Tuesday, March 16, 2010

IT Industry Analysts - Falling Into the Bond Rating Agency Trap?

One of the leading causes of our recent economic melt-down was that "independent" credit rating agencies had a conflict-of-interest with the firms they were supposed to be watching.The very firms tasked with objectively gauging risk were also being paid by the firms they were evaluating...And in the end, the big losers weren't either of them... it was the public.

Well, beware that some of the same could be happening in the IT space.

I'll change the names to protect the innocent -- but let's say that I recently attended a day-long IT analyst event, one where all of the senior analysts trot-out their recent research. And to be honest, most of it was of very high quality.

But in one session which focused on an up-and-coming trend in IT, the analyst only cited the major IT vendors (think: HP, CSCO, IBM, Dell etc.) as the leading innovators and players in the space. It was complete Bunk. Of the four "leading" vendors mentioned, only one of them had any significant innovation in the space. Two others so coated their offerings with "marketecture" that real innovation was tough to discern.  And the final crime was that 2-3 smaller vendors I know who actually pioneered the space weren't mentioned at all. And they're the ones providing *real* products with real value today.

Yes, the analyst had a responsibility to his customers (IT end-users) to watch the big players in the industry. And to be sure, the big vendors dominate most market spaces. But the analyst also has a responsibility to truly master his market space and to report-back on the true leaders, innovators, and visionaries. Instead, I believe he unwittingly fell prey to the big vendors that pay much of his firm's bills in order to stay in the analyst's limelight. The failing here is industry-wide, and the IT consumers of the analyst's information are the real losers. Innovation isn't recognized, and therefore value isn't really transferred. And nearly all large industry analysts are guilty of this at some level.

In contrast, another friend of mine is a technology industry analyst with a major international financial institution. When he interviews me on my industry, company and product, he's clear that his reports are not commissioned by vendors, nor even by his bank's clients. There cannot be so much as a hint of conflict-of-interest in his work. Think about it.


Major IT Industry analysts have been my friends for years. I've worked for IT vendors small and large, and IT analysts have been (and mostly still are) great sounding boards for new ideas, helped identify market opportunities, and have added lots of marketing value if/when they approve of your product. And IT analysts add value on the IT consumer side too -  by identifying trends, pointing-out leading vendors, and recommending best-practices.

But sometimes these folks fundamentally fail at what they're "paid" to do. My advice: Always get a second opinion.


Ken Oestreich said...

I Just received this note from Steven Schuchart from Current Analysis:

"Your argument that the IT analyst market is becoming corrupt is an old one and a cry I hear from time to time. I have a couple of reasons to dispute it, and I will lay those out here. Full disclosure: I work for a technology industry analyst firm. The firm I work for, Current Analysis, doesn’t have a big end-user practice, it mostly focuses on vendor-to-vendor competition. This opinion is mine and not that of Current Analysis.

"When I worked as a journalist for Network Computing Magazine, I would often hear this same complaint, but from end users. We would be accused of bias because vendors bought ads that paid for the magazine and ultimately my salary. It wasn’t true but the parallels are similar.

"I don’t buy the theory of IT analyst corruption for a few reasons.

1. What the vendors pay an analyst’s employer doesn’t affect that analyst’s salary. I don’t get extra money if vendor signs up nor do I lose money if they quit our service. As an analyst, do I want more subscribers for my company? Sure. But does that mean that there is some kind of preferential treatment because one company pays and another doesn’t. Not from me there isn’t, and I suspect that for the majority of industry analysts it is the same.

2.I don’t know any of my peers that would change their opinions for money. There may be some out there, but I don’t know of any myself. I would quit before changing an opinion because of money, and a lot of my peers would as well.

3. People don’t subscribe to analyst firms, they subscribe to analysts. An analyst’s reputation is his job, regardless of the firm he works for. The damage done to “Brand Me” for dishonest analysis for money that I won’t personally see isn’t even remotely worth it.

"I do understand your frustration with analysts. We can be, as you put it in your twitter reply to me, myopic and only see the largest vendors. It’s a hazard of the job, one that I think every industry analyst struggles with. For every question we get about a small vendor, we get 25 about the big guys. We struggle to dispense the all-important “mention” with an even hand, just as we struggle to keep with our given areas of coverage, which always seem to expand.

Ken Oestreich said...

Thanks Steven. I have to admit that I may of over-rotated on the title of my blog. I did not intend to accuse analysts of gross bias. I just believe that sometimes they are myopic and see only the large vendors... the ones that so frequently brief them, and the ones that most of their clients ask so often about.

I agree w/you that analysts would likely say the same things whether they were paid or not. Thanks for your voice, industry representation, and candor.