- Gartner has a corrupt business model where Gartner never declares its conflicts of interest.
- Gartner is extremely powerful and has enormous influence and network effect to match their corruption.
- Vendors fear Gartner because of its network.
- How the size of Gartner reinforces their model and the impact of its Magic Quadrants.
Introduction to the Reality of Gartner
Gartner extracts money from many “customers” that would prefer not to pay Gartner. This leads to many conflicts of interest that Gartner tries to keep as quiet as possible.
See our references for this article and related articles at this link.
In this article, you will learn the unvarnished truth regarding Gartner’s business model.
The Gartner Business Model
In their 2012 annual report, Gartner makes the following statement about how they earn revenue.
- Research: “Gartner delivers independent, objective IT research and insight primarily through a subscription-based, digital media service. Gartner Research is the fundamental building block for all Gartner services and covers all technology-related markets, topics, and industries, as well as supply chain topics. Our proprietary research content, presented in the form of reports, briefings, updates, and related tools, is delivered directly to the client’s desktop via our website and/or product-specific portals. Clients normally sign subscription contracts that provide access to our research content for individual users over a defined period, which is typically one year.”
- Consulting: “Gartner Consulting deepens relationships with our Research clients by extending the reach of our research through custom consulting engagements. Gartner Consulting brings together our unique research insight, benchmarking data, problem-solving methodologies, and hands-on experience to improve the return on a client’s IT investment.” According to their annual report, Gartner receives about twenty percent of its overall revenue from consulting.
- Events: “Gartner Symposium/IT expo events and Gartner Summit events are gatherings of technology’s most senior IT professionals, business strategists, and practitioners. Gartner Events offers current, relevant, and actionable technology sessions led by Gartner analysts to clients and non-clients.”
Gartner’s Network Effect
With Gartner’s size, the number of areas covered, and the number of analysts that it can bring to these different topic areas, it is easy to see why Gartner is the largest organization in the world dedicated to the analysis of software. This type of scale provides significant advantages, including a large customer base that allows for a high number of return surveys, even if the percentage of participation is not very high on any one survey. This gets to an important point: a significant portion of Gartner’s competitive position is based on its interaction with an extensive network of software vendors and buyers. The system results in a comprehensive database of individuals to which Gartner analysts can reach out when they are researching topics. This database—as well as the relationships that are developed through constant interaction with the people that make up this database—is by itself a significant percentage of Gartner’s value as a company. Referred to as a “network economy of scale” or “network effect,” an example is explained in the Wikipedia quote below:
“Many websites also feature a network effect. One example is web marketplaces and exchanges, in that the value of the marketplace to a new user is proportional to the number of other users in the market. For example, eBay would not be a particularly useful site if auctions were not competitive. However, as the number of users grows on eBay, auctions grow more competitive, pushing up the prices of bids on items.”
The Increased Value of the Network
That is, the more people and companies Gartner is in contact with, the more valuable it is Gartner. If Gartner analysts did nothing more than stay in touch with this database of individuals to discuss various topics, they would know quite a bit. Analysts do not spend their time testing software but tend to gain their information by reading, having phone conversations with buyers and vendors, and sometimes visiting sites. Gartner is also a frequent presenter at a variety of conferences and puts on its events, allowing them to rub shoulders with a wide range of senior IT professionals as well as bring together groups of buyers and vendors in customized sessions.
Gartner can be viewed as a social network, but one which is private rather than public (like a country club or a prestigious university where membership is expensive). People that read this might say, “Wait, Gartner is nothing like Facebook.” However, when I say a social network, I am not referring to the technology of a social networking site. Instead, I am referring to the theory of social networking, which goes back to the 1930s, and possibly earlier.
Gartner’s Value As a Social Network
Gartner is a social network, while Facebook is both a social networking website and a social network. Facebook is so successful because it has managed to tap into the dominant desire of people to associate in a social network. However, social networks exist both online and offline. While Gartner distributes its research online, its social network is a decidedly offline affair. The information contained in Gartner’s published findings is just the tip of the Gartner iceberg. Gartner has often interpreted as a research and consulting entity, but this misses a powerful part of their value-add. (In fact, as we will see, Gartner is the strangest type of research entity.)
