by Thomas Wailgum

Magic Quadrant Lawsuit: Would You Jump Off a Bridge If Gartner Says So?

Oct 21, 2009
Enterprise Applications

The problem is that too many rely too heavily on what Gartner has to say--business model be damned.

When I was little, my parents would give me a dose of the straight talk when they felt I was listening to too much of one friend’s youthful advice, or going along too easily with the peer pressure emanating from one of the “cool” kids.

The wisdom they used to convey that I might want to consider a more measured decision-making strategy in my life is pretty much standard operating procedure for parents everywhere: “Well, if Johnny told you to jump off a bridge, would you?”

Like most kids, I always countered with the “But, he said that…” nonsense, knowing I would ultimately be proven wrong again. I never did leap from that bridge—or get that earring, sneak into Fenway Park in the dead of winter, or put peroxide in my hair.

At the time, however, these kids in my life had tremendous influence, no matter how foolish that seems today. They could “move markets,” so to speak, and upset the social structures and daily happenings both inside and outside of school. What were their motives? I hadn’t a clue.

But these kids had power.

For a very long time Gartner has had wielded enormous power among technology vendors and IT buyers. Its Magic Quadrant has become: a trusted buyers’ guide for many companies; a cause for angst (or joy) for vendors unhappy with (or thrilled by) their dot’s location on the MQ; and a reliable revenue stream for the analyst firm.

It is the cumulative influence of Gartner’s 1,200 or analysts and the well-known subjectivity (a.k.a. “opinion”) of the Magic Quadrant that is at the heart of an interesting lawsuit filed in May by ZL Technologies, a San Jose-based vendor that sells e-mail and document storage software. ZL claims in a statement that “Gartner’s use of their proprietary Magic Quadrant is misleading and favors large vendors with large sales and marketing budgets over smaller innovators such as ZL that have developed higher performing products.”

In addition, ZL’s complaint alleges “defamation; trade libel; false advertising; unfair competition; and negligent interference with prospective economic advantage.” (Gartner has responded to ZL’s claims and filed a motion dismiss ZL’s complaint. A hearing is scheduled for Oct. 23.)

Which gets us back to the notion of influence. Does Gartner have influence? Surely. Does Gartner offer opinions on tech topics more than facts? Yes. But has all that become so powerful that a U.S. court must interfere? I doubt it. Think about it: A company, person or brand becomes influential not by force but by the fact that people find value in whatever that company, person or brand offers. And they give that entity their money or attention.

Looking at Gartner’s revenues during the last five years I see a company whose revenues and profitability have been on the steady rise. Revenues: ’04 $868 million; ’05 $964 million; ’06 $1 billion; ’07 $1.2 billion; ’08 $1.3 billion. (Despite a net income loss in 2005, Gartner has grown its profitability over those years as well.)

Now, the rather hefty elephant in this blog is the fact that Gartner receives substantial revenues from the vendors it covers and opines about in its MQ and other research materials. (It’s derisively referred to by many as “pay for play,” and it irritates most, if not all, analysts, including one of Gartner’s own.)

Just letting that sink in….

I bet that didn’t bother you. Or make you gasp. You knew that already. It’s not shocking at all. It’s become a part of how business gets done today (see: U.S credit rating agencies, the companies who paid those U.S. credit-rating agencies to rate them, the collapse of the financial markets, and the ongoing global economic crisis).

If people have complaints about Gartner’s research—and judging by comments I’ve heard and responses to others’ blog posts on the topic, they do—then people should stop buying it, stop talking about, stop citing it in presentations to the executive board. If it’s a bad product, then don’t buy it. Isn’t it as simple as that?

A commenter in an excellent blog post by ZDNet’s Dennis Howlett typifies the paradoxical situation: “We hired Gartner to make recommendations and paid a hefty sum. Good thing we ignored them.” How’s that for sound business strategy?

The problem is not that Gartner accepts money from the companies that it opines about; it’s that that too many end-user companies, knowing that Gartner follows that business model, allow Gartner research—its opinions—to influence and dictate their decision-making and strategies. That’s especially dangerous when it comes to risk-averse, non-IT executives who are putting more trust in a Gartner matrix than what their own IT people are telling them.

It’s just like following whatever the “in crowd” is doing in middle school.

In June, I wrote about Gartner’s selection of Microsoft Dynamics AX as the one and only choice in the midmarket ERP Magic Quadrant: Was it scientific? Not really. Was it the opinion of experienced industry analysts? Yes. Do you believe it? Well, that’s up to you. (I don’t. Just my opinion.)

Influence that goes unchecked, that is taken without the benefit of others’ advice and guidance and experience, is the worst kind of influence. If you’re naive enough to blindly follow what Gartner or Forrester or any other advisory firm says, then God bless and good luck to you.

To me, it appears that ZL wants Gartner to be punished for having influence. In one ZL court document (beautifully analyzed by Dave Kellogg), ZL claims that “Gartner…exercises hegemonic control over the purchases made by a wide swath of the international corporate and governmental market. The technology Gartner says to buy is bought.”)

If vendors and end-user companies continue to pay Gartner for their expertise and opinions—and it appears they are—then the research firm must be doing something right. (As to whether it’s legal, well, that’s not up to me.)

But if not, Gartner would’ve already ended up like one of my former influential classmates, who, last time I saw him, had barely finished high school and was bouncing idiots out of a local bar, surely dispensing his wisdom to those fortunate enough to be in his presence.

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