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.

Big bucks splashed on buyouts, but analyst business foundations remain firm

Consolidation has been a reality in the technology research business for the five-plus decades of its existence, but the billions of dollars splashed out last month in deals involving the two largest players – Gartner and International Data Corporation – have thrown a spotlight on the future of the business.

Neither deal was particularly surprising.

Gartner has always been acquisitive, and peer networking company, Corporate Executive Board (CEB) had long been rumoured as a potential target. The $US2.6 billion in cash and stock (plus $US700 million in debt) which Gartner offered in early January was, however, enough to make many folks in the technology business sit up and take notice.

Meanwhile, International Data Group – parent company of IDC – had been on the market for several months after the McGovern family decided to exit the tech publishing and research businesses to invest in their late father Pat’s deep interest in brain research.

Terms of the deal weren’t disclosed, but it is believed that the combined bid from two Chinese venture capitalists – China Oceanwide Holdings Group and IDG Capital – amounted to something under $US1 billion. Apparently both firms lodged unsuccessful offers last year, and were encouraged to pool their resources, putting together a winning bid in mid-January.

What makes these deals most interesting is what happens from here.

Gartner and CEB

Gartner has made many acquisitions in the last several years, including well-known tech research firms such as Dataquest, Meta Group and Ideas International. It is extremely good at assimilating acquired firms and in most cases has been successful at rebranding services under the Gartner name, with the original brands vanishing.

However, CEB is not a tech research firm whose services will fit neatly into Gartner’s portfolio. Rather, it is a talent management, peer networking and insights company, with a strong presence in human resources, sales, legal and finance. It is quite likely that Gartner will think long and hard about rebranding CEB as the Gartner name will be less well-known in these segments.

Adding close to $US1 billion to Gartner’s revenues of $US2.4 billion and about 4,600 staff to Gartner’s headcount of about 9,000, this deal is also significantly larger than anything that Gartner has consumed before.

However, Gartner CEO Gene Hall made it clear on last week’s earnings call that the firm will be using all the skills and tools it has developed over several years to drive out costs from CEB, and drive up sales engagement and client retention.

The good news for Gartner is that there is no real conflict in the offerings from the two firms, which means no confusion about subscription renewals moving forward. Longer term, the gains will come from consolidating back office functions and real estate, streamlining CEB sales & retention processes, adding functionality to CEB services (think advisory…), broadening the services portfolio for both sales teams, and building new services for new markets.

Hall confirmed last week that the deal has received US anti-trust approval, so there is little likelihood of it not proceeding, and Gartner teams are already hard at work aiming to close the deal in April.

Combined revenues will start to approach $US4 billion this year, allowing Gartner to further dwarf its dwindling group of competitors of any size and substance. But realistically, it will take 12 to 18 months to properly assess the impact of this acquisition on the technology research business.

IDC and the China connection

The founder of IDG, Pat McGovern, had a lifelong interest in China and was the first western publisher to establish a joint venture there as relations thawed in the 1980s, so it is perhaps appropriate that Chinese venture capitalists are the new owners. Indeed, the minority partner – IDG Capital – traces its roots back to McGovern’s first investment activities in China, when he partnered with Hugo Shong, now head of IDG Capital.

With the deal receiving US foreign investment approval before it was announced, this is a done deal, and mostly it represents upside for IDC, which is generally considered the more valuable property as the tech publishing business has struggled in recent years.

First and foremost, the announcement provides certainty for IDC. Ever since word leaked last year that it was on the market, there has been a degree of discomfort in IDC and among its primarily tech vendor clients. It is doubtful that that had any material impact on IDC’s sales, but it could have if the process dragged out much longer. The new owners also confirmed that long-time CEO Kirk Campbell would remain in charge, suggesting that other management changes are also unlikely.

Second, it positions IDC as an acquirer for the first time in many years. IDC has focused on organic growth and hasn’t made a significant acquisition since bringing in Meridian as the basis of Financial Insights over a decade ago.

The new owners have pledged funding for acquisitions, and IDC executives are actively exploring opportunities, many of which are no doubt also on Gartner’s radar – that firm has dozens of opportunities in view at any one time, and will sometimes wait years until the timing and pricing are right.

Short term, the buyout will have no impact on IDC’s portfolio or its sales activities, although it is likely to increase focus on driving up sales. The new owners are venture capitalists, and will be looking for a return on their investment.

The deal has attracted some criticism and negative commentary. Oceanwide is an investor in Chinese computer manufacturer, Lenovo, leading to suggestions of conflict of interest. Most astute observers think that is drawing a long bow – IDC would place its professional and financial credibility at extreme risk if it was even rumoured to be influenced by such a relationship. Indeed, Silverlake Partners, a US venture capital firm funded by Microsoft’s Bill Gates and Oracle’s Larry Ellison – among others – was once a significant shareholder in Gartner, but that didn’t stop them becoming involved in many battles over market data and opinion.

There is also a somewhat bizarre attack ad from Canalys, a UK-based firm which competes with IDC in the market share space for volume products such as notebooks and smartphones. The ad raises questions about trust and security of data shared with IDC by IT vendors, which is somewhat ironic considering Canalys has a largish research operation in Shanghai, which is generally considered to be the base for much of China’s hacking and cyber espionage activities.

Like the Gartner/CEB deal, the impacts of the IDC buyout are unlikely to become clear for at least 12 to 18 months, and while IDC remains the second-largest player in the tech research business, the change is not going to shake the foundations of the industry. Any changes are likely to be evolutionary rather than revolutionary, which has pretty much how things have been at IDC for some years.

Cheers,

Dave

 

Gartner & Forrester results show there’s life in the “old” business model yet

The stronger US dollar and the sudden decline in the oil & gas sector combined to impact the business performance of both Gartner and Forrester in FY2015, but their respective balance sheets belie the argument that the “traditional” IT analyst firm business model is dead or dying.

For the past couple of years, there has been a debate in the market about the long-term value proposition of the “old school” firms – Gartner, IDC and Forrester, respectively #1, #2 and #3 in the market – as more information becomes available from new players via “freemium” models focused on non-IT buyers. The most extreme end of that argument posits that end-user customers will no longer accept the high-priced, subscription seat model used by Gartner and Forrester.

