AR Insider 4.02

AR Insider: Deal Makers & Breakers End-of-Year 2004 Results: Making time or Buying it?

Both of the two remaining Deal Maker and Breaker firms reported their end results over the last week. Though both firms showed revenue growth, only one was more profitable. The big story though is in what it looks like for the next year.

Setting a blistering pace, Forrester’s revenues were up over 10% to $135 million and both GAAP and Pro Forma earnings gained significantly. Though they don’t report business unit statistics like Gartner, they indicated that growth in research (as opposed to consulting and events) was strong and should continue unabated next year. In a further optimistic move, Forrester announced its intent to repurchase $50 million of its shares over the next year.

After 2 long years, it looks like the Giga acquisition hangover is wearing off for Forrester. Though an enormous amount of the value of Giga was bled off in the acquisition, the resulting combination looks to be stable and strong. This couldn’t have happened at a better time for Forrester as they face an immediate challenge to plot their way forward in the light of the Gartner/Meta deal.

Gartner painted a much bleaker picture. Gartner grew its top line revenues 4% from $856 million to $894 million and earnings were down by half to $0.13/share. On a business unit basis, Research eked out a 3% gain, Consulting was flat, and Events was up 18%. Though these results were lackluster, the most interesting information probably came in the form of their future guidance. Gartner’s freshman CEO Gene Hall predicted very low growth in both top-line revenues (2.5%-5%) and earnings (flat to slightly higher), excluding the effects of the Meta acquisition, expected to close in Q205. These results significantly lag most estimates of overall growth in the tech sector (commonly thought to be a chief indicator of analyst firm prospects).

This bleak forecast may actually be a smart move for Gartner. By setting lower expectations and moving to yearly, rather than quarterly metrics we think that Mr. Hall has effectively bought a year of breathing room for Gartner to assimilate and integrate the Meta acquisition. The good news is that, if true, this indicates a more conservative, mature management perspective for Gartner. The bad news is that given the low forecasts and the impending integration of Meta, it makes 2006 a literally make or break year for Gartner.

The bottom line is that end of year financial performance doesn’t have a lot to do with your day-to-day relationships with analysts and firms. What it does predicate though, are long-term changes to business practices and policies. We believe that what we’ll see over the next year is pretty clear.

Forrester has wherewithal (and the mandate) to grow in the two-player, IT buyer advisory game. This should mean new services and products and more aggressive competition.

Gartner has a much different task. They have just about a year to figure out how to better their results and digest their latest meal – starting with how they are going to keep from alienating those clients that bought Gartner because they had to, but Meta because they wanted to.

If you have question or comments on the analyst firms, their performance and future prospects, please give us a call at 512.334.5943 or email us at inquiry@knowledgecap.com. We’ll be happy to talk.

There is no doubt that buy-side industry analysts (Gartner, Forrester, META, AMR, Ovum, etc.) wield an immense amount of influence over IT purchases. They spend their days studying and analyzing markets and whether correct or not, they are perceived by most to be the experts in their particular domain. With just a few words, the fate of a deal, product or company can be compromised. Some IT vendors believe that an ill prepared or managed analyst briefing contributed to the demise of their product or company.

While there are different types and purposes of interaction with analysts, the one-hour, face-to-face company or product launch briefings tend to be the most challenging for IT vendors.

In Part One of this Two Part series, we examine the first 5 points of Gartner’s “Agenda Outline of a Vendor Briefing” and provide insight on how vendors can frame their presentations to influence the influencers.

Although Gartner developed the outline, the basic framework can be applied to any analyst firm briefing (depending upon the relationship the vendor has with the analyst, and the purpose of the meeting, some of these points can be skipped or rearranged):

1. Company mission: assuming that the analyst is not familiar with the vendor, a brief company overview should be given that concisely answers the following seven questions:

If the analyst is familiar with the vendor, and a relationship has been developed, this overview should be used as a quick refresher.

2. Company background: revenues, number of employees, profitability, number of locations, management team structure, investors, etc.— Analysts spend their days researching, studying, and analyzing companies in their practice area. They have seen a plethora of companies with different technologies, market dynamics, business models, and organizational structures. They will look at the information that is provided to them and what is not and they will make assumptions based upon their experience. This validation process tests the openness and honesty of the vendor. How the vendor approaches this interaction can have a profound impact upon the future relationship with that analyst, and potentially with the analyst firm. The best policy is to be straightforward and relatively open with the numbers you provide.

3. Product or service architecture: What is being sold, and how is it organized? What is the roadmap for future product/service line development? — For many analysts, seeing is believing. Be prepared to show them the technology and/or architecture. Do not go too deep into the details, but have the capabilities to do so if they ask for them. Take advantage of their experience and domain expertise and ask them for their assessment.

