February 13, 2006

Everybody gets paid — or would like to

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.

Comments

4 Responses to “Everybody gets paid — or would like to”

  1. Updating my standards and disclosures | The Monash Report on June 2nd, 2008 8:20 pm

    [...] posts in which I discussed my general standards for analytic credibility, and disclosed some of my own relationships and biases. I have nothing to add to the generalities, but maybe it’s time to update some [...]

  2. Updating our disclosures | The Monash Report on January 6th, 2010 9:49 am

    [...] generalities I posted a few years ago still apply (and, I think, are a good read in any case about the realities [...]

  3. XtremeData update | DBMS2 -- DataBase Management System Services on March 18th, 2010 1:18 am

    [...] XtremeData insists that all the nice things Bill Inmon – including in webinars — has said about it has not been for pay or other similar business compensation. That’s quite unusual. [...]

  4. The ethics of white papers | Strategic Messaging on August 1st, 2010 4:23 am

    [...] my opinion, #1, 2, and 4 cause relatively little in the way of ethical problems. #5 is an unavoidable fact of life. But #3 raises problems that can and should be addressed [...]

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