And this value-add, while clearly understood by some, has not been explained in published form; interestingly, I was unable to find any published material on the topic of Gartner, or IT analysts, or industry analysts themselves as social networks. It seems that this observation has been missed by most.
Books like this one explain how to study social networks. Social networks were a field of study in academics long before they burst onto the scene with the creation of social networking sites.
How Benefits the Most from a Social Network?
To understand this aspect of Gartner, it makes sense to review the social network function and who benefits the most from a social network. Wikipedia’s entry on social networks is a synopsis of the academic work in this area.
“In the context of networks, social capital exists where people have an advantage because of their location in a network. Contacts in a network provide information, opportunities and perspectives that can be beneficial to the central player in the network.
Networks rich in structural holes are a form of social capital in that they offer information benefits. The main player in a network that bridges structural holes is able to access information from diverse sources and clusters.”
How Gartner Benefits from Being at the Network Center
Gartner gains a great deal of power and authority from being at the center of the enterprise software social network. Gartner’s research has authority not necessarily because it is right, or because there is any evidence that Gartner can select vendors that are the best fit for their subscribers (this would be hard to prove) but because it is popular.
Very few of Gartner’s target market are researchers. They generally don’t go back and read through old Gartner research reports to test for accuracy, but what they do know is that Gartner is understood and respected by their peers and their superiors. Of course, the major characteristic of a social network is that its members value the opinion of their peers in the social network; their fellow members are heavy influences on any decisions they make. Therefore, if members of Gartner’s social network read and respect Gartner’s reports, that means a lot to the members of this social network.
The Function of Gartner
The function that Gartner—or any information broker for that matter—can add through its central position in a social network is explained with the following graphics.
This simplified example represents the social network of three people concerning IT information. (A person can be part of multiple social networks. For instance, each person has a social network of family, a social network of friends, etc. However, in this case, we are filtering each person’s social network for IT information exclusively). Tom, John, and Sally work with and have an interest in the same category of software. Tom and John work in different companies and share information about their experiences. The same is true of John and Sally. John has two people in his IT social network, while Tom and Sally only have one person in their social network. Sally and Tom do not communicate with one another. Sally and Tom get some information that is passed to John, but not all the information.
All three people do subscribe to Gartner, and Gartner fills in the gaps between Tom and Sally. Of course, Gartner also interacts with many thousands of other people in vendors, buyers, consulting companies, etc. Therefore Gartner is capable of filling “structural holes” between individuals.
How is Gartner Different From a Social Networking Site?
Social networking sites are the standard frame of reference for most readers, so it is interesting to see how Gartner is distinct from Facebook.
- Gartner creates research products, which is a form of broadcasting, but also has one-on-one interactions—a “narrowcasting.”
- On Facebook, individuals are allowed to freely associate as long as they are part of one another’s social network. Gartner, on the other hand, behaves more as a central hub, controlling the interaction. Except for events, where it in part charges for the right to connect up sub-segments of the Gartner social network for freeform communication, the primary information flow is narrowcasting between Gartner and clients, and then broadcasting more limited and obscured information through research reports.
- Facebook monetizes its social network through both advertising and selling personal information about its social network members to various interested parties. In contrast, Gartner monetizes its social network with subscriptions, consulting services, and events. Facebook does not interview or interact with its members.
- Facebook creates a collaborative environment and allows the social network to self-organize, along with automated guidance routines, which encourage members to enlarge their social network and become more involved with Facebook.
- Facebook is a simple social networking site, while Gartner is a mixture of a social networking company combined with a research company, consulting company, and information broker.
Gartner is Identified as a Research Entity
Generally, Gartner is identified as exclusively a research and consulting company, but in fact, it is much more than a research company. Its method of absorbing and providing the information makes Gartner the “center of attention.” Gartner researchers/analysts do not read merely vendor marketing literature, test software, analyze historical databases, and then release reports that can be purchased online. Instead, their job is intensely social, and much of their work and the work of other people at Gartner is about maintaining and nurturing that social network. One cannot understand Gartner by only looking at its media product because that is only a part of what makes Gartner the force that it is today. I made this mistake when I read my first Gartner reports over a decades ago.
By simply reading the content, I could not see why they were so influential. I should point out that social networking is a feature of all industry analyst firms; however, Gartner is particularly connected and particularly good at leveraging the social network it has created. They have, in essence, take it to the next level. There is no other IT analyst firm with anything close to Gartner’s social network.