On the current evidence, that is clearly not true. In Q4, Gartner’s new business increased 9% year-on-year despite an average 3% increase in prices. Since 2010, Gartner has consistently increased the share of revenue from research (subscription) from 67% to 73% in 2015, while Forrester’s research share of revenue has been roughly steady at 67% over the same period.

The results suggest that Gartner continues to deliver generally solid growth rates by sticking to what it does best, while Forrester continues to struggle to reap the benefit of its shift to focus on the age of the customer, rather than traditional IT. Are some of the newer players generating good returns? Of course, but not necessarily at the expense of the older firms.

Certainly, Gartner’s results are a bit of a mixed bag, but there are more positives than negatives. Meanwhile, Forrester’s results don’t necessarily support the positive commentary from its senior executives on the company’s earnings call this week, but they’re not all bad.

As the only two analyst firms to report their results publicly, Gartner and Forrester act as a bellwether for the state of the analyst business. IDC does too, but with little breakdown of its numbers, it’s hard to get deep insight.

As always, analysing the financial performance of these two public firms provides some interesting insights. We’ll break down their businesses in a similar format to that we used last year and previously.

Top line, bottom line

Gartner closed the year with revenues of $US2.163 billion, up 7% over 2014, while Forrester notched up $314 million in revenues, an increase of less than 1%. Interestingly, Gartner came in at the lower end of its year-earlier forecast, while Forrester was well below its unusually bullish forecast.

Gartner posted $176 million in net income, down 4% on 2014, and about 8% as a percentage of revenues, while Forrester recorded a net income of $US12 million, a solid 10% increase on its record low 2014 result, and almost 4% as a percentage of revenues.

Research

Syndicated research still drives the revenue for both these firms. It grew strongly for Gartner in 2015, up 10% to $1.584 billion, and is forecast to grow 13 – 15% this year. For Forrester, research grew just over 1%, to $210 million.

On the earnings call, Forrester’s chairman, George Colony, said that “our customer experience business across all product lines continues to grow at over 20% per year.” Given the overall growth rate, that suggests that this business is still relatively small, which is supported by the fact that CFO Michael Doyle said that the top research role for Forrester was CIOs, with more than 10,000 members, followed by application development & delivery professionals, then analyst relations professionals.

Consulting

Forrester doesn’t report consulting as a separate line item, combining it under the category “advisory services and events”, but said that “this segment of the business continued to strengthen.” Overall, this line item declined 1% in 2015, but grew 7% in Q4 year-on-year, when event revenue declined 21% with one less event held.

Gartner separates its consulting business in the balance sheet, though there’s not much insight into how much of that comes from users vs vendors. Overall, consulting declined 6% in 2015 and was marginally down in Q4 year-on-year, with the firm forecasting 1 – 5% growth in 2016. Like Forrester, Gartner remains bullish about this segment, increasing its managing partner headcount by 18% to 109 last year, as well as adding junior consultants.

Events

Events were again the standout performer for Gartner, increasing just over 11% for both the year and the final quarter, when the flagship Symposium events are held around the world. Despite selling out the Orlando event and not increasing the number of total events, Gartner is forecasting 9 – 15% growth in that business this year, which suggests increased fees for both exhibiting and attending.

For Forrester, events are a much smaller business than for Gartner, and it doesn’t break it out as a separate line item in the balance sheet. However, George Colony said that the segment had begun to grow again in the second half of 2015 with the appointment of a new events chief. Forrester will hold 13 events in 2016, compared with Gartner’s 63.

Headcount

Gartner doesn’t provide a detailed breakdown of its staffing in its earnings statement, but its latest corporate profile – updated on September 30 – states total employment of 7,600 “associates”, an increase of 1,000 from the previous 12 month period. Of these, more than 1,100 are analysts – up 100. On the earnings call, Gartner CFO, Craig Safian, said that the consulting billable headcount was 606, up 13% on the previous year, while sales headcount grew approximately 15% in line with forecasts.

Forrester ended the year with a total of 1,345 staff – down marginally – including 4% fewer research & consulting for a total of 499, and 3% more sales staff for a total of 524. On the earnings call, Michael Doyle said that 340 of those were quota-bearing.

Client retention & contract value

Gartner & Forrester use slightly different terminology to describe their key metrics, but they both use rolling four-quarter averages to eliminate seasonality. Gartner said its client retention rate was 84%, down one point, while Forrester reported a one-point improvement to 77%. In terms of dollars, Gartner’s wallet retention was 105% at the enterprise level compared with Forrester’s 89%, with Gartner down slightly and Forrester up slightly.

For Gartner, research contract value increased 10% to $US1.761 billion (although this was restated on January 1 to $US1.69 billion due to the impact of foreign exchange rates), while Forrester increased 2% to $US237 million. None of these figures suggest that enterprises are walking away from the business model.

Outlook

The ongoing strength of the US dollar had an impact on the year-end results for both firms, and will continue to do so. Forrester was particularly bearish about ongoing exchange rate impacts but Gartner was more circumspect, despite having a greater exposure to international markets.

Forrester is also more bearish on revenue growth, and less positive than it was a year ago. Current forecasts are for 3 – 5% growth this year – though that may be adjusted – while Gartner has returned to its typical bullish form with a forecast of 10 – 13% in 2016.

This will only increase the delta between the #1 and #3 players in the analyst business. Gartner added almost “half a Forrester” to its bottom line in 2015, and will cross the 50% mark this year even at the lower end of its forecasts.

So the traditional IT analyst firm business model is far from dead.

Gartner remains cashed-up and interested in acquisitions to bolster its offerings to enterprises lower down the value chain, while Forrester could also benefit from some inorganic growth to broaden its offerings and provide some more heft to its market position. However, it’s unlikely that either will be a buyer for IDC, whose parent company IDG is currently looking at options to sell all of its publishing, research & events businesses.

Unlike Gartner & Forrester, IDC draws very little revenue from end-users, but some new money in the marketplace could change that focus, and the balance of power in the analyst business. Or not….

Cheers,

Dave

* Thanks to Seeking Alpha for the earnings call transcripts, which compensate for my inadequate note-taking.

 

 

Why technology industry disruption is also disrupting the analyst relations game

The analyst relations profession has always been a challenging one – fun, but challenging. Over the past couple of years, it has become tougher, and all indications are that it’s going to get even tougher in the coming years.

