Why Tech Analysts Feel Your PainBy Mel Duvall | Posted 2002-12-19 Email Print
Depending on who you are, what you look for in a market research firm varies sharplyand the roles can sometimes conflict.
The only thing worse than working for a technology company over the past year, so the joke goes, is being an adviser to users of technology. This year has, in fact, been difficultif not downright grimfor analyst firms. After several explosive years when their market research and analysis services could barely keep up with demand, and their conferences regularly sold out months in advance, analyst firms are taking their lumps along with their clients.
While only a handful of firms have outright foldedthe Hurwitz Group being the most notablemost have been forced to shed staff and swallow hefty losses as their clients pared back subscriptions or the services they required.
Companies still value the market research and advice that analysts provide for making technology purchases. In fact, it's when times are tough that company executives say that industry insight is more valuable than ever. But when it comes down to budget cuts, money spent on research services comes under heavy scrutiny.
"It's at risk because it's one of those things where it's difficult to show real hard-dollar savings," says Stephen Troisi, an information systems account manager with Phoenix-based Pinnacle West Capital. Pinnacle West, with revenues of $4.6 billion, currently has subscriptions with AMR Research and Gartner Inc., and Troisi is about "60% certain" the company will maintain those subscriptions in the coming year. However, one thing he's completely certain of is that the company needs to make better use of the services it currently receives.
"Right now I'm not all that satisfied (with the return on investment), because we're not taking advantage of their services to the extent we need to be," he says.
Similar concerns are being expressed by technology executives with other companies. Miami-based transportation firm Ryder System had subscriptions with Gartner, Forrester Research and AMR Research up until this past fall. With its own revenues getting clipped by the downturn, Ryder dropped one of its subscriptions. In this case, AMR took the hit because it was the newest relationship the company had formed, says Brenda Enney, Ryder's director of e-commerce solutions.
Ryder's goal for the coming year is to see that it makes better use of its subscriptions with the analyst's firms, not only in the information technology department, but in other areas of the company as well. "We would actually like to obtain more services, but first we have to justify it," she says.
Most large companies pay between $50,000 to more than $100,000 for subscriptions to an analyst firm's services, depending on the types of services and the number of employees getting access. It's not uncommon for a company to subscribe to two or three of the major analyst firms and maintain subscriptions to a couple of "boutique" firms. These smaller firms usually have expertise in a certain area or sector such as supply chain or banking.
The bottom line for analyst firms in the current climate, says Norma LaRosa, president and founder of Kensington Groupa research firm that follows the analyst industryis they have to work harder to provide the personalized attention their clients demandnot an easy task when you're also cutting staff.
Analyst firms typically have two revenue sources: Global 2000 companies who need advice on industry trends and what technology to purchase; and technology vendors, the companies trying to sell the Global 2000 their wares.
For technology users, the most important requirements are getting access to the analysts for one-on-one consultations about their technology implementation plans, and networking opportunities such as the ability to be linked up with an industry peer who already has been through a similar implementation.
While vendors' interests are decidedly different, LaRosa says they also have similar needs.
They want to understand what systems companies are deploying so they can develop their own business strategy, and they need to ensure that analysts understand how their platforms work. Vendors will often pay an analyst to sit down with them for a day or half a day to help them "understand the deficiencies in their product," says LaRosa.
In effect, the vendor is simply ensuring that the analyst gets an earful on all the latest and greatest features packed into the product.
Is it buying influence?
Not exactly, says LaRosa, but it is a fine line. "Let's face it, an analyst is in business to make money. If someone's going to pay them to sit down and listen to a product pitchthey're going to do it," she says. "At the same time, most analysts aren't going to be swayed. Their reputation with a client depends on it."
Jerry Lumpkin, senior vice president of marketing for FrontRange Solutions, a Colorado Springs, Colo., company that provides contact management and help desk applications, says analysts are a key piece of the company's marketing strategy. "It's just one piece, but an important piece," he says. Lumpkin wouldn't say how much the company spends on its analyst relations, other than it's "greater than six figures." In return, FrontRange often gets customer leads from analysts.
"They're usually the best kind of lead," he adds, "because the analyst has already ensured the customer is a good fit."
Knowledge Capital Group, www.knowledgecap.com, Austin, Texas, firm offers a free report called Executive's Guide to Analyst Relations and runs seminars. Founded by a former research director from Gartner.
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