4. Competitive landscape: what market is the vendor in, who are the competitors and what is the overall strategy for developing sustainable competitive advantage? — Every vendor has competitors. There are no exceptions. Vendors that claim that they do not have competitors immediately diminish their standing with the analyst. The reality is that the analyst wants to hear the vendor’s assessment of the market that they are in, who they perceive as their competitors, and how they are addressing the competitive forces in the industry for sustainability. Vendor clients should be proactive in asking for the analyst’s assistance in fine-tuning their positioning, strategy, road show presentation, etc.

5. Distribution channel strategy: What is it, how successful has it been by channel, and what are plans for improving/changing the strategy? — The vendor’s distribution channel strategy is a critical point of the briefing. This tells the analyst a good deal about the vendor’s business and sales models, what is working and what is not. The key piece of information that should be included is the percentage of product that is moved through the different channels and why.

If you have question or comments on these first 5 points, please give us a call at 512.334.5943 or email us at inquiry@knowledgecap.com. We’ll be happy to talk.

KCG Introduces three new BLOGS for AR Professionals

In response to popular demand KCG has set up a number of web forums or BLOGS for AR Professionals.

Current subjects include:

The Gartner/Meta Merger

Small Company AR

Big Company AR

We hope to see many more streams and posting as this resource develops. Fell free to visit the KCG BLOGS at:

http://kcgblog.blogspot.com/ or e-mail weblog@knowledgecap.com

Under the Influence: Big Company AR Part III: Organization

By: Stephen F. England

In this, the final part of this three part series - we’re going to look at the challenges facing large AR groups in terms of their own organization and alignment with their company’s.

There are two major challenges – how to organize across multiple business units and how to reconcile multiple internal requirements.

First – let’s look at alignment and structural challenges:

Most large companies take what we like to call the “federation” approach to AR. Under this structure at least some of the AR team are in the corporate “mother ship” and some are spread throughout the operational business units.

The “loose” federation corporate teams are there to set procedures and systems and have little actual day to day outreach responsibility. They may also be responsible for internal training and coordinating large analyst summit type events. They have virtually no budget of their own.

The day to day contact work is done by independent teams that report to and are paid for by the business units. It is often possible to see wide variation between the strategic importance, size and budget of such teams within the same company.

The “tight” federation model has the entire AR department reporting and budgeted centrally. Although members of that department are often geographically spread their solid line report is to the head of AR.

In general the tighter federations work better and show up much more positively in our attitudinal studies of individual analyst’s views of AR program effectiveness.

Several teams also run (as a tight federation) the “internal agency” model – where a business unit can buy time and expertise from a central team simply by allocating more budget to them. The project based budget model is also often used to construct the whole year’s budget.

We see the tight federation model (with the internal recharge system to allow budget flexibility) as the most efficient organization for consistent program quality.

The second biggest challenge comes in reconciling internal needs – analyst outreach and market/business intelligence.

If these two functions are not connected two things will happen:

Product development teams will start to listen to different analysts than the outreach teams. Bad news if the analysts they listen too are not those most involved with your prospects!
Lack of coordinated buying will substantially increase the cost of analyst research and consulting contracts. In our experience uncoordinated buying can result in 40-60% wasted spend.

At the very least the buying process (including specifying the analyst targets and the exact products/services) should be coordinated to save money and improve alignment. In some companies MI/BI either reports to the same person as AR or is sometimes actually a function of the AR group.

We believe that that blending of these two roles will increase in the future as it has significant efficiency and cost saving benefits.

For a complete audit of your AR organization and some real time feedback and risks and opportunities sign up for an AR audit here:

http://www.knowledgecap.com/resources/Resources-AuditSignUp.htm

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Looking for a job in AR?

Hiring?

Right now KCG is working on helping clients fill several AR team positions and with many of our contacts who are looking for new or more senior positions.

Our jobs page is here:

http://www.knowledgecap.com/resources/Resources-Jobs.htm

Post openings or resumes on our site and we’ll work to help place good people into the right openings. It costs nothing and is completely confidential.

About KCG:

The Knowledge Capital Group, Inc. (KCG) is the leading global Analyst Relations Strategy consultancy with extensive domain expertise in Telecommunications, Enterprise Software, Hardware and Networking. KCG helps technology companies leverage the industry analyst's influence with end user customers and prospects to increase sales. KCG’s 500+ client list includes: AT&T Wireless; BMC Software; Cisco; Great Plains Software; Hewlett Packard; HNC Software; IBM (Lotus and Tivoli); Microsoft; Motorola; Neon Systems; New York Times, Nextel, Nortel; Novell; Oracle; Peoplesoft; SAP, SAS Institute; Siebel; Sprint; Trilogy; Verizon and Vignette

The AR Insider Staff:

William S. Hopkins, Executive Editor

Christopher R. Wilder, Contributing Editor

Stephen England, Contributing Editor

Terry Stephenson, Editorial Review

AR Insider is a bi-weekly publication of the Knowledge Capital Group, Inc., The global leaders in Industry Analyst Relations strategies for technology vendors.

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