Analyzing IT Analyst Services Firms: Who’s Your Analyst in Bed With?

The IT research business lacks an individual similar to the wine industry’s “analyst” Robert Parker, who accepts no money or consideration from any vintner. In sharp distinction to Parker’s practice, IT analyst firms accept money both from the vendors they cover and the users they advise?clear conflicts of interest. A growing part of some analyst firms’ revenues comes from direct consulting with vendors on products and strategy. Those same firms then turn around and write reports for users on those same client companies. Also, most analysts allow vendors to commission reports, known as white papers, on specific technology areas (in which the vendor’s products and services are usually featured prominently). Many analysts then repurpose those white papers as objective research. So, a report with a title such as “XYZ Software Revs Up Its Direct Hosting Capabilities” may actually be a rehash of a piece of research commissioned and paid for by XYZ. The CIO never knows.

Most of the 200 CIOs we interviewed in our CIO and Darwin survey seem to be in denial on this issue. All have heard horror stories about analysts being in vendors’ pockets, but each believes his own analyst is clean. More than 80 percent of CIOs surveyed believe the information they receive from analysts is at least somewhat objective. Interestingly, of that 80 percent only 3 percent said their analysts were completely objective. Unfortunately, that may be wishful thinking. Accepting money from those they purport to rate is “absolutely a conflict,” according to Ron Berenbeim, a business ethics expert and principal researcher at The Conference Board, a nonprofit research organization in New York City.

The party line from the analysts is that they wouldn’t dream of skewing their research in favor of their vendor clients because if they did, no one would trust them. “We do work with vendors, and we also report on those vendors. But it is more damaging to us to make a million-dollar deal with a vendor and then write an inaccurate puff piece than to just walk away from the business. The user community sees through this stuff very quickly,” says David Cearley, senior vice president and coresearch director for Meta Group in Stamford, Conn.

“I think analyst firms are just rationalizing what they do,” responds Berenbeim.

Few analyst firms have policies barring employees from owning stock in the companies they write about. Gartner and Forrester Research are exceptions. “Analysts are absolutely barred from trading stock in companies they cover. That will quickly get you fired,” says Jamie Popkin, group vice president and research fellow for Gartner.

An even more rigorous code is followed by one smaller New York City-based research firm, Basex, which does not allow its analysts to see its own sales data, effectively providing the “separation of church and state” structure all reputable business publications follow.

For their part, the CIOs interviewed here seem to believe that although the model may not be ideal, it works.

“The system is not perfect, but it’s reasonably optimized to serve the needs of the parties,” says James Brentano, executive vice president of technology for Intraware, a software vendor.

Prior to engaging any analyst firm?whether it’s perfect, optimized or compromised?Matt Maynard, CIO of Pathology Associates Medical Laboratories, requires the analysts to sign a detailed statement disclosing any potential conflicts of interest. These include stock ownership, any hint of nepotism and whether the firm accepts payment from vendors, and if so, which ones. Says Maynard, “I expect all my analysts to be independent.”