How the Independents Help Gartner
November 14, 2009
Over the past few years, a cadre of “independent” analysts have set up shop and started to speak frankly about the enterprise application vendors, in their blogs and tweets. You know who I’m talking about: Vinnie, of course, and Dennis, and the Enterprise Irregulars, and Brian , and many, many others. These people were really good analysts to begin with–I’ve known them for years–and they have found their more-or-less independent status freeing, so they write the best stuff that is out there.
So if they’ve got a better mousetrap, why is it that the big guys, Forrester and Gartner, just seem to roll on and on, happily enough? Why haven’t they folded, the way the portable CD player did when the iPod came out? In the free market, after all, shouldn’t consumers pick the best quality at the lowest prices?
I got an interesting answer, yesterday, when I attended a talk at Harvard by Marc Flandreau, who is at the Graduate Institute of Development and International Studies, Geneva. Marc is an expert on bad-mouthing, or as we like to say in English, “blackmail.” And he has a fascinating historical explanation of how pay-to-play can emerge in information markets.
Marc’s focus is the wild and woolly bond market in Paris pre-World War I, a market that was deeply affected by the emergence of a free (or at least libel-free) press in France, post 1880. At the time, it was so easy to start and print a newspaper cheaply that a new kind of blackmail emerged. It was, essentially, “Pay us, or we’ll say bad things about you.” The very relaxed libel laws at this time made this a genuine threat, and people (Marc shows) really did make money doing it.
In the financial markets, the threat took the form, “Mr. Russian Government, pay us, or we’ll publish an article saying that you’re losing the then-active Russo-Japanese war.” And, as it turns out, the Russian Government paid up. The records, which were published in the 1930s, show that the government’s expenditure on publicité went up by a factor of two or more during that period, over what would “normally” be expected.
The interesting thing, though, is where the money went. Essentially, a set of what we would now call unscrupulous PR men (possibly, a redundancy, I admit) who took the blackmail money and distributed it among the press.
Now, here is the rub. Most of the money apparently went to the most reputable, most stable, and most expensive financial journals, not to the blackmailers. What these people tried to do with the bribe money was to make blackmail expensive, by “supporting” an alternate, established, reputable forum, which people would look to for authoritative information, and the existence of this forum brought the threat of blackmail from the cheap-sheet vendors down to acceptable levels.
Flandreau demonstrates fairly convincingly that while some money did go to throw-away (sometimes one-issue) newspapers, most of the money went to those journals and was a significant source of income for them.
“So if I may paraphrase,” a Harvard professor said, after hearing this, “The National Enquirer is one of the things that keeps The New York Times alive.” Marc replied in the affirmative.
Marc’s broad conclusion is that a pay-to-play industry will emerge whenever there is a significant threat from “badmouthing.” (He cites Moody’s as a modern-day example of the same phenomenon.) In all these cases (I think movie stars of the 1920s are another example), the best strategy for coping with badmouthing is to support cooperative, but reputable mouthpieces who will then be a permanent counter to whatever bad things are said by the smaller, less reputable people. In his analysis, the accuracy of what these smaller, less reputable people say is irrelevant; it could be true, it could be false. What matters is that you can exert some control over the best people in the industry.
Anybody who has ever taken a PR class already knows this, of course. But what Flandreau contributes are two simple, but odd facts. The premiums are in fact very large, and MOST of the money goes to the larger, more reputable firms.
So what does this mean for Dennis and Vinnie and Brian and Michael Krigsman and Helmuth Gümbel? Well, pretty much it means that their efforts are enriching Gartner and Forrester far more than it enriches them.
Dennis says in a recent tweet, “Pay to play doesn’t cut it.” Sorry Dennis, in this case you’re just wrong. If Marc is right (and I have no reason to think he isn’t), what you’re really doing is supporting the pay-to-play industry.
The Applicator 
November 15, 2009 at 4:10 am
Interesting POV but a little too simplistic. Analyst revenues from the buy side, not vendors have been flat to declining. That is a far better indicator of “influence”. also there are plenty of white papers, peer input which buyers do not pay which are sometimes more influential in deals – but analysts look more influential because they get revenue for their piece in the influence cycle. Also, Bloggers are a recent phenomenon. Before that advisers like TPI and Equaterra had emerged. if you remember the Big 5 made plenty of money from sw evaluations. McKinsey, Bain etc help on high tech tech strategy. etc etc. So the influence game has been fragmenting for a while I wrote a piece a while ago called Thousand Points of Influence.
http://dealarchitect.typepad.com/deal_architect/2007/11/the-delusion-of.html
November 15, 2009 at 4:31 am
David, sorry, I’ve read this piece two or three times, now, and I still don’t get it.
Flattering, but I think it’s a bit of a stretch.
November 15, 2009 at 12:06 pm
An interesting take David. One of the key points is: is there a difference between “those who are influencers” and “those who are reputable enough to buy from.” Reputation is often a function of “brand name comfort” more than actual caliber of research or services. But there are definitely times when big purchasing decisions go to name brands due to a comfort level with that brand.
However, on the influence level, no question in my mind that blogging has tilted influence in favor of the independents. I follow all these bloggers you’ve cited, and also big analyst blogs, and 90 percent of the time the independent bloggers are a better read (and much more frequently linked to, discussed, and Tweeted). Their strong voices lend well to trust/credibility because they are often very transparent about how they are getting paid and whose agendas they are supporting (such as buyer advocacy). If I’m a end customer and weary of constant vendor spin, I find that commentary refreshing.
For example just today Dennis Howlett chimed in with a piece on ZDNet that reports on the latest developments on SAP maintenance, providing both opinions and context. That’s far from the National Enquirer. In some cases, independent bloggers have challenged the big analyst firms to disclose more in terms of how they are paid and whose agendas they are serving. This kind of criticism is useful for end customers to read and I don’t see how it benefits the big analyst firms – their comments certainly seem to reflect an irritation with this kind of open, transparent discussion.
Then you look at the departure of bigtime analysts to smaller firms (Ray Wang being one) and it seems to me the trend is heading to a much more diverse body of influencers. Most of the independent analysts I know realize that they are not going to topple Gartner or Forrester, and perhaps their lack of name brand and outspoken commentary prevents them from winning certain types of business. But most of them seem to be doing pretty well, albeit with business models still being perfected or in some cases invented. But that’s really no different than any media or publishing entity at this time.
Forrester’s George Colony just blogged a piece of advice for CEOs of media companies and it didn’t seem to me that he had a clear sense of how media companies should be monetizing going forward either. Transparency is here to stay and it benefits those who can put out information and opinions without running them up a flagpole or worrying about client reactions. Having said that, I do think any bloggers who also want to secure end client business need to be aware that rigorous reporting and balanced commentary is crucial to turning influence into purchasing decisions. Flying off the handle or publishing rumors is fun for readers and may even expand influence but it doesn’t encourage buying decisions in my opinion. In that case, it depends on the business model of the independent analyst and whether they care about that type of client business.
November 15, 2009 at 1:24 pm
[…] Dennis Howlett on November 15, 2009 David Dobrin picked up my theme on whether ‘pay to play’ does cut it in the 21st century. David’s analysis is generally geared more towards providing insight for […]
November 15, 2009 at 3:10 pm
I write based on my observations. Sometimes that means positive comments toward analysts, vendors, or users and other times it means negative. Striving for the elusive goal of objectivity and balance matters most.
Analysts (independent or otherwise) who gloss over shades of gray to write sensationalist reports devalue their own worth and influence.
Pay to play is pernicious, but as with all things, there are varying degrees. Good and evil tend not to be absolute, but rather manifest as shades of gray.
November 15, 2009 at 5:13 pm
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This post was mentioned on Twitter by JohnFMoore: Thought provoking post , how the independents help Gartner: http://bit.ly/3ZPGGg…
November 16, 2009 at 12:03 am
Thanks so much for all the comments, especially Frank’s. Let me try to clarify the point and draw a quick conclusion.
This was a post about economics, not about influence. The economic question is, “How does pay-to-play become viable?” Marc Flandreau offers an answer, which I think we can learn from.
Flandreau examines situations where the cost of publication is low and a large number of nominally independent entities are providing information to the public, information which can help or hurt third parties. In these situations, the third parties are typically willing to pay to reduce the damage from adverse information.
Who profits from this willingness to pay? Flandreau finds that most of the money goes to reputable, but cooperative publishers, who are willing to say the right thing (at least the right thing from the payer’s point of view).
Essentially, the third parties find that paying off the people who publish the damaging information (true or not, scurrilous or not) isn’t a good use of their money. The best way to mitigate the damage is to pay somebody reputable to publish things that contradict or soften or distract from or simply drown out the information that would be damaging.
