The disclosures in this post have been updated in June, 2008.
I’m sometimes amazed at the breathless pseudo-naivete about pundits (analysts, bloggers, whatever) and compensation. The latest round was kicked off by a WSJ article about bloggers promoting FON. A couple of years ago, Computerworld editor Maryfran Johnson was viewed as a heroine for pointing out analyst firm conflicts of interest.
Personally, I’ve been an analyst for almost 30 years; I have a strong reputation for being independent and critical; and I get most of my revenue from vendors. So perhaps I’m in a good position to clarify some of the issues.
1. Good vendor relationships are an important factor in an analyst’s success. It’s not just revenue; you also need access to information. This is true whether you’re a stock analyst or an industry analyst.
Now, if you’re a good analyst, you can work around access problems. You can talk with customers, competitors, ex-employees, and other industry players. You may have relationships that transcend the company’s communication controls. (For example, it’s a firing offense at Oracle to have unsanctioned conversations with an analyst. And Oracle isn’t sanctioning a whole lot of conversations with me these days. But for a number of reasons, such as longstanding relationships with “untouchable” higher-ups, my information flow from inside the company is still pretty good.) Still, having access is better than not having access, and companies use that as a lever.
2. Analysts typically have more confidence in the companies that are their paying clients. I honestly call ‘em as I see ‘em, no matter who is or isn’t paying me. But some of my calls have to do with confidence. And who will I be more confident in? Company A, which has disclosed almost all their current activities and intermediate-term plans to me, and has given serious consideration to expensive advice they’ve paid me for (and hopefully done something with the advice)? Or Company B, with whom my relationship is largely being fed marketing pabulum, with only the occasional renegade getting off the reservation and telling me what’s really going on? Obviously, it’s often Company A.
Gartner Group is no different from me in that regard.
3. There’s a reinforcement cycle that confuses questions of bias. Companies give money and attention to analysts who are positively inclined towards them. They buy consulting services from analysts whose worldviews are compatible with theirs. The resulting relationship, if it goes well, reinforces everybody’s positive opinions of each other.
Meanwhile, companies give cold shoulders to analysts who don’t like them. And that just reinforces analysts’ opinions too.
4. Experience teaches that the companies that most manipulate or hide from analysts have the most to hide. If a company feels good about its strategy, and is eager to listen and learn how to make it even better, it’s often pretty engaged with analysts. If there are some product weaknesses it would prefer not to have discovered, it may be more inclined to concentrate its efforts on only the big firms it must talk to, and cold-shoulder the others. There are exceptions, of course, based on factors such as marketing budgets or the cluefulness of the analyst relations staff. But a good analyst’s gut feel about who is or isn’t being forthright is often a pretty good indicator of how a company’s technology is doing. Indeed, I have had some famous successes in this regard over the decades (e.g., the Cullinet and Sybase stories, which I really need to write up at some point over on the Software Memories blog). And it’s not just me. David Ferris of Ferris Research led the way when he and I had a success of that kind together with respect to Critical Path, shortly before the management team was discovered to be criminally dishonest.
5. Being on advisory boards almost always involves compensation or the expectation of compensation. Anybody who asserts otherwise is dishonest or naive. But then, the only folks I’ve ever seen assert otherwise are Fabian Pascal and (sort of) Chris Date.
So here is some of my disclosure.
- SAP is currently my biggest customer. In various other years my biggest customer has been Oracle, Computer Associates, Microsoft (I think — if not so, then close to it), AOL, and a predecessor of what is now the Progress DataDirect division. And that’s by no means a complete list.
- Every white paper and every webinar I do is “sponsored”; i.e., money changes hands. (There may be occasional exceptions to that rule in the future, but it’s usually the case.)
- The companies that are currently most seriously diminishing my opinion of them via the cold shoulder they give to various analysts (not just me) are Oracle and Cognos.
- For years, I have had exactly one investment research client — a portfolio manager whose identity you could probably guess by looking at the testimonials on www.monash.com.
- I cannot commit to promptly or completely disclosing who my consulting clients are. Sometimes they want to be served in confidence. However, I always have and in the future always will disclose any kind of relationship in which I am paid to promote companies in any way.