Saturday, January 21, 2006


Do Industry Analysts have Integrity?

I figured I would take the opportunity to respond to a comment in a previous blog entry...

Listed below are the comments along with my own thoughts:

Vendors PAY analyst firms to be represented. It doesn't get much simpler than that.

Don't get it twisted. There is absolutely zero wrong with getting paid! If you have been paying attention to many of my blog entries, you may have noticed a theme. First, I have suggested to many CTOs that they should interact with some of the smaller industry analyst firms which of course results in not only software companies spending more money on industry analysis but also results in more folks getting paid.

What I am requesting though is just a little bit more transparency. In the financial world where the notion of analysts first got started is the simple fact that whenever they make a recommendation, they also disclose their holdings. For example, if you ever listened to Mad Money's Jim Cramer he always discloses whenever his recommendation to buy a stock is one that is already in his portfolio. Is there something wrong with a customer wanting to know if an analyst in recommending software companies whether that software firm is also a client?

Enterprise CTOs generally don't want to be 'first' at anything - the perceived risks are too high.

Perception and reality are always different. Do you think that many enterprises have purchased software because they believe their competitors are also looking into the same space? Do you think that first to purchase also equates to first to implement? Many of these same folks in the enterprise are truly doing first-mover things but just don't know it...

OSS doesn't present many monetizing opportunities for analysts

Hmmm. I disagree. Large analyst firms have figured out how to hold industry conferences on this topic. Likewise, small analyst firms such as RedMonk have figured out how to bring open source analysis to the marketplace while figuring out how to put food on the table. If you stated the problem space as some analyst firms haven't figured out how to make money on free software then you are onto something. Maybe the analyst firms that haven't figured out how to incorporate open source practices into their business models should become customers of the ones that have.

Analysts don't know what they know until the vendors tell them

Actually I believe that this is true and should be called out as such. If enterprises were to learn that real analysis doesn't really occur in many of the firms, what would they think? The real question though from my perspective is that this practice can be OK in some situations but what if architects in Fortune 500 enterprises whose business isn't technology (Duke Energy comes to mind) were to tell the story to analyst firms about the software they use or are intrigued by and their perceptions of it. This if anything would be of higher integrity since the folks at Duke Energy have nothing to sell and feedback can be considered more objective. Maybe analysts shouldn't collect all their information from vendors. Maybe enterprises haven't figured out that analysts not only supply you with reports but that you have a fidicuary duty to also supply them with information.

The real innovators don't follow the crowd - they do their own thing and jealously guard their IP. That's why you'll never find a detailed analysis of what Wal-Mart, Dell, Google etc actually do.

If a tree falls in a forest does it make a sound? Seriously, all large entities never keep their ideas a secret. Minimally, they file patents (which is a form of disclosure), release beta software to a limited demographic or engage venture capitalist firms to create startups that fulfill a particular purpose. The key though is whether WalMart, Google or Dell pick up the phone and call their industry analyst or whether analyst should instead not expect a phone call but listen to the conversations around them.

If an analyst wanted to know about whats going on with google, they could wait until the formerly scheduled analyst briefings and provide no form of unique insight to folks that subscribe to their work or they could savagely read the blog entries of all google employees and figure out the pattern of conversations that occur. Maybe it is good practice for industry analysts to also do the same in reading the blogs of their customers.

Is it true to say CTOs are influenced in their buying decisions by analysts or that branded analyst reports provide a comfort factor to buying decisions or support a pre-determined position? I suspect the latter.

Your reasoning hints towards the fact that having a pre-determined position is somehow evil. All humans have pre-determined positions on pretty much every issue in our daily lifes. I have my own thoughts on Peace in the Middle East, why enterprises should outsource to the Caribbean and why certain drugs should be legalized. The real thing is that analysis should bring compelling arguments that change the opinion for those that are either to the right or the left and this simply isn't happening.

Imagine what would happen if an analyst firm actually started publishing case studies of all the outsourcing firm failures vs only successes. Would clients become more informed? Would outsourcers gain insights into how to make their own offerings more compelling? Would enterprises crave more information on the topic and therefore increase their spend with analysts?

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