Do analysts suffer the same economic pressures as the rest of us?

15Apr08

When people cut costs, what industries feel the pressure?

Gartner predict themselves that things are going to be tough in 2008. Mark Raskino explained:

For businesses with global reach, we note that the clouds are gathering rapidly over the UK, US and Japan…

Forrester also share this view. Andrew Bartels echoes Gartner’s comment:

Most technology leaders know where to look for savings in the IT budget: delays in capital investment in equipment; cutbacks in contractors and consultants; cancelling projects with marginal returns on investment; re-negotiation of vendor contracts; and greater use of efficiency tools, such as outsourcing or consolidation. Calculate potential savings and risks, then identify projects or investments that need decisions now.

Often I feel that we are talking ourselves into a recession – however, there can be little doubt that uncertainty is one of the chief catalysts for a downturn in the economy. Companies around the world may not be cutting costs but they may be more cautious before spending any money.

In this time of greater diligence, I wonder whether analysts weather this storm. One view could be that seeking advice on procurement is the best way top cut costs. Ovum for example set a target of saving their software clients $1bn in procurement costs this year.

But what about the many analysts whose income is largely derived from vendors who use them for intelligence gathering. Will these firms do as well?

I am not so sure.

There is a view that IBM keep the analyst market alive. I do not believe for an instant that their investment in boutique analyst houses affects the output from them. I have discussed and praised the patronage model and believe that the world needs more than a few global analyst firms who are often more agile and can get to the heart of a matter far quicker than their counterparts.

Nevertheless as I write this I am interested to know which companies will be around in a year. Mergers and acquisitions aside I am concerned about the level of investment that the smaller analyst firms will receive whilst this ‘dip’ lasts.

Perhaps the real litmus test will be to evaluate how Gartner fair – which will be revealed when they share they financial results for Q1 2008.  The call and webcast are scheduled to begin at 10:00 a.m. Eastern time on Thursday, May 8, 2008. Listeners can access the webcast live on the Internet. A replay of the webcast will be available for approximately 90 days following the call.

Of course, there is a personal side to this too. What about the people who service the AR industry. AR professionals need to ensure that we continue to bring value to our clients and adapt in troubling economic climates and focus our clients limited time and resources on activities that will have the biggest impact – no matter which firm that may be with.



7 Responses to “Do analysts suffer the same economic pressures as the rest of us?”

  1. Jonny,

    I think you’re spot on with this: we saw a similar trend in the 2001 slow-down, which resulted in a flight to quality in the analyst industry. Gartner may be able to expand its share of a shrinking purse.

  2. You also tend to see a ‘flight to value’ on the IT vendor side – good quality boutiques who can provide a cost effective high impact bespoke service to deal with tactical needs really come into their own. If you are operating in a difficult market, tactical research becomes doubly important so you can focus your limited marketing budget and challenged field operation in as targeted and productive a way as possible. You cannot do this effectively if you are blind to what’s going on out there – i.e. you need market intelligence and good people to analyse it and interpret it for you. A common scenario is you have a specific tactical requirement, don’t have the budget to pay premium fees for custom research from the Tier 1 firms, but still need a safe and experienced pair of hands. This quickly leads you to firms like Freeform and Quocirca.

    And this isn’t theory. I became a stakeholder in Quocirca on September 10th 2001, a day before the biggy hit. I almost lost my nerve at that point and the prospect of getting the company onto a firm footing for the future looked quite daunting. Nevertheless, we built a very healthy business through the last recession by providing the cost effective alternative in a difficult market.

    At Freeform now, we are doing things differently, but the spirit of cost effective high impact services prevails, and it is at times like this that the value of the smaller and nimbler guys that have a solid and well defined core capability starts to look relevant to an even broader audience.

  3. Thanks Duncan and Dale for your excellent comments.

    Dale – you have raised an excellent point. Citing the Quocirca example in 2001 proves that provided an analyst firm maintains their standards and pushes value at a compeitive cost there is room for optimism should we hit a full recession.

    Analyst firm advice can be a vital add-on IT vendors budgets in their objective to remain compeitive.

  4. I am fairly confident we can ride it out. certainly not concerned that revenues that come to us will go to anyone else. we’ve worked in shrinking pie environments before.

  5. Even more reason why we need help and guidance spending our money with these guys. As budgets get cut in organisations, vendors spend less on marketing and end users spend less on reports.

    So nows the time for a flight to quality AND value. Let’s have the analysts prove their worth before asking for our money.

    The question is who will customers fly to? A trusted name and reputation or a cheap alternative? Which will be best for them?

  6. In the tech downturn after the dot bomb and 9-11, the boutique firms that relied on vendors for revenues took significant hits. In those pre-blog days we had a monthly newsletter with a regular column named Analysts-in-Transit and we tracked over 10 firms closing operations. In addition, a large number of layoffs occured with some firms shrinking considerably in size. Because Forrester was much more vendor centric in those days, it saw its revenues dip by 40% (one of the reasons why it acquired the more end-user centric Giga). Gartner saw relatively little decline in end-user revenue, but took big hits in vendor revenue.

    One thing that stands out as I look back is that most of the firms that closed had a reputation as “white paper for hire.” Their role was an adjunct to advertising so when the ad spending declined as it always does in a recession, good bye white paper for hire firms. So it wasn’t so much that analyst clients were switching to other firms, it was a case of reduced spending and marginal firms could not withstand too many clients cutting budgets.

    BTW, a bit of advice for large and small analyst firms — find a way to demonstrate value delivered. One of my frustrations when I was an AR executive was dealing with analyst firms whose whole sales pitch was “hire us, we smart.” Ironically, none of them could create analytical tools that could be used to show business value.


  1. 1 How do we tell them apart? « Analystanalyst’s Weblog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: