For large companies, choosing a tech vendor is difficult. There’s multiple criteria to be considered and most of the time relevant data is unavailable. Available data is prepared by analysts with potential conflicts of interest that follow opaque methods. However, IT advisory firms that provide advice to corporations regarding technology purchases are thriving in this environment even though their demise was predicted long ago. Future of IT advisory is critical to B2B tech vendors as IT advisory firms influence corporate buyers, therefore deeply impacting the B2B tech landscape. So what will be the future of IT advisory?
IT advisory firms such as Gartner, IDC and Forrester reached billion dollar market capitalisations with Gartner outperforming S&P 500. Their benefits to companies are numerous. They aggregate data facilitating companies’ access to information about vendors. Their visualisations like the hype cycle and magic quadrant simplify vendor categorisation and comparisons. They also allow internal corporate teams to validate their choices with external opinion.
Current issues facing IT advisory firms
There are three complaints in the industry about IT advisory firms: Their analysts have conflicts-of-interest, their methods are not transparent, their vendor analysis methods have biases against open source.
In the case of Gartner, there were multiple lawsuits from 2010 and 2014 initiated by companies that believed they should have received a better treatment in Gartner’s magic quadrant. IT advisory firms’ claim to objectivity is hampered by the fact that they provide consulting and research services to both vendors and customers of vendors. This puts analysts in the position of ranking vendors that pay them for services. IT advisory companies claim these conflict of interests are managed by Ombudsman or other mechanisms. However, I have yet to see an independent party examining conflict of interests and providing resolutions. IT advisory firms claim that their analysts are impartial but do not provide any transparency into the payments received from vendors or the conflict of interests of individual analysts.
Transparency is another concern. For example, both quadrants of Gartner’s Magic Quandrant are subjectively measured. It’s of course impossible to measure “Completeness of vision” or “Ability to Execute” perfectly but things would be much clearer if Gartner explained how these linked to measurable, objective metrics about vendors.
Finally, open source vendors and startups with limited revenue are essentially shut out of most IT advisory rankings. For example Gartner’s magic quadrant has a hard revenue criteria, leaving an important part of the market with limited exposure.
How these issues impact B2B vendors
Though quality of their advice is criticised, influence of IT advisory firms is much less contested. These 3 issues and the fact that there’s limited public data on B2B tech vendor performance influence corporate purchasing decisions.
Firstly, those who trust advice of IT advisory firms could potentially receive more coverage about larger closed source players. All 3 issues I pointed out favour larger players. Larger players stand to benefit from IT analysts’ conflict of interests as they already have deep personal and undisclosed financial relations with IT analysts. Lack of transparency allows conflicts-of-interest issues go unnoticed. Hard revenue criteria impacts visibility of startups and open source players.
Secondly, those who do not have access to advice from IT advisory firms need to operate with limited data or undertake extensive research. Enterprises need to answer many questions while deciding to partner with a tech vendor and sadly each enterprise resolves to answer these on their own:
1. Financial criteria: What’s the ROI? What is implementation/maintenance costs, time frame for implementation and business impact?
2. Business criteria: What are the non-financial benefits like customer satisfaction?
3. Technology criteria: Does the solution support my architecture? What’s the flexibility for future changes? Is migration to another system possible in the future? Are there more flexible open source alternatives? Does this solution add unnecessary complexity to our architecture? What’s the potential security risks of this solution? How does it impact our attack surface?
4. Vendor criteria: What is track record of the vendor? How long does setup last? How much support can I receive?
5. Legal and regulatory criteria: Does this solution conflict with any of our legal or regulatory commitments?
Researching these online can be a significant undertaking. Corporations reluctant to invest significant time and exposed to advertising from large IT firms will find it hard for to take risks and work with smaller vendors. Corporate decision makers would need multiple meetings with multiple vendors to get this data. To make that effort manageable, they would need to prepare a short list. In an environment with limited data, taking the risk to involve an upcoming company in the short list may be too much of an investment for a corporate decision maker who has numerous other priorities in addition to selecting the right vendors.
These factors make it much more difficult to launch a new B2B tech vendor. In Fortune 500, average age of top 5 exclusively B2B technology companies is 77. The same figure for top 5 technology companies operating as B2C or both B2B and B2C is 32. This is just a few data points but supports my intuition. While established giants like IBM and Oracle are still household names, people working outside technology have a hard time naming new players. State of IT advisory industry is not the only explanation for this phenomenon but it’s a contributor.
Future of IT advisory
In an age of transparency and easy access to online data, it is strange that this search problem which is hampering innovation in a critical industry still continues. It is strange that companies are still relying on IT advisory firms founded in the 80s. After all, they employ analysts to provide what is claimed to be subjective and opaque reports. How come they are so successful if they are essentially continuing their business and operating model from 1980s?
First, Gartner needed dramatic boost in number of sales personnel in its effort to beat the market. Gartner increased number of sales personnel 297% while increasing contract value by ~175% between 2005-2015.
Second, while the term vendor continues to be searched frequently, IT analyst brands are getting searched less which could indicate that users are resorting more to Google to discover which vendor to work with.
IT advisory firms are taking notice and attempting to increase transparency and objectivity. Taking a leaf out of customer review websites’ book, Gartner launched peer insights in 2015. Peer insights now includes more than twenty five thousand reviews. In order to boost their offering they have also done numerous acquisitions, entering new markets such as talent management with their CEB acquisition. These are bold attempts but they do not solve the whole problem. Reviews tend to be too superficial to answer corporate’s numerous questions on new solutions and though it helps generate growth, entering new businesses dilutes focus of IT advisory firms.
There needs to be a transparent, objective compilation of vendor and enterprise data answering these questions. There are numerous companies providing such data for SMEs and since corporates are willing to pay significant sums to IT advisory firms for such data, it is in their best interest to contribute to similar platforms for enterprises. Existing and upcoming IT advisory firms need to work with enterprises to develop novel approaches which will save corporations from redundant work and levelling the field for new B2B technology entrants.
Cem Dilmegani, CEO, appliedAI.com