Like many buzz words that the technology industry latches on to, “disruption” is much over-used and often incorrectly applied. But the reality is that some technology market segments are being significantly disrupted by a range of forces, and by extension that is having a profound effect on the analyst business and the AR profession.

Confronted by this range of forces, many traditional IT vendors are struggling to get the attention they’ve previously enjoyed with the larger – and smaller – analyst firms. So, for AR pros, this means getting smarter & more creative if they want to get the cut-through they need.

But before we look at some of the potential solutions, let’s look at the problem. These are the forces at play:

Analyst business models are changing

To a large degree, analyst firms provide – and have always provided – pretty much the same thing to their clients, whether they are IT vendors or users. That is: content, engagement & advice. It’s a multi-layered approach which has worked for years & will continue to be successful, but here’s how it’s changing:

• “One to many” is being disintermediated. The subscription model for written research & market share data has long been the cash cow for analyst firms, but it is being devalued by the vast amount of information available for free on the web. Some emerging analyst firms are using freemium models to drive interest in paid services, but there is a wealth of information available online – on vendor websites, on blogs, on aggregation sites and elsewhere. Quality written research is still relevant for most analyst firms, but it is no longer a differentiator.
• “One to some” is gathering steam. Analyst firms have always done events – it’s a great way to promote the brand, the content and the ideas, but it also provides for more intimate engagement with customers. And it’s an area where many firms are focusing their investment. Gartner’s event business grew 17% last financial year, while the Symposium conference in Orlando in October sold out. IDC has a crowded schedule of events covering just about every country in Asia/Pacific, not to mention North America, Europe & elsewhere. And they’re not alone.
• “One to one” delivers value, but doesn’t scale. A key value proposition for Gartner – among many others – has been its enquiry service, through which it is able to provide specific, personalised advice to both vendors & users. This is what many clients really pay for, but there are only so many 30-minute enquiries that an individual analyst can manage. Increasing enquiry volumes means adding expertise, which costs money.

The technology business ain’t what it used to be

In the beginning there were just a few technology vendors – old hands will recall referring to one predominant group as the BUNCH (Burroughs, Univac, NCR, Control Data, Honeywell). The minicomputer business started the process of expansion, but the advent of the PC in the early 1980s truly democratised the technology business, with the emergence of software standards & platform independence. The web further built on this legacy, spawning thousands of new players, while the smart mobile revolution has made everyone an app developer. But it gets worse:

• There are few barriers to entry for new players. There are still barriers to success, but anyone with a good idea, access to some smart programmers and a half-decent marketing plan has the potential to carve themselves out a niche and/or disrupt existing business models. Add in some venture capital & social media cred, and they have the potential to be a real player. And guess what – they’re doing everything they can to get the attention of industry analysts.
• The Internet of Things. What can we say? Even Gartner has declared it as the #2 strategic technology trend of 2015, and many other firms have been beating the drum about this for some time. This brings a lot of non-traditional players into the mix. And guess what – they’re doing everything they can to get the attention of industry analysts.
• Everything old is new again. In part due to the IoT, many old established manufacturing companies are finding that they’re interesting & relevant again as they build sensing technology into products like jet engines, heavy haulage, air conditioning systems and more. As one analyst said to me recently, many of the new disrupters are 100-year-old companies, not creative start-ups. Think Honeywell, Siemens, Rockwell Automation etc. And guess what – they’re doing everything they can to get the attention of industry analysts.
• Traditional IT vendors are looking for greener fields. The vendors we know & love are not sitting idly by while all this happens. They are well aware of the factors shaping the market & the emergence of new competition, and they are exploring their adjacent markets to maintain their growth. Unfortunately, they’re not seen as “sexy” like a lot of the so-called disruptors. But guess what – they’re doing everything they can to get the attention of industry analysts.

Analyst behaviours are changing

Being an analyst has always been a good gig, but it’s been getting tougher over the past few years. It’s still a good gig, but in general, analysts have less latitude than they once had to explore ideas, to think, to pontificate, to focus on the big long-term issues rather than the immediate problems in need of resolution. In simple terms, they’re more accountable for their time, but let’s look at the pressure points:

• Analysts are busier than they have ever been. Most analyst firms have figured out how to get more productivity out of their analysts over the past few years, so many of them now goal their staff on the stuff that impacts their renewal rates – not just written research volumes, but also enquiry volumes and paid engagements. So analysts are not just more accountable, they don’t have the “slack” in their schedules they once had, or the ability to apply that as they choose.
• Analysts need to know more about more things. Analysts in the Asia/Pacific region have always been broad rather than deep because they have to understand multiple geographic & technology markets, more so than their US & European peers, who have the luxury of larger markets which allow them to specialise. But all analysts need to understand the adjacencies to their focus markets, and that has become more complicated. They need to understand – and explain – how the new market dynamics affect the narrower markets they focus on.
• Analysts are being used differently by their own firms. As we noted above, there is a greater focus on delivering events which engage analysts more closely with their clients, whether they are vendors or users. While these events deliver a good contribution to the bottom line, they require more time commitment, not just in terms of presentation delivery & travel, but also for preparation. Analysts involved in these events are expected to be “always on” even when they’re not on stage, doing client enquiries, networking & otherwise promoting the firm’s brand.
• Analysts are being used differently by their clients. Not only do analyst firms run their own events, but IT vendors host them too. The user conference/roadshow/roundtable is a stock component in the marketing playbook of most IT vendors, and they love to use analysts in keynotes and breakouts to add an air of credibility and independence to their events. There’s nothing wrong with this, but once again it sucks up a lot of analyst time in preparation, delivery & travel.

Bottom line

What this boils down to is that many traditional IT vendors are struggling to get the attention of the analysts with whom they’ve engaged for years. They are competing for airtime & mindshare with a growing number of new players, whose stories are often more “sexy” than the business-as-usual messages they deliver. And this is at a time when analysts have less time to listen to vendors, and are more selective about what briefings they attend.

It’s a tough landscape, and vendors are going to have to get a bit creative to stand out from the crowd. There isn’t space today to discuss potential solutions, but I’ll do that in another post in the next week or so. In the meantime, I’d appreciate your perspectives on this dilemma, the ramifications and potential solutions.

