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Analysts – Evolving Impact and Economics

By June 27, 2005Article

Ask vendors their definition of “Evil Empire” – and it is likely not Oracle or Microsoft, but Gartner. Ask them after they have cooled down after a 10-minute tirade about Gartner who their favorite analyst is and it is likely Bruce Richardson at AMR Research – he is funny and friendly. Then ask them how many deals Gartner lost them or AMR won them and you will likely get a blank stare. They do not know. And if they do, the numbers are probably far less – both ways – because the average buyer keeps his own counsel.

Analysts are just one small contributor to his decision making process. But as an industry we sure spend a lot of time, money and emotion around analysts.

I have been blessed and cursed to be part of analyst ecosystem for a while now. At PwC, I ran an internal industry analysis group and was a consumer of AMR and other research. Then I was a Gartner analyst for five years following (and annoying) software vendors and outsourcers. I was next an entrepreneur and challenged and forced a revision on poor research one of the firms wrote about us (yes, it can be done!) I have been an expert witness in some high-profile software litigation and have opined on analyst research. Now I am a sourcing consultant to CIOs and at times compete with the analyst firms. So you could say I have seen them from many angles.

Here’s some perspectives to consider:

a) The best analysts analyze market sectors, not vendors

I know marketing folks scrutinize positioning on “magic quadrants” with a magnifying glass but the best analysts focus on pattern recognition and sector trend analysis. Vendor execution and market share, more than analyst opinion, then determines quadrant positioning.

One of the best sector calls I saw was when Erik Keller (and his team at Gartner) predicted the ERP market would slow down due to Y2K drivers in 98, not 99. Wall Street, other industry analysts, even Gartner Y2k analysts, the vendors disagreed vehemently, but he stuck to it – and he was right.

b) The better analysts spend more time buyers than with vendors

To be able to do a) well, analysts need to have their finger on the market pulse. Erik was hearing from many CIOs their Y2K “batten down” plans = and their timing did not mesh with the rosy stuff he was hearing from the ERP vendors. At Gartner, we were tracked on how many calls/meetings we did with buyer organizations (not sure if they still track this). In a couple of years my annual metric exceeded a thousand buyers. Some of my peers did even more. It is the elusive “voice of the customer” that we all seek.

As a vendor, you should be asking your analysts about similar buyer metrics. Even more importantly give them time to focus on buyers. The average analyst has to sit through so many mind-numbing vendor presentations. Get coaching from Bill Hopkins at Knowledge Capital Group on how to succinctly, and only infrequently, brief analysts. Less is more.

Give them time – indeed, force them to spend more time with buyers and then summarize the “voice.” If they are not spending time with buyers, they get bored, dream up what buyers should be asking and create FUD (see Louis Columbus’s great post FUD is Analysts’ Oxygen).

Vendors should be encouraging their R&D groups to talk to analysts as much as their marketing groups. If analysts are doing their jobs and in touch with the buying community, they should be validating product and feature ideas before you make the product investment.

c) The analyst is a small contributor to the buyer decision process

As I started working more with CIOs as a consultant than as a remote analyst, the revelation set in that buyers use analyst firms primarily as a “check mark.” Only during a step or two in a sales funnel process do buyers actually reach out to analysts. They read analyst written reports even less. The highest impact of analysts is in the short listing process but in equally important scripted scenario, site visit or contract negotiation steps their impact is far less.

Most analyst firms have consultants available to hire on a project basis, but it is a different talent and incentive pool from the research analysts. So while encouraging analysts to spend more time with buyers, understand that they are getting input on only certain elements of the procurement cycle.

d) The average vendor spends way too much time and money on analysts

A convergence of poor execution by the analyst firms, global labor trends and other factors point to analyst firms being significantly over priced at this point – see my blog Analyzing Analyst Economists.

As an example, SG&A expense at many of the analyst firms is over 50 percent of revenues – not sure buyers should be encouraging this level of inefficiency. Then if you add the time and money your marketing folks spend briefing analysts and at their events, add in similar effort by your PR firms and other analyst “groupies” – you get the TCO picture.

All this, while most vendors have not thought about what to do about blogs, new forms of user groups – new “influencers.” They should also be reaching out to peers in non-technology markets where analysts or influencers have even less impact. There are other tools in the marketing toolkit many tech vendors have not used in a while. Most vendors, in my opinion, should be rethinking the whole “influence” area.

When I first joined Gartner, a vendor called and asked how it felt to be a movie critic. I was a bit offended – here I was counseling companies on $100M ERP project decisions. But he was so right. Vendors are the Spielbergs – nothing an Ebert said could really have helped “Minority Report” and nothing could have sunk “Private Ryan.” Maybe Spielberg should have called Ebert before he made “Minority Report” and listened to the “voice” of the consumer.

Vinnie Mirchandani is CEO of Deal Architect which helps technology buyers procure software, offshore and other technology contracts. It also works with technology vendors and investors on strategy and merger transactions. Mr. Mirchandani was previously a Gartner analyst and an executive with PwC (now part of IBM). He can be reached at  

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