This analysis does not look at areas of interest to investors, but seeks to pull out insights that are relevant to clients and prospects of the “Big Two” advisory analyst firms as well as communications and IT vendor analyst relations (AR) teams.
Both publicly held analyst firms have reported their Q3 2008 earnings, Forrester (NASDAQ: FORR) on October 29th and Gartner (NYSE:IT) on October 30th. In general (see table), both firms did quite well in Q3, continuing the trend of the past several years of strong revenue and research contract value growth. The one problem area for Gartner is events, which is a larger piece of its revenue mix than Forrester, which saw weakness due to vendors cutting back on conference sponsorship and enterprise IT managers cutting back on attendance due to travel cuts. Forrester got a boost in several areas by its acquisition of JupiterResearch.
|Qtr to Qtr||174 (130**)||115|
|Year to date||250||478|
|Qtr to Qtr||46 (19**)||37|
|Year to date||55||68|
* = Excludes effect of foreign exchange rates
** = Jupiter contribution to whole
Sales Force – Forrester grew its sales force in Q3 by 46 reps, of which 19 came from the JupiterResearch acquisition. Forrester’s turnover in the sales force is still considered too high, a continuing problem. Starting in January 2009, Forrester’s sales force will take on role-based specialization with multiple sales reps calling on each prospect and client. Gartner added 37 sales reps through organic hiring. While adding fewer sales in the quarter than Forrester, Gartner has added more reps year-to-date. Both firms said they would continue hiring additional net new sales reps, but will keep a close eye on economic indicators and will cut back hiring quickly if need be.
Q4 Guidance – Forrester is “cautiously optimistic” about the rest of the year and left guidance pretty much as it was. Gartner, on the other hand, cut its full year revenue guidance based on changing foreign exchange rates and weakness in Events. However, Gartner did not cut its guidance for research contract growth. For vendor AR teams, the key is the continued growth in research contract value for both firms as that is a strong surrogate for whether firms are increasing their influence with technology buyers.
Pricing – The one area of major difference between the two calls was the approach to pricing. Gartner is very bullish on raising prices with the most recent increase going into effect on November 1st. Furthermore, Gartner is aggressively working to up-sell existing clients to role-base products which have a significantly higher price point than Core Research. Forrester is much more cautious, having passed up its usual mid-year price increase. In addition, Forrester is going though the most extensive review of pricing and packaging in seven years. Nobody from Forrester on the earnings call would offer any insight to the financial analysts as to the outcome of the pricing review.
- AR – Encourage your sales teams to start asking large enterprise prospects and customers whether they are currently clients or are considering subscribing to an advisory analyst firm to determine whether the Big Two are increasing their influence in your markets due to enhanced sales activity
- Clients – Use purchasing best practices to ensure that you are spending appropriately with Forrester and Gartner
- Clients – Warn colleagues that sales reps from the Big Two advisory firms will be expanding outreach to heretofore untouched parts of the company and how to respond to sales calls
Bottom Line: Forrester and Gartner continue to execute well when it comes to their research divisions, even during a time of economic uncertainty in the US and other economies. Because both have loosened the purse strings and started hiring more sales reps, they will continue to expand their end-user client bases. Vendors should take away that both firms’ advice is still valued by IT decision makers which means that increasing AR investment now can have a tangible ROI in terms of increased leads and revenue in the future.
Question: Clients – Gartner CEO Gene Hall specifically mentioned that there has been no pushback on its price hikes. Do you feel that Gartner’s and Forrester’s pricing is fair and delivers business value? Vendors – Have your sales reps seen an increase or decrease in the number of deals where Gartner or Forrester analysts are playing an advisory role? Enterprise IT managers – Are you using Forrester or Gartner more or less when it comes to product and vendor selection? Are you considering other less expensive analyst firms instead of increasing your contracts with the Big Two advisory firms?
“SageCircle has long contended that one of several ways analyst firms can increase their influence is by simply adding more enterprise clients.” This is true and the analyst firms also need to further penetrate existing clients. Their pricing models are still not scalable and it’s hurting them. Their licenses are getting too expensive so only a small fraction of people within a company have access. If access was more affordable and accessible in different affordable ways (i.e. metered, one offs, etc), more people would read their research. Isn’t that what they want? I believe the price hikes will drive down the number of licensed users and with that, less users being influenced by them. They will become less relevant over the next 10 years if they don’t change their license models.
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