors, then segmented them based on technology depth, vertical markets, research offerings, geography etc. From an analyst relations perspective, we could choose how to deal with them, depending on our own objectives.

We’ve always seen analyst firms buying up others to fill out gaps in their offerings and/or broaden their reach. But after Forrester bought Giga Group and Gartner bought Meta Group several years ago, they remained the only two firms of any substance in the segment that my colleagues at Knowledge Capital Group call “Deal Makers & Breakers” – the firms which are most influential over end-user purchasing.

Then came “disruption”

Some analyst firms repositioned themselves to focus on new market opportunities, some stayed the course on their traditional IT markets while also keeping a weather eye out, and of course new players emerged targeting users and/or vendors.

It’s now four years that Forrester chairman & CEO George Colony has been talking about the “Age of the Customer” and repositioning the firm’s research away from the traditional IT organisation towards marketing and line-of-business executives, focusing on customer experience and how to use technology to deliver that.

Forrester was trying to differentiate itself from Gartner and get a head-start in tapping into the new research goldmine. Meanwhile, Gartner pretty much stuck to its guns, continuing to focus on the IT organisation (although it also has digital marketing services).

Regardless of this, Gartner and Forrester are pretty much in the same business. Their service offerings are not dissimilar, their sales models share many of the same characteristics, and their target customers have the same addresses, if not always the same business titles.

But is this really true any more?

For the past five years, I’ve been analysing the financial performances of these two IT research leaders, and a few points have always stuck out:

  • Gartner has consistently talked about its business as a business, enumerated sales metrics, how to increase sales productivity and drive out costs, while at the same time forecasting high single-digit or low double-digit revenue growth numbers – and delivered against them
  • Forrester has consistently talked about reinventing and realigning its research, reworking its sales model and changing its employee profile, but generally providing low single-digit growth forecasts – and delivered against them

When you listen to the annual earnings calls – or read the transcripts – for these firms, another thing stands out. The way that Gartner talks about business is pretty consistent with its balance sheet and the other numbers it discloses, while Forrester’s soundtrack is a little more aspirational, but not always backed up by the numbers.

In short, there are contradictions in the way that Forrester talks about its business and the way it delivers its numbers. Which is what makes me wonder about whether Forrester and Gartner are really in the same game any more…

In previous years, I’ve broken down and compared their results by attribute, but what I’d like to highlight now is the basic differences and the points that I have trouble correlating. I have a spreadsheet with lots of data comparisons, but I’m assuming that not everyone is as fascinated with this detail as I am, so I’ll keep it high-level. In any case, I’m not a stock market analyst, so the annual comparisons are more relevant from a business perspective than quarterly.

Let’s look at some points of difference:

Growth

  • Gartner’s annual revenue in 2016 grew 13% to $US2.445 billion, just a tad under its forecast from 12 months earlier, while Forrester posted a 4% revenue growth, right in the middle of its forecast
  • Gartner’s net income grew 11% to $US196 million, while Forrester’s jumped 47% to $US17.7 million, but that is still significantly lower than its most recent high of $US26 million in FY2012
  • Gartner’s revenue has grown at a CAGR of 11.1% since 2013 and 11.3% since 2010, while Forrester’s has grown 3.1% since 2013 and a slightly better 4.5% since 2010.
  • Gartner has generally forecast higher revenue numbers and hit them, while Forrester has generally been conservative, but has been variable in delivery. If Gartner analysts were as accurate as their finance department, they would be legends….

Business mix

Gartner’s research revenue – coming mostly from the IT space – has continued to grow as a percentage of its total – 75% in 2016, compared with 67% in 2010, while Forrester’s has remained pretty consistent at about 66%.

  • Gartner’s research revenue grew just under 16% in 2016, and 14% in Q4, while its five-year CAGR is more than 13%
  • Forrester’s research revenue grew just over 2% in 2016, and 1% in Q4, while its five-year CAGR is about 4.5%

While growing its consulting business, Gartner hasn’t achieved the same results as for its syndicated research. Its events business grew by a similar number – just under 7% – but the firm did highlight the fact that some of its Symposium events were selling out, so new events are likely.

Forrester doesn’t break down its consulting and events numbers, but includes a single line item called “advisory” which grew just over 7% in 2016, and just under 7% in Q4, and from the soundtrack, it seemed that events was the stronger performer.

Sales

It’s no secret that Gartner invests heavily in its salesforce and in sales training, but it doesn’t tolerate under-performers. It claims to have fine-tuned hiring to minimise wastage, and continues to focus on sales productivity.