Cheers,

Dave

Japan’s technology analyst business turns the corner

The technology analyst business in Japan – long constrained by weak economic & IT spending growth as well as some cultural challenges related to the use of external advisors – appears to be enjoying its most positive period in several years.

During a visit to Tokyo last month, I met with senior executives from the major global IT analyst firms, Gartner and IDC, as well as local advisory firm ITR, and found them all positive about business growth as the economy continues its recovery, although sentiment did vary from bullish to cautiously optimistic.

This is in stark contrast to previous visits over the past couple of decades, when the analyst business seemed weighed down by the weak performance of the Japanese economy and the challenges of adapting a “western” concept of external advisory to a culture much more reliant on peer networks & hierarchies.

Situation analysis

Japan is, was & always will be a complex technology market. It is huge – only last year surpassed as the second largest country market by a fast-growing China, according to IDC – and has a strong cohort of domestic technology vendors which have tended to dictate technology adoption much more than the large group of global multinationals which have operated in Japan for decades.

Native language support, the ability to innovate to meet the needs of the Japanese business & consumer markets, and tight relationships between local suppliers and end-user organisations have all shaped technology adoption & behaviour in Japan, and impacted on how analyst firms with “western” business models have engaged with Japanese clients, whether they are vendors or users.

Notwithstanding their enthusiastic reliance on technology, Japanese companies have not tended to see IT as strategic, or to elevate its role as a business driver or differentiator. According to analysts I spoke to recently and over previous years, no more than 20 to 30 per cent of Japanese enterprises employ a CIO, and very few of those have an IT background, coming mostly from HR and finance, so they tend to be heavily influenced by their suppliers, including the local SIs.

And while Japanese IT vendors have a voracious appetite for data – market size, market share & forecasts, not to mention any number of segmentations – Japanese market taxonomies don’t always map neatly to those defined by the global players such as IDC & Gartner, so this has represented a barrier to penetration of those accounts – in some cases requiring duplicate products to meet local & global requirements.

For their part, most analyst firms in Japan have maintained their investment in the market and are starting to see the dividends. IDC Japan is the oldest player, established in 1975, while Gartner ended its agency representation to establish a subsidiary in the late 1990s. That agency – ITR – has had information-sharing arrangements with Meta, Forrester and Constellation Research since, but has mostly relied on its local services to drive its business.

There are other local players, most of which are focused on providing local market share data to Japanese vendors. Some are technology specific, such as MIC Research, MM Research & Techno Systems Research while others are generic market research firms which cover technology segments along with other vertical markets, such as Fuji Chimera, Mitsubishi Research & Yano Research.

Forrester has maintained a sales office in Japan for many years, but has had no resident analysts in the country since the departure of its one representative earlier this year, while Frost & Sullivan has a good presence in some vertical markets, but a relatively low focus on IT.

But there are many signs that things are changing. Following is a snapshot of the state of play, based on my recent discussions.

Gartner Japan

Gartner has been investing steadily in the Japan business for the past few years with the addition of significant sales & support resources, evolving it from a sell-side market sizing organisation to one which now derives more than 60 per cent of its revenues from end-user organisations. According to Gartner’s Japan country head of research, Satoshi Yamanoi, the penetration of end-users remains quite small, particularly when compared with the US and EMEA, so the market opportunity is considerable.

Gartner now offers a complete portfolio of services in Japan, including research; consulting – which competes with likes of Boston Consulting & McKinsey; events – including Symposium/ITxpo & five summit events; and the EXP CIO peer networking program. The EXP program is approaching a critical mass, but Gartner hopes to increase this over the next couple of years.

Like other analyst firms in Japan, Gartner has very strong analyst retention, with many analysts having worked with the firm for several years. Headcount has remained stable at about 30 analysts for the past few years, but the research teams are now more tightly integrated with the global organisation, with the team leaders for infrastructure, applications & sourcing/IT management now reporting into global peers rather than working in isolation.

According to Yamanoi, Japanese CIOs and other executives are increasingly looking to understand global best practices for technology & business adoption and integration, so are more open to external guidance than previously. As well, other countries are looking to engage more closely with Japan, with Gartner working with government & business customers from China, India, Brazil & Japan.

IDC Japan

Similarly, IDC Japan has been enjoying some solid business growth without increasing its analyst headcount, which remains at about 35. Analyst retention rates are high, and according to managing director, Masato Takeuchi, it is difficult to recruit quality analysts due to the specific mix of skills required.

As in most other countries, IDC’s revenues are heavily dependent on quarterly market share trackers (which are often purchased at a corporate level by US & European vendors), but IDC Japan is also able to generate local language reports to meet the needs of Japanese vendors at both local & global levels.

The strong position of Japanese vendors in some technology segments means that IDC Japan is more actively involved in driving IDC’s global research agenda than most country offices. Several of the world’s leading printer vendors are Japanese, for example, while Japan’s strong manufacturing base across many segments means that IDC Japan is providing considerable input into defining the methodology around IDC’s research into the Internet of things (IoT).

According to Takeuchi, Japanese CIOs recognise that their role needs to change to one which acts more as a strategic advisor to the CEO, which opens up buy-side opportunities in some vertical markets, although IDC has not yet put significant focus on developing the Insights business in Japan. Retailers starting to explore the implementation of big data as they move to omni-channel is just one example of how IDC might leverage its global expertise for Japanese end-users.

ITR

Established 20 years ago, ITR has carved out a comfortable niche in the Japanese research & advisory market. With a comparatively small roster of 10 fulltime analysts plus about half a dozen contractors, it services about 300 clients, about one-quarter of which are end-user organisations and the balance are Japanese & multinational IT vendors.

ITR delivers buy-side advisory services to end-users through its subscription-based Strategic Partnership Service (SPS), plus undertakes short-term consulting engagements to help clients with vendor selection, IT strategy and IT architecture development. At the same time, it works the sell-side by producing market sizing reports for local vendors, primarily focusing on segments which aren’t addressed well by the bigger firms.

Originally a data-gathering partner for Gartner, ITR has a long history of partnering with global research firms, often translating selected content into Japanese to share with its local clients. Having also worked with Meta Group & Forrester, ITR is now aligned to US-based Constellation Research, which focuses largely on disruptive technologies.

