Forrester buying Jupiter – smart, but not a big deal

There has been commentary in the blogosphere about the larger meaning of Forrester’s acquisition of JupiterResearch. Typically this commentary has focused on points like the analyst industry is consolidating and that major firms are losing relevance and influence in the age of blogs and other social media. It is our opinion that this commentary is wrong and that the acquisition of Jupiter by Forrester does not portend some deep consolidation of the analyst industry due to the rise of the blogosphere, rather it is business as usual. 

To get some perspective, let’s look at a little history of the analyst industry.

Analyst firms have long used acquisitions to fill gaps in coverage and geography or pick up client bases. For example, in the last 15 years since Gartner went public for the second time, it has made over 70 acquisitions to pick up expertise in specialized coverage, get into new markets (e.g., learning software), and to broaden its footprint in EMEA and Asia. Forrester and META also played in the acquisitions game in the late 90’s and early 00’s. IDC bought Meridien Research and combined it with existing internal resources to create Financial Insights. More recently Ovum looked to grow via acquisitions (i.e., RHK, Summit Strategies, Orbys) before getting acquired itself by Datamonitor, which was acquired by Informa (click here for more info).

A little bit of trivia, Gartner tried to buy Jupiter before… in 1999. Gartner made a minority investment (32%) in Jupiter Communications (ancestor of JupiterResearch) in October 1997. At the time Jupiter was populated by a number of former Gartner analysts so Gartner management thought that if the business for ecommerce research took off it could merely buyout Jupiter to have a readymade research team. This thinking backfired as Jupiter management decided to go the IPO route rather than be acquired.

So what Forrester did in the Jupiter acquisition is quite common in the analyst industry and no different than IBM or EMC using acquisitions to fill out their software portfolios. While a smart move, the acquisition of Jupiter does not signal a major change in the analyst landscape.

This acquisition also does not signal a significant consolidation of the analyst industry. That is because the barriers to entry in the analyst industry have never been lower. Even after all the acquisitions of the late 90’s and early 00’s and more recently Giga and META, there are more analyst firms than ever. Smart analysts who have been diligent at building their personal brands and harvesting industry contacts can launch a new firm with minimal investment.

Another reason why this is not an industry altering move is that Jupiter is a small firm with only $14m in revenue and 43 research associates. That is tiny versus Forrester’s estimated FY08 revenues of $246m and Gartner’s estimated revenues of $1,288m.

Many factors go into the decision to build, buy, or partner, whether it is the software, analyst services, or consumer products markets. For the analyst firms, one decision factor is how to expand their analyst teams. Typically, analyst hiring lags sales growth, which puts tremendous pressure on the existing analyst headcount. Hot research teams get slammed as sales representatives sell new services as quickly as possible to eager clients – this creates overworked and disgruntled analysts and possibly departures. Buying experienced talent via acquisitions can help reduce individual workloads quickly.

The Jupiter acquisition was a nice pick up for Forrester for a variety of reasons including:

• It was cheap at $23m for $14m in annual revenues
• Most of Jupiter’s coverage is on trendy topics
• Forrester acquired a number of new clients that can now be cross-sold and up-sold
• Forrester got experienced analysts with reputations and rolodexes in hard-to-hire coverages
• Forrester got experienced sales reps with established client relations
• Forrester’s sales force picked up ready-to-sell “products” (i.e., analysts)

Forrester also picked up what could be an underperforming asset whose sales could be greatly increased merely because it now has access to a much larger sales force and client base. Back-of-the-envelope estimates show that Jupiter was generating approximately $325k per research team member. This is less than half of Forrester’s approximately $679k per research team member.

There have also been some dark portends made around the departures of social media analysts Peter Kim and Charlene Li (from Forrester), and Rachel Happe (from IDC). Once more this is not all that unusual. From late 1997 to early 2000 a number of analysts covering ecommerce/ebusiness got lured away from the firms by Dot Com startups. In one week Gartner lost four of five analysts covering ecommerce. Yes, they were lured away by various startups dangling stock options, but they were also annoyed at the money Gartner was investing in Jupiter Communications rather than beefing up Gartner’s own ecommerce/ebusiness research team.

A not so bold prediction – the analyst firms will continue M&A activities

It does not take a SageCircle Strategist looking into a crystal ball to predict that Forrester, Gartner and others will continue to take the acquisition route to grow their business. The public firms tell us this every quarterly earnings call. Both Gartner and Forrester have dedicated – and expensive – staff constantly evaluating possible targets. Both Gartner and Forrester have strong balance sheets giving them significant investment resources that can be easily deployed. For example, at the end of Q2, Forrester had $278m in cash and marketable securities, while Gartner had $136m in cash. With the current state of the US economy and tightness in the credit markets, firms with cash have a distinct advantage when it comes to acquisitions.

Bottom Line: The acquisition of JupiterResearch by Forrester is a smart move, but not one with wider significance. The acquisition of Jupiter gives Forrester assets that it can immediately leverage into incremental sales and take some pressure off of existing analysts. However, this deal does not significantly alter the analyst industry. Analyst clients and vendors should expect further M&A activity and develop standard approaches to put into place if their current suppliers are acquired.

Related posts:

Which acqusitions in the analyst industry were winners or duds?

Forrester acquires JupiterResearch – will the analysts stay or walk?

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