Business - Written by Naumi Haque on Friday, June 13, 2008 18:34 - 38 Comments
Who needs analyst firms anyways?
Like the music industry and the publishing industry, the writing on the wall is bold, capitalized, and neon for yet another industry reluctant to change in the face of Web 2.0 forces far too powerful to ignore.
Officially, IT analyst firms are a $2.5 billion dollar business, of which about $1 billion belongs to the industry behemoth Gartner. As impressive as this number might seem, it represents only a fraction of the total IT analysis actually being traded. There is a social media undercurrent running just below the surface of the IT analysis industry—call it “IT Analysis 2.0” or “Open Source Analysis,”—where insightful content is not bought and sold, but rather offered up for free. Examples include enterprises like RedMonk, Freeform Dynamics, MWD, and Enterprise Irregulars, as well as community-driven sites such as IT Toolbox and Wikibon (IT analysis a la Wikipedia).
Like MySpace and YouTube in the entertainment industry, the social media undercurrent in the IT analysis industry is threatening to build up to tsunami proportions. Witness the most recent Institute of Industry Analyst Relations poll results below. While the top three analyst firms are predictable, open source analyst firms RedMonk and Freeform Dynamics are making significant gains. Notably, two of the top five individual analysts are from RedMonk.
Source: Institute of Industry Analyst Relations
This is not surprising. Traditional IT analyst firms are supported by
a faltering business model characterized by low net margins (in the 5% to 10% range), a high cost of sales (~30%), and a sticker price in the $100,000 range for access to research and analysis. In contrast, RedMonk’s research is free and clients pay only for advisory and consulting as needed. Blogging and providing free content lets individual analysts build credibility that they can then use to market their services. This allows individuals such as Tim O’Reilly, Robert Scoble, Om Malik, and Jakob Nielsen to generate more traffic than established companies like Gartner (see below).
Sites like IT Toolbox (with over 1.3 million members) offer community support and peer-to-peer advice at no cost. Even forward-thinking trade sites like CIO.com have developed strong expert-moderated communities that act as trusted sources of advice. It isn’t happening yet, but I think there’s also an opportunity for the vendor community to get involved at a more intimate level in the open source analyst push. By participating in, and contributing to these shared online spaces vendors can offer advice, gain credibility among users, and learn about customer preferences (think Sermo’s or PatientsLikeMe’s business model).
What’s the greatest service analyst firms provide? They help you arrive at a decision. In fact, the ability to arrive at a decision—any decision—is often more important than the quality of the decision itself or the process used to arrive at the decision. As I’ve learned from first-hand experience, oftentimes companies use analyst firms as therapists that help them justify decisions they need to make so they can get on with the day-to-day affair of executing on projects and fighting fires. Glossy reports with “magic” geometric shapes are certainly visually appealing and help when justifying decision-making to superiors, but there’s an argument to be made that a Magic 8-Ball might work just as well when selecting a vendor from a shortlist. As Gartner itself so eloquently put it, “To Save Time on Product Selection, Flip a Coin.”
Ok, so I’m being a purposely irreverent, but my point is that online research reports and white papers – like a great deal of other digital content – are becoming commoditized. Open source analyst firms understand this and are disrupting the market by offering basic content for free and shifting revenue models to value-added services. It’s essentially the same model used by Linux (free software, pay for services) and cell phone companies (free phones, pay for services). Let’s fee if the rest of the analyst community catches on.
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