In the cases that he looked at, where people actually do this, the sums that the third parties were willing to pay were staggering. This wasn’t just $50 in Walter Winchell’s pocket. This was something you could build a business model on.
In fact, he said at Harvard, pay-to-play (the example he gave was Moody’s) is a natural outcome of the economics that he describes.
This surprised me, I must say. “A nominally open information market gives rise to pay-to-play,” I thought? I would have thought that low-quality, high-priced information from the pay-to-players would be rapidly squeezed out by higher-quality, lower-priced information from more objective sources.
In the examples that Flandreau studied, however, this didn’t happen. So why does pay-to-play pay? One major reason: when threats do crop up, the pay-to-players are the ones who profit, because they collect substantial sums from the people being threatened.
In one case that Flandreau studied, a third-party at substantial risk from persuasive negative information doubled or even tripled its already substantial payments to its reputable, cooperative partners. By contrast, the damage-control payments to people more inclined to talk about the damaging information were much, much smaller. And the profits to be made from actually publishing the adverse information were negligible.
There was, in other words, an asymmetry in the market, which the pay-to-players were able to take advantage of. Even though there were a lot of people out there who ought to have been willing to pay for accurate (and as it turns out, damaging) information, they didn’t have anywhere near as much ability to mobilize actual payment as the third parties did. The third parties effectively bought off the information market, by giving money to the pay-to-players.
I wrote the post because I think the situations Flandreau was studying are remarkably similar to today’s. Today, we have a cadre of independent analysts who are (among other things) trying to get the word out about the high cost of SAP and Oracle maintenance. If Flandreau’s analysis is right, though, the harder these analysts work, the more profits are gained by the reputable, but cooperative information providers who gainsay them.
Now, to comment on the comments above.
Vinnie argues that the historical analogy is wrong or that in this case, the historical outcome is different. Revenues to the analyst firms aren’t going up as a result of the threat from the independents. I’m sure he’s right, but the question is, “Why?” It could be that revenues would have gone down far more had it not been for the threat from the independents.
What I think he wants us to believe is that the situation that gave rise to the modern pay-to-players has now changed fundamentally. Flandreau acknowledges that this is possible. Clearly, the market power of the reputable, but cooperative information providers doesn’t last forever. It’s not how I read the situation, but I could be wrong. If Flandreau reads this, I’d be fascinated to hear what he has to say.
Dennis makes a similar argument, which gets right to the heart of the matter. (I am honored, by the way, by the attention he gives this.) But I don’t think the evidence he provides warrants his conclusion. Flandreau actually describes a situation closely analogous to the situation that the Enterprise Advocates find themselves in; I just didn’t have the time or space to go into that amount of detail the first time around.
In Flandreau’s example, a group of middle-tier information providers essentially muscle in on the gravy train (quel metaphor!), eventually getting some 20% of the last big chunk of money that was being doled out. So, Flandreau’s analysis says, vigorous action on the part of people who had been shut out by the reputable, but cooperative providers can get you included. But the big profits still go to the incumbents.
Dennis makes several other interesting points. I’ll have to address both Dennis’s and Vinnie’s comments more fully in a later post.
Jon points out correctly that people like him have made a difference and have become more influential over the past few years. Knowing the high quality of his work, I’m not surprised. The only thing I am surprised at is the economics of his successful efforts. These efforts, Flandreau suggests, help the reputable, but cooperative providers of influence even more than they help him.
Michael says, correctly, that he calls ’em as he sees ’em. I agree, and I admire him for it. From the standpoint of psychic benefits, it’s a great position to be in. All I’m saying is that the economic benefits may not be commensurate.
Frank, thanks for calling ’em as you see ’em. I will try to do better in the future the first time around. I hope this second try helps. The basic point, in case I still haven’t made it is that the people who profit most from the threat of damaging information are the reputable, but cooperative firms that help third parties mitigate the damage.
If you’d like to discuss this further, please give me a call.
November 16, 2009 at 1:56 am
aaah – economics. If that’s the case and the argument has historically held true, then there are two issues: history rarely repeats itself though there are often loud echoes. By implication, those who are mollifying are sucking way more than their worth out of the value chain. Long term I sense that even the most profligate of marketing managers will see the stupidity of such a play.
But then I think David (or rather Marc) misses something. We’re not all in this for the money. Influence has its own reward.