According to ITR general manager, Hiroshi Yamamura, Japanese companies are slower to adopt disruptive technologies than their counterparts in the US, but there is a trend to technology purchasing moving away from the IT department to lines of business. Interest certainly seems to be growing – an ITR conference in May keynoted by Constellation founder & principal analyst R “Ray” Wang attracted 1,200 attendees.

Bottom line

There is growth at many levels in the Japanese analyst business. While revenues from existing services look healthy, there are new opportunities opening up as end-users more actively engage with external advisors, which means that the influence of Japanese analysts working for both local and global firms is increasing.

Japanese analysts rarely have influence outside of Japan, but they are significantly more influential in the domestic market than any foreign analysts will ever be. While IT spending growth remains moribund, Japan remains a huge market for multinational IT vendors, who would be well-advised to review & upgrade their level of engagement with analysts in the world’s third-largest market.

Cheers,

Dave

 

New firms sprout roots in the Asia/Pacific IT analyst landscape

Like the markets it supports, the IT industry analyst landscape is in a constant state of change. Firms come and go, research agendas shift to new technologies, business models are tweaked & redirected, deliverables metamorphose to reflect changed information consumption habits.

The last few years has seen quite a bit of consolidation at the “top end of town” as larger players have bought up smaller firms which provide them with access to new markets or opportunities. Forrester acquired home-grown APJ firm, Springboard Research three years ago, and Gartner soaked up IDEAS International in 2012. More recently, 451 Research picked up Yankee Group, a shadow of its former self, and Informa Telecoms transmogrified into Ovum, which it had acquired a few years ago.

These deals have been well reported, but just as interesting is what has been happening at the other end of the market. The analyst business is a classic “long tail” industry – there are hundreds of companies which fit the broad definition of “analyst firm” – and there are few barriers to entry, so there are always new players.

Over the past couple of years, quite a number of new seeds have been sown in the Asia/Pacific region. Some of these have already borne fruit, some are still quite nascent. They all have different business models, different focus areas, different capabilities, and how well they perform remains to be seen.

But they all have something to offer. As we’ve noted before, any analyst firm can give you insights into a market or technology – how important that is to a vendor depends on its own market focus, information needs, budget availability & many other factors.

Very few analyst firms have true influence over end-user purchasing decisions, but many influence around the edges, or can help create exposure for vendors to build awareness or help them better address their market opportunities. These are all valid outcomes of an analyst relations program, just addressed differently.

We thought it worthwhile to profile some of the “new” firms which have come on to our radar in APJ over the last couple of years. There are also a couple of firms which are relatively new on the scene that didn’t want to be included in our coverage at this point, but we’ll likely hear more of them as they get themselves established. We make no judgment on the capabilities or likely success of these firms, and to avoid any allegations of bias, they’re listed alphabetically.

 BigInsights (Australia)

Big data is a big topic, and that’s all that BigInsights covers, offering research, consulting, go-to-market services & training. The firm was founded by a former HP colleague of mine, Raj Dalal, who also spent some time covering emerging technologies for IDC Asia/Pacific. Also on board is another ex-HPer, David Triggs – as CTO – and former IDC Australia software analyst, Shayum Rahim – as research director – while the advisory board includes Ramin Marzbani, who in the 1990s built the internet research firm, www.consult, before selling it to ACNielsen; and Vikram Mehta, who rolled the blade server business out of Nortel to create Blade Network Technologies, later selling it to IBM.

BigInsights’ business model is fairly “traditional” and primarily focused on vendors with specific big data products, but includes some end-user services including discovery workshops & training. Key research studies include an annual technology & vendor landscape, and demand-side research on big data technology adoption, both covering the Asia/Pacific region.

 capioIT (Australia)

It’s been nearly four years since Phil Hassey set up capioIT, so he probably has more visibility than some of the newer firms, but still merits inclusion on this list. For a one-man band, Phil covers a lot of ground within his focus area of emerging technologies & emerging markets – recent studies have included topics as diverse as BI & analytics, infrastructure services, Chinese tier 2 & 3 cities, and natural resources IT solutions – but broadly his strength is around IT services & enterprise software.

With a background leading IT services research for Springboard and IDC Asia/Pacific, Phil delivers research & consulting services to vendors, but also undertakes custom consulting projects for end-user organisations in Australia as well as in other countries in APJ. Unlike many analysts, he also invests a lot of time & some of his own money doing on-the-ground research in many countries.

 Greyhound Research (India)

Former Forrester/Springboard analyst Sanchit Vir Gogia started Greyhound just over a year ago, positioning it as an IT & telecom research & advisory firm, focused on emerging markets. While many of the pages on its website remain incomplete, Sanchit told us that the firm targeted three audiences – IT decision-makers, IT vendors & partners, and venture capital funds – and revenue was reasonably balanced across the three, with clients in India, ASEAN and the Middle East.

Greyhound’s services include free & paid research, custom research, role-based advisory, toolkits & speaking engagements, with broad technology coverage focused on five business themes. Sanchit is also fairly visible through his blog, AsDisruptiveAsITGets, and on Twitter.

 Progessive Digital Media Group (UK)

Datamonitor founder, Michael Danson, who sold his business to Informa in 2007, has recently been rolling up a range of publishing & research businesses across a range of industries. The firm most relevant to this space is Kable, which does detailed primary research on ICT usage in 14 industries in 33 markets, and which also owns telco research & advisory firm, Pyramid, and Strategic Defence Intelligence, which tracks the global defence business.

For the past few months, former IDC Australia & Datamonitor sales director, Paul Hodges, has been ramping up the APJ sales operation in Sydney, and is planning to add country & regional analysts over coming months. Collectively, the PDM businesses have an enormous amount of data on technology consumption & usage, so the potential to further develop services of interest to both vendors & users is high.

 Specialist Computing (Australia)

After covering data centre technology for more than a decade with Gartner & a long career in marketing/technical roles with major IT vendors such as HDS, Phil Sargeant established Specialist Computing last year to focus on storage technologies, as well as server & desktop virtualisation.

While strictly speaking a consultancy rather than an analyst firm as there is no regular cycle of research, Specialist’s services are primarily focused on end-users, including creating & evaluating storage RFT/RFPs and creating storage & virtualisation plans.

