IT research: Is it time to analyze the analysts?

Here's how to optimize your market research relationships for tough economic times

On the Web site of mega research firm Gartner Inc. lives a section entitled IT Budget Optimization, which, among other things, offers for sale 20 research papers on strategies for cutting IT expenses.

The papers cover everything from deferring PC purchases to cheap options for IP videoconferencing. But nowhere is there any advice on how buyers might cut costs on another IT expense that can easily run into six or even seven figures, a product that's Gartner's bread and butter: IT research.

There are more than 400 firms selling technology-related research, data and advice, sales of which topped $3 billion worldwide in 2007, according to Knowledge Capital Group (KCG), an analyst relations strategy firm in Austin.

IT departments across the country spend tens of thousands of dollars every year on IT research sold by Gartner, Forrester Research, IDC, AMR Research, Burton Group, and hundreds of other companies, raising the question of how, or whether, IT buyers can cut back or at least optimize their spending on research and advisory services.

Big money for big research

By now it's clear that the U.S. economic malaise is hitting IT spending. In February, for the second time in four months, Forrester Research revised its 2008 growth projections for IT spending downward to 2.8%, citing recession risks.

However, there is nothing to suggest -- yet -- that sales of IT research will be affected by the economic slowdown, says Louise Garnett, vice president and lead analyst with Outsell Inc., a Burlingame, Calif. firm that tracks the research market.

Indeed, both Gartner and Forrester (the only publicly traded U.S. IT research firms) forecast double-digit growth for 2008. Both companies announced healthy first-quarter earnings, and neither has changed its earlier estimates for growth in 2008.

At Gartner, research revenue grew 18% in 2007 to $673 million, and in May of 2008 the company reported first-quarter research revenue growth of 19%, or $189.5 million. Forrester recently reported first-quarter research and advisory services growth of 16% to $55 million.

Just who are the clients behind that type of growth? Most IT research firms cater to two separate groups of clients with two different research business models: technology vendors, who buy "sell side" research to help them position and differentiate their products in the marketplace, and the companies who eventually buy those products, logically known as the "buy side" of the market. (See Market research: who buys it and why.)

Research as a resource

Technology buyers use research firms as an insurance policy against wasting resources. "CIOs use them to validate their direction, approve their choice of vendors and products and in general, rely on them to keep from making mistakes that are costly in terms of time, money and manpower," William Hopkins, CEO of KCG, explained in a report. "They gather, filter and synthesize information based on case histories, and they talk to a lot more people than you could ever talk to yourself."

Although it's relatively rare, IT buyers also can "rent" an analyst for an entire day of strategic advisory services, for between $15,000 and $20,000. Services like this are more prevalent on the sell side, observers report, where vendors are more likely to have a consultative relationship with an analyst.

To be sure, some IT departments consider research expendable, especially when cash is tight. "IT research is based around the idea that IT departments are doing something new," says Paul Massie, senior director of IT for a California-based semiconductor company, who dropped his Gartner subscription when his company's sales hit the skids. "But if there is no money in the IT budget to do something new, then you don't need the research."

The research firms, of course, beg to differ. "We would argue that we've done a great deal of work to write research relevant to clients during good times and bad," says Charles Rutstein, chief operating officer at Forrester, noting the rationale of spending tens of thousands on a research subscription to save potentially hundreds of thousands in IT costs.

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