Pay To Play Must Die
Who actually benefits from the technology research business model?
This week, The Boston Globe reported that NetScout filed a lawsuit against Gartner alleging unfair trade practices, also known as “pay-to-play.” For the record, Gartner vehemently denies this allegation, but it seems to be an open secret that companies have to pay analyst firms to get access to coverage. Gideon Gartner himself said he estimated IBM pays Gartner over $5M a year for research.
Of course, I have an axe to grind. I started Vendorsi because I purchased marketing technology, tools, and software for over a decade and came to believe Gartner (and every other software analyst, review, and consulting site that takes money from vendors) is on the wrong path.
My objections are not moral, per se, although I admit I’m pretty disgusted by the wink-and-nod way some software technology analyst firms run. They charge buyers for “objective” research, then tap the vendors themselves for “consulting” on how to best present them to those same customers. Some estimates say at least 30% of Gartner’s revenue, for example, comes from the vendors they cover.
But let’s set aside the moral argument for now. Plenty of companies sell products that are morally repugnant to some people but are still totally legal, such as birth control pills, pornography, and the music of Justin Bieber.
But in the case of birth control, a woman’s life can be saved. Pornography provides a clear benefit to its consumers. Justin Bieber brings joy to those who love his music.
I want to ask a different question. This is the first in a two part series.
Who is Pay to Play Helping, Really?
Part One: The Vendors?
The Vendors’ Costs:
- Companies can spend tens or hundreds of thousands of dollars. In some cases even millions of dollars per year are spent on “analyst relations” (including, travel, meals, gifts, and consulting fees).
- Dedicated staff is required to manage these relationships. In fact, there are so many analyst relations professionals that they have their own trade group. And it requires a code of ethics. This additional cost drives prices up for customers.
- Internal innovation becomes led by whatever analysts feel is needed to get vendors into the magic hexagon; or whatever the infographic of the month is. Just look at the job description for any vendor’s Analyst Relations team to understand.
- Vendors pay to reprint copies of the article where they get coverage.
- Vendors end up in an arms race of features that end up making them virtually indistinguishable from each other, hurting the shareholders’ bottom line.
- In a world where there is no brand differentiation, companies then compete on who can shout the loudest. This drives up advertising costs for everyone, raising the price of entry so high that innovative startups cannot afford to get attention.
- “The rich get richer” as the big firms who can afford to Pay to Play are perceived as “safe” by risk averse buyers, thereby elbowing out small firms who cannot afford the fee from growing and challenging the established leaders.
- Each year the process starts over again since “news” in changes in the magic octagon drives sales of reports. So the costs of analyst relations are not investments, but business expenses.
- The net result is the status quo: where 6–8 vendors are in a space and everyone else is noise. To use just one industry as an example, there are close to 1000 CRM/Marketing Automation vendors alone. Yet only a handful are covered by Gartner.
The Vendors’ Benefits:
- For the top 6–8 firms in a space, it’s winner take all. Large, risk averse enterprises use third party research to “cover their asses” when choosing vendors. If you’re in that top group, you will be on the short list and can focus your energies on the sales process.
- Some firms do purchase consulting time (with the analyst!) that gives them access to inside information not available in other ways due to risk of collusion or competitive threats.
- For everyone else, it’s nothing. Worse, it’s a potential loss of sales if a competitor is in and you are out.
If you’re a vendor not in the top firms being covered by Gartner, what are you getting from them? Let’s continue the discussion on LinkedIn or Twitter, using hashtag #p2pmustdie.
Tomorrow: What do Technology Buyers Get from the Pay to Play business model? And a summary of winners and losers.