  • Average spend per account in 2016 increased 10% to $US174,000, while sales productivity increased 7% on a four-quarter rolling average
  • Gartner’s salesforce is forecast to increase 13% in 2017

Forrester brought on Michael Morhardt about four years ago as Chief Sales Officer, and has continued to refine its sales model since then, with varying degrees of success. Under the latest structure:

  • Forrester has moved to a “premier” account model for its largest customers, with three levels of engagement – a client executive, a solutions partner and a client success manager. It plans to transition to this model by end of the year in the US and Asia/Pacific, with Europe about 75% complete by then
  • Other accounts will be managed under a “core” program driven by an inside sales organisation in Nashville, with its 50+ headcount doubling in 2018. It is not clear how that will work for non-US clients

The Outlook

Gartner is once again bullish about the next year, forecasting a revenue growth of 10% to 12%, with the highest forecasts in research. That doesn’t take into account its proposed acquisition of Corporate Executive Board (more on that below) which has the potential to add about $US1 billion to its top line once it’s finalised in April.

Forrester is forecasting a revenue growth of -1% to 2% for 2017, which is its lowest outlook since a similar forecast for 2013.

The Inconsistencies

I hold no torch for Gartner, but it’s hard to poke holes in its numbers and its forecasts. Gartner consistently walks the talk and lives up to its forecasts, so if it says it’s going to do something, then you’re unlikely to see a different outcome.

Likewise, I have nothing against Forrester – I have some great mates who work there and I respect their research. But there some things that just don’t make sense:

  • Forrester’s largest research communities in 2016 were CIOs (8,232 members), application development & delivery (5,341) and analyst relations (4,744) – that’s vendor folks like me. Sure, some of these clients might be buying customer-oriented research, but it still looks like a traditional IT audience
  • While CSO Michael Morhardt and CFO Mike Doyle talked up the new sales model – and particularly the Nashville beta – their positivity doesn’t gibe with a revenue forecast that is low to negative. Normally, a new inside sales organisation would be expected to ramp quickly, driving up revenue

Inorganic Growth

Gartner has always been acquisitive, adding breadth to its portfolio. In 2015, it acquired Peer Insights, a sort-of-less-nasty TripAdvisor review site for IT user feedback, which extends its ability to get direct insight from users about IT vendor performance. Other acquisitions have extended its capabilities into technical or niche market segments, but the $US3 billion purchase of Corporate Executive Board – a peer networking platform for legal, financial and HR – pushes it out of IT and into the rest of the C-suite. That deal is expected to close in April.

Gartner wants to play across the business, and always has dozens of potential acquisitions on its radar.

Forrester wants to play that game too. On its earnings call, Forrester said that it had appointed Doug Kohen, formerly head of operations & strategy, to lead its acquisitions, with a goal of completing one deal per year.

Meanwhile, International Data Corporation is also cashed-up for acquisitions, with its new Chinese venture capital owners also placing some emphasis on inorganic growth.

So Where To Now?

Plus ca change, plus ces’t la meme chose.

Gartner remains the 800-pound gorilla, but extends its reach into other line of business segments with the CEB acquisition. According to my friends at KCG, Gartner accounted for just under 70% of end-user spending on analyst firm services in 2015, and most of that was in the IT space. With the addition of CEB and other acquisitions, that penetration will no doubt increase.

At the same time, Gartner, IDC and Forrester accounted for 56% of total analyst firm revenues, with hundreds of firms making up the balance.

More acquisitions means more consolidation in the Big Three, but there are only a handful of mid-sized firms, and they’re not all appealing. The most attractive are those outside of IT, who can add breadth to the offerings of these traditionally IT-focused firms.

From an AR perspective, the new Gartner is a lot more complex. AR pros are already wrestling with how Peer Insights will impact existing engagement programs, while at the same time figuring out how to deal with CEB, whose people act more like advisors than analysts. It seems that the bigger Gartner gets, the harder it is to navigate.

Forrester, meanwhile, seems to be under attack from some of the ATGs (Alternatives to Garter) which have narrower focus, particularly around digital marketing. These firms are driving revenue out of lines of business rather than IT and generally have been established by Gartner and Forrester alumni – Constellation Research and Altimeter are probably the most visible examples, but there are others, and while generally smaller, they are becoming more important.

In the medium to long term, the analyst firms we know and love won’t look anything like those we deal with today. That will change how customers buy from them, how they influence customers, and how vendors try to influence the analysts.

But in the short term, the analyst business remains pretty much the same. And for AR folks, the strategy remains the same – focus on the analysts who really influence your customers and prospects, but keep one eye open for influencers who have – and will – come out of left field. It’s probably also worthwhile giving serious consideration to the length of future analyst firm contract commitments.

As always, I’d love to hear your thoughts.

Cheers,

Dave

  • Thanks to Seeking Alpha for the earnings call transcripts, which compensate for my inadequate note-taking, and also to my mate Bill Hopkins at KCG, who did a stellar job of peer reviewing my draft.

Forrester eyes marketing & strategy opportunity in Asia/Pacific

As ICT vendors begin to focus more on the increasing proportion of enterprise technology spending which is not controlled by the CIO, Forrester Research has been quietly building out a program targeting the “new breed” of budget-owners in the Asia/Pacific region. Not surprisingly, China figures prominently.