 Tech Research Asia (Australia & Japan)

Tim Dillon had an extensive background as an analyst – leading IDC Asia/Pacific’s mobility practice, establishing Current Analysis’ European analyst operation& heading up Asia/Pacific research for Current Analysis, among other roles – before setting up TRA two years ago. Tokyo-based Trevor Clarke, formerly IDC Australia’s lead infrastructure analyst and a former editor of Computerworld Australia, joined the team as a partner a few months later, with former Corporate Express/Staples CIO, Garry Whatley, coming on board more recently.

While TRA positions itself as able to assist end-user executives – and many of its engagements are with CxOs and CIOs across the region – the majority of its revenues are derived from ICT vendors and service providers.TRA has broad technology coverage – although its published research has a strong focus on mobility and the future of work – and says its primary focus is analysing the business outcomes from technology, rather than technology per se. All of its team are active on the regional speaking circuit.

Generally speaking, all of these firms have chosen to focus on market niches where they can compete effectively with some of the bigger players. Key advantages they enjoy include nimbleness & flexibility, unconstrained by the business models, research methodologies & market taxonomies of the more established firms.

Of course, they lack the reach & scale that give some of the leaders a certain amount of market muscle, and scaling up requires adding quality analysts, who are often hard to find. And while some of them will be capable of producing quality research across the APJ region, they will understandably be stronger in their home markets, simply because no amount of travel can compensate for having feet on the street.

From an AR perspective, vendors should be thinking about how, when & why to engage with these firms. Some will make more sense than others, but they’re certainly worth exploring further.

Have we missed anyone? Let us know if there are other new players we should be looking at.

Cheers,

Dave

Crunching the analyst firm numbers – what do they tell us about Gartner, Forrester, IDC & others?

Not all IT research is about numbers, but the IT analyst business definitely is. It’s a business after all, and if you don’t make the numbers, you don’t have a business. But what’s interesting is how many different ways there are to make the numbers stack up.

It’s somewhat ironic that while IT analyst firms often rely on public – and private – disclosure of information from both vendors and end-user organisations to make their prognostications, they often don’t like to reveal too much about their own businesses. The big public firms, Gartner & Forrester, disclose good detail about their revenues to meet their statutory requirements, and perhaps a little more, while the private firms tend to be fairly vague.

As a former analyst, I’ve always been intrigued about the insights you can gain by breaking down the numbers. Topline and bottom line figures tell you one thing, but there’s often a more interesting story when you dig a bit deeper – you can see this in my recent post analysing the 2012 financial results for Gartner & Forrester.

I’ve long considered analyst headcount a good indicator of the health of analyst firm. If the headcount is growing, then that’s a reasonable sign that the business is also growing – or has good prospects of growth. Analysts are a product, and typically you don’t hire more of them if the ones you’ve already got aren’t selling.

But it’s not as simple as that. If you can increase revenue without adding analyst headcount ie adding costs, then you’re going to increase the profit margin, which is also a positive indicator. So you need to look at the relationship between analyst headcount, total headcount and revenue to get a better idea of how a firm is performing.

This is where it gets tricky. Not all of these data points are available for all firms, nor are they necessarily comparable. But by poking around the websites of a few of the leading firms and asking questions of their PR folks, I’ve come up with some insights.

Analyst headcounts

For simplicity’s sake, I’m going to use the term “analyst” a little loosely because of the different way that each firm categorises their staff, combining analysts & consultants, because these roles are sometimes shared.

According to Gartner’s website, it has 902 analysts and 500 consultants (total 1,402), an increase of just under 10% from a year earlier, while Forrester employs 432 “research professionals”, a decline of 4% from last year. IDC told me it employs 1,075 analysts, which is higher than the 1,000 stated on its website, although that latter figure has been unchanged for some time.

Ovum advised me that it currently employs 102 analysts and consultants, which is lower than I’d estimated from the analyst bios listed on its website, but those include management. This figure seems largely unchanged from a year ago. Frost & Sullivan confirmed that it employs 1,800 analysts and consultants worldwide, and while this figure seems relatively unchanged, it is unclear how many of these are focused primarily on IT & communications, as is the case for the other firms.

Looking at analysts as a percentage of total employees, Gartner has the lowest ratio – just over 25% – while IDC has the highest, at 63%. Forrester – at 35% – and Ovum – 55% – sit in between these two extremes, and all appear to have drifted downwards slightly in the past couple of years. Of course, these firms have quite different business models, research services, analyst types and client bases, so it is not unusual that the ratios should vary, but it is interesting how starkly different they are.

Unfortunately, we don’t have accurate data for sales headcount for these firms (except Ovum, which is about 25% of its total), but we do know that Gartner has invested heavily in its salesforce over recent years, particularly in Asia/Pacific, but elsewhere as well. Forrester and IDC have also increased their sales hires in the past year, evidenced by total headcount growing at a greater rate than analyst headcount.

Mapping headcount to revenue

The headcount figures become more interesting when we map them against revenues. Forrester and IDC have similar revenue per employee figures – about $US236,000 – but Gartner’s is about 25% higher, just under $US300,000.

The differences become even more dramatic when we compare revenue per “analyst.” Gartner is generating more than $1.1 million per analyst, some 70% higher than Forrester, and more than 200% higher than IDC! Granted, the different business models don’t make this an apples-for-apples comparison, but the deltas are large enough to demonstrate the point.

So what does this tell us? Certainly, Gartner has optimised its sales-to-analyst ratio in recent years, but can it still make gains from pushing this approach further? At what point does reducing the analyst percentage of headcount start to have a negative impact?

Forrester blamed poor sales execution for its weak financial performance last year, and has indicated a greater focus on sales to turn the business around. But does it need to match Gartner to make that happen? Forrester is about one-fifth the size of Gartner, so does scale change the equation?

IDC obviously has a different client base to these two firms, and the analyst workloads are quite different, but can it benefit from adopting this approach, driving analyst percentages down and sales ratios up to increase revenues & margins?

And what does this mean for other, smaller firms, where the sales ratios tend to be lower? Can they learn and benefit from Gartner’s approach?

On the surface, this doesn’t look like a good trend for the analyst business, from an AR perspective. But on deeper assessment, fewer analysts with greater impact & influence are much easier to engage with than lots of analysts with less impact. In other words, simply increasing analyst headcount is probably less effective than improving the penetration of existing analysts by putting more sales resources behind them.

This is one of those areas where I don’t have all the answers, but I find the questions intriguing. What do you think? How important are these ratios to the performance of an analyst firm, to the health of the analyst business overall, to the execution of a vendor AR program? What else can we learn from this analysis?

Cheers,

Dave

Constellation links with ITR to enter Japanese research market

Constellation Research has continued its foray into the APJ region with the signing of a research partnership with highly-regarded Japanese end-user advisory firm, ITR, which recently dissolved its long-standing association with Forrester Research.

Under the agreement, ITR will have access to Constellation’s full portfolio of research, which focuses on innovation & disruptive technologies, including digital marketing transformation, the future of work, consumerisation of IT, big data & analytics, and matrix commerce.

According to Constellation CEO & principal analyst, R “Ray” Wang, ITR will highlight Constellation’s Research in translated Japanese-language summaries for its monthly report ITR Review. From there,“we will work with them to provide the right package and access for the market,” he said.

Joint research projects are not out of the question, although Wang declined to provide details at this stage, saying only that they would “align with Constellation’s research themes.”

The choice of ITR as a Japanese partner is an interesting, but unsurprising choice.

Established in 1994, ITR has a long history of partnering with global research firms. Six months after incorporation, it entered into an agreement with Gartner, acting as its Japan research centre. This relationship lasted until December 1997, when the principals decided to revert to independent status, focused on research & consulting for the Japanese market.

A year later, ITR entered into a sales & research agreement with META Group, but this ended a few months after META was acquired by Gartner in December 2004 (perhaps not surprising). In June 2005, ITR developed a business relationship with Forrester, which largely revolved around translating & repackaging Forrester content for its local clients, as Forrester also had its own sales office in the country.

Initially, the Constellation arrangement looks quite similar, though it is likely that the relationship will evolve further.

ITR is an interesting firm because it has always operated as a buy-side advisory firm in a market where external advice is not always valued. It has a comparatively small roster of analysts (relative to Gartner & IDC in Japan), but they are generally considered knowledgeable, experienced & solid. Its penetration of end-user accounts is pretty much blue-chip in Japanese terms, and preceded Gartner’s more recent deeper engagement outside the technology manufacturing sector in Japan.

“ITR has a history of pioneering the IT research space.  We are honored to be their partner in Japan. Constellation’s focus on how to apply disruptive technologies to new business models and ITR’s sterling reputation, give clients an opportunity to collaborate on how new technologies will transform business models. We look forward to working with ITR to create new opportunities for companies in Japan to take advantage of disruptive technologies and business models,” said Wang in the firm’s press release.

The alliance is the latest in a series of forays outside Constellation’s US base, with the establishment of a market presence in India in 2012 and the appointment of an Australian analyst, Gavin Heaton, to lead the firm’s digital marketing transformation research only a few months ago. Wang said Constellation would continue to look for opportunities in the APJ region, as well as expanding into Latin America this year.

Like the previous moves, this announcement is not hugely significant in of itself. Rather, it is another indication of the subtle changes occurring in the analyst business, and plays to two key trends we’ve highlighted in previous posts – the huge opportunity that still exists in the APJ market, and the shift to focus on non-traditional IT buyers, as highlighted by Forrester’s push into APJ with its marketing & strategy programs.

One of Constellation’s key differentiators – which has both supporters and detractors – is its strong focus on engagement via social media, and it is unlikely that will translate well into a non-English market where social media usage patterns are starkly different. It will be interesting to watch how Constellation & ITR adapt these new business models in a mature IT market which still has a fairly conservative approach to analyst research.

Cheers,

Dave

There’s still plenty of upside for the analyst business in Asia/Pacific…

At first glance, the technology analyst business in Asia/Pacific looks pretty mature – the first global firms established their beachheads in the late 1970s, there are many analysts now who can measure their tenure in decades rather than years, and there has been an ongoing process of consolidation which is typical of maturing industries.

But when you look more closely, it seems that the analyst business in this part of the world is still under-penetrated. And by a fair degree….

The Asia/Pacific region is all about growth – everybody knows that. Not just for technology, but for everything – consumer goods, manufacturing, professional and personal services, airlines, you name it… Due to their sheer population size and rate of growth, China and India attract most of the attention, but there are plenty of smaller economies in Asia which are belting along while the US and Europe try to figure out whether they can pay their bills.

All this growth creates an appetite for technology, which is why so many global vendors have a strong focus on APJ. Many of them get their best growth figures from this region, quarter after quarter, and they don’t see that changing – Symantec’s regional senior VP, Bernard Kwok, was quoted today as saying that the company would double its business in the next five years.

Some big vendors aren’t even really here yet! Analysts tweeting out of Dreamforce today quoted Salesforce.com CEO Marc Benioff as saying that the company hadn’t entered China yet (although its website lists offices in Shanghai and Beijing). However you look at it, though, that vendor has hardly scratched the surface in APJ.

And then there are the local vendors…. Software and services suppliers from India, communications equipment vendors from China, the established hardware manufacturers from Japan and South Korea, and lots of start-ups right across the region developing applications, tools and solutions for their local markets.

Every analyst firm I talk to in this part of the world says business is good – they’re sharing in this growth, but not at the same levels as their clients. And when you break down the numbers around the analyst business in APJ, you get the feeling that there’s still plenty of upside, and those firms that ratchet up their level of investment are going to reap the benefits.

So let’s look at the numbers.

I’ve consolidated these from analyst firm websites and my own databases, and I regard them as good estimates, but they may not be 100% accurate. Indeed, the total analyst workforce numbers quoted on the firm websites appear to be “rounded” and may in fact understate the case, and some of them use vague terminology so it’s difficult to make exact comparisons.

IDC

There’s no doubt that IDC is the biggest technology analyst firm in APJ. It employs approximately 230 analysts who are located in 14 countries, accounting for something like 23 per cent of the “more than 1,000 analysts” that its website says it employs worldwide. Interestingly, IDC employs the same number of analysts in China – 45 – as it does in its Singapore regional headquarters, with Japan the next largest office, followed by Malaysia, then India.

 Gartner

Gartner established its first Asia/Pacific office in Australia in the late 1970s, just after IDC, and expanded progressively across the region. It added significant headcount with the acquisition of Dataquest in 1995, and the majority of its analyst hires more recently have been in China and India. Gartner employs approximately 120 analysts in APJ – out of a global total of 800, or 15 per cent – in offices in 10 countries. Japan is its largest office by analyst numbers, followed by Australia and India, with China still relatively small.