While Forrester’s focus on delivering digital marketing & strategy services to line-of-business technology buyers in North America and Europe is well-known and now well-established, it has primarily concentrated on its mainstream technology services in APJ, particularly following the acquisition of Springboard Research in May 2011.

Although a long way behind Gartner, and despite only having a small number of buy-side analysts located in APJ, Forrester has been relatively successful in building up a client base among the IT departments of banks, retailers, government departments, FMCG suppliers and other large enterprises.

With the Springboard acquisition consolidated, Forrester is now eyeing the opportunity to tap into the wallets of large enterprises across the Asia/Pacific region that need help developing digital marketing strategies which will allow those organisations to more effectively sell their products & services to the world’s largest consumer markets.

Lead by a 12-year Forrester veteran, vice president Andrew Stockwell, the firm is well down the path of tailoring its services to meet the different needs of sales & marketing organisations in APJ. Stockwell relocated to Beijing in March 2012, a location which was chosen because “it’s the hardest place to find & recruit talent, it’s the hardest place to navigate the business, and it offers the biggest growth opportunity.”

Andrew-Stockwell Bio Picture - NEW“We did an analysis of our own research – what markets have the highest online population, the greatest levels of disposable income, the highest adoption of technology, the greatest opportunity for our clients? China came out number one in almost every one of these categories,” he said.

While cagey about revealing too much detail about headcount, Stockwell is actively recruiting local analysts, initially focusing on China and Australia – firstly to replace e-business analyst Steven Noble (no relation) who left to kick off his own tech start-up a few months ago, and potentially another Australian analyst. Singapore and India are also likely locations for marketing & strategy analysts, while Stockwell can also draw on existing resources in the US.

“We have been collecting data from consumers in APJ since 2007 – covering South Korea, Japan, China, Australia and India,” said Stockwell. “We have a good base of understanding about the customer, but the research we have been writing has been out of West, about the East, so we want to get a lot more localised about our strategy.”

While Stockwell doesn’t see Forrester replicating Ovum’s recent move to begin translating selected global research into Chinese, he does see local language capability as a key skill, with enquiries and consulting to be delivered by local staff to provide context around English research content.

“We can take a piece of research which has been written globally, spin it and add customer case studies and examples about what that means locally, and translate that piece if necessary,” he said.

“It goes back to who we are trying to serve – at the level we’re targeting, these people generally can read English .…  Our focus in the short term is not selling to the local Chinese companies, but on developing the content, the insight, the data, the analysis and the consulting that we can use to help the local representatives of multinational companies, or the clients who are sitting in North America or Europe or Australia or Singapore who don’t know how to get into China.”

From one perspective, Forrester’s strategy is not that different to that of firms such as Gartner and IDC, which initially built their China – and some other APJ country – operations to support the market entry strategies of multinational IT vendors. Those operations have since broadened significantly, with Gartner generating growing revenue from the IT organisations of Chinese companies and IDC now boasting a full complement of analysts across all of its Insights vertical market research practices.

That Forrester will gain initial success in China with companies with which it already does business in North America and Europe is undoubted – it has a global reputation, if a more limited global presence. The number of prospects is considerable, but ultimately Forrester will need to turn its attention to local companies in China and other country markets, a long-term objective which Stockwell acknowledged.

It will also have to deepen its local research, and that is much closer on the horizon. Forrester currently surveys about 10,000 consumers in the top 10 to 12 cities in China (the largest cities known as Tier 1 & 2), but Stockwell wants to extend that research to Tiers 3 through 6 – there are more than 160 cities in China with populations of more than one million, which is why companies selling to consumers are so eager to invest in China. There are also plans to extend the consumer research into other countries in the region, including Indonesia – which has the third-largest population in the region after China & India, and a growing middle class.

That these companies are also buying technology outside of the conventional IT frameworks is also without doubt. Non-IT buyers have become a significant focus for vendors such as IBM and SAP over the past couple of years, a period which has also seen the emergence of specialist analyst firms focused on the digital marketing space, such as Altimeter and Constellation, which recently appointed Gavin Heaton to lead digital marketing research from Australia.

“Companies are now seeking competitive advantage from new areas, which means they need a better understanding of the customer, to provide a better customer experience. So we want to focus on where the decisions are being made, where the budgets are being held,” said Stockwell.

“We have been saying for a long time that you don’t want to choose your technology, then define your objectives. You figure out the people you want to target, then determine your business objectives, then work out your strategy, and then decide on the technology.”

That all of the key current technology trends – cloud, big data, mobility & social media – play directly to the marketing & strategy space adds another layer of interest around this gradual shift away from IT departments being the owners of all technology spending, and how analyst firms are dealing with that shift.

It is still early days, but it will be interesting to watch & see if Forrester’s foray is successful. And just as interesting to see who else follows…. What do you think?

Cheers,

Dave