Forrester

Until its acquisition of Singapore-based Springboard Research in May last year, Forrester had very little presence in APJ – a couple of analysts in Australia, and one in Japan. There are now about 40 analysts & researchers employed by the firm in APJ, the majority of them in India, although it also has reasonable presence in Singapore, Australia and China. But this figure is just 9 per cent of its worldwide headcount of 450 “research professionals.”

 Ovum

Ovum employs the largest percentage of its analysts in APJ – just over one-quarter – but as a European firm, it doesn’t have a large number of analysts in North America. Its website says it employs 140 analysts and consultants worldwide, and about 36 are in APJ – primarily in India and Australia.

Frost & Sullivan

Frost’s website says it employs 1,800 analysts and consultants worldwide, but getting any insight on how many of those actually focus on technology – as opposed to the other industries Frost also researches – is pretty hard. In APJ, Frost’s technology focus is primarily on telecommunications, contact centre and some other specific segments such as information security, but the regional organisational structure is a little complex, and in some countries, analysts don’t specialise in a single industry or topic. I’d estimate about 70 fulltime technology analysts in APJ, but the number could be higher.

Apart from those five global firms, there are probably another 30 or so firms with some sort of analyst presence in APJ. As well as US and European firms which employ a handful of analysts in the region, this group includes advisory firms in Australia such as IBRS and Longhaus; Japanese “numbers houses” such as Yano and MIC; and the intriguing Chinese players such as CCID and Analysys International.

According to my friends at KCG, there are about 350 “real” analyst firms worldwide, which means that just 10 per cent of them have some sort of analyst presence in APJ. Granted, many of those firms are quite small, but that doesn’t mean they couldn’t or shouldn’t be investing in the real growth opportunities that exist in this region.

There are plenty of gaps in the research portfolios of the larger firms too. For example, deep focus on technology in specific industries is limited, and very little attention is paid to non-traditional purchasers of technology. There are huge provincial markets in China for which there is very little good market intelligence, while coverage of emerging markets such as Vietnam has barely scratched the surface.

APJ is one of the major growth engines of the global economy for the foreseeable future, so you would think the analyst firms would be throwing resources at this region to cash in. That doesn’t seem to be the case, but maybe that will change – after all, it’s all upside.

Cheers,

Dave

Did the earth move for you? No, but the landscape changed…

Like the technology market it supports, the industry analyst business is in a constant state of movement. There is always a new technology to observe & analyse, a new geographic market emerging, a new way of delivering research, new analysts deciding they can do a better job than the incumbents – this in itself is nothing new.

But when you live in a relatively niche market like analyst relations every working day – as I do – you sometimes focus more on the tactical, day-to-day shifts and spend less time thinking about the big picture, and the change that’s taking place over time.

This point came home to me this week when I was co-hosting an Institute of Industry Analyst Relations webinar with my mate and occasional business partner Bill Hopkins, the founder & CEO of KCG. While we sometimes disagree on the detail, Bill & I share a similar “world view” of the analyst & AR businesses. We’ve both worked in AR for well over a decade, we’ve both worked as analysts – though at different firms – and we’ve both spent a long time working in the technology business.

The topic of the webinar was KCG’s Global Analyst Landscape update, with me providing the Asia/Pacific & Japan perspective. There are many differences in the way the analyst landscape looks at a global level and the way it looks in APJ, with some firms actually using different business models in different parts of the world. But there are similarities too.

Some things don’t change

At the global level, it’s interesting to see that the breakdown between sell-side (vendor) revenue and buy-side (end-user) revenue has remained reasonably constant over the past five years at about two-thirds/one-third. But the growth in buy-side revenue last year was about twice that of sell-side revenue.

The other constant was the share of total revenue enjoyed by the Big 3 – Gartner, IDC & Forrester – remains at 56 per cent, about the same as it was five years ago.

Outside of the top players, there are probably another 350 firms slicing up less than half the market between them. Some of those firms are relatively sizable, most are quite small. Some of them cover a range of technology markets, the majority are quite focused. Some of them have a presence in multiple countries, the majority are confined to the US or one or two European countries.

One of the most visible trends over the past few years has been the gradual thinning of the middle layer. Small firms come and go – particularly when analysts leave the big firms, voluntarily or otherwise. But the number of midsize firms has continued to shrink, as the larger firms have acquired competitors before they’ve gained sufficient scale to seriously challenge them.

Asia/Pacific – same/same but different

While it’s impossible to get accurate regional revenue breakdowns, anecdotal evidence would suggest a similar pattern in APJ. Certainly Gartner & IDC are the dominant players in APJ, Forrester less so despite its acquisition of Springboard Research last year.

Certainly there has been a significant growth in buy-side revenues as Gartner has expanded its sales teams in growth markets such as India and China, as IDC has grown its Insights business, and as other firms have capitalised on the increasing appetite for technology advisory in both mature and emerging economies.

And the thinning of the middle layer has been evident in APJ too. Certainly some of the midsize players have a solid presence – Ovum, Frost & Sullivan, AMI Partners have multiple offices, for example – but others have scaled back their APJ activities in recent years.

Gartner’s recent acquisition of Ideas International (still to be finalised) removes the only regional firm which arguably was a global player, with reasonable analyst teams in Australia, the US and the UK. Forrester’s acquisition of Springboard in May last year removed the only organically-grown pan-regional firm.

Nearly all the other firms which have a notable presence on the APJ analyst landscape are primarily focused on their domestic markets. There are firms such as IBRS, Longhaus & Telsyte in Australia; CCID, CCW & Analysys International in China; ITR & Nork Research in Japan; and CyberMedia Research in India, which for 23 years was the IDC licensee on the sub-continent. Yes, some of these firms may stray into regional markets, but the bulk of their research and revenue is driven from their home markets.

I noted in one of my first posts that while technology might be global, influence and insight are local. For that reason, we can expect that many of these local firms will survive and even thrive. Will any of them expand sufficiently to become pan-regional or even global players? That remains to be seen.

What is clear, though, is that AR remains multi-layered. Any AR program that wants to have impact has to engage at a global, regional and country level. That isn’t always easy, but that’s the way you support sales teams and influence purchasing decisions.

Cheers,

Dave