Doing Research or Using Gartner
Considering the stakes involved, software buyers do surprisingly little research themselves when deciding as to which software to purchase. Instead, companies reach out to both consulting companies and IT analyst firms. Due to the lack of resources available internally to perform this research, most information about products to purchase comes from third-party entities. As my book Enterprise Software Selection describes, it is challenging to obtain objective advice on enterprise software because most of the entities providing information on this topic have conflicts of interest. The poor quality of this advice is well known among those that work in the industry. Still, for whatever reason, the lack of quality or objectivity is not generally stated in a published form.
How IT Analyst Firms Work
Information technology analyst firms primarily sell advice their knowledge of software, hardware, and services to those companies that purchase any of these items. They secondarily sell information related to vendors as well as information about clients to vendors. Information technology analyst firms—Gartner chiefly among them—are significant influencers. This is true not only on the demand side (that is, with companies that make enterprise software purchasing decisions) but also on the supply side (the software vendors themselves), as meeting the criteria of analysts can influence everything from the strategy that software vendors follow to their ability to raise money. However, while many opinions about analysts are available on the Internet, there are few authoritative sources about how analyst firms work and how to get the most out of them. This is true from the demand side as well as the supply side or the investors. When researching the Gartner articles, I checked the types of questions companies asked about Gartner.
What the Gartner Subscriptions Cost
It seems that companies ask many questions about even the most elementary topics, such as Gartner subscription costs. Some IT analyst firms have a more straightforward offering – selling research reports for a specific published price, and in most cases, they also offer to consult. However, because of the breadth of Gartner’s offerings and how to control the information about these offerings and what they cost, understanding how to best use Gartner can be a challenge.
How the Size of Gartner Reinforces Their Model
According to Wikipedia, there are over seven hundred and forty industry analyst firms globally. Of course, only a fraction of these is IT analyst firms. Within the IT analyst segment, Gartner is so dominant that it receives over forty percent of all IT analyst firm revenues. Gideon Gartner founded Gartner in 1979, along with his partner David Stein. Before founding Gartner, Gideon had experience in IT as well as securities analysis. Gideon Gartner went on to found other technology research companies, including Soundview Technology Group and Giga Information Group. Gideon severed ties with Gartner back in 1993 when it had sales of roughly $120 million—Gartner has grown a great deal since Gideon’s departure. Gartner’s growth was not merely holistic; from the mid-1990s onward, Gartner consistently acquired up-and-coming IT analyst firms that were its main competitors. While Gartner began in the US market, its acquisitions are what allowed it to become a firm with global reach. During the late 1990s, Gartner became an international IT analyst firm through its acquisition of companies like the French firm Abigail Engelsman and the Singapore firm Datapro Information Services, Inc.
Other Major IT Analyst Firms
Gartner is one of the top mega IT analyst firms in the world. The IT analyst firm IDC (International Data Corporation) is close in terms of influence but generally lower, although still influential in different areas than Gartner. Forrester Research is the third mega IT analyst firm but is roughly twenty percent the size of Gartner. While often compared directly with one another, these three firms do not entirely overlap in their offerings. For instance, IDC is more of a media conglomerate. Like Gartner IDC sells research, but it is also a publisher of technology magazines. Forrester is known more for projection than vendor comparisons. At one time, Forrester was close to Gartner in terms of their influence, but Gartner has now pulled ahead and is far more frequently quoted than Forrester –(which, of course, is expected as they are over five times as large as Forrester). Finally, Gartner has the broadest offering of the three companies, is the most global, and is the most influential in software selection.
What Gartner is so Important
Gartner was not always as influential as it is currently; its increased influence is due in part to its effectiveness in managing its business, and because it has gobbled up many of the other competing options. It has acquired over thirty firms, and it seems likely that Gartner will continue to acquire new firms in the future. New IT analyst companies are certainly free to try to fill the gaps left by these acquisitions, but it’s not as easy as it sounds.
How Gartner Acquires IT Analysts to Stifle Competition
It takes time for an IT analyst firm to develop its distinctive voice and to build its prominence in the software categories that it covers. If one firm does rise in prominence, Gartner’s financial position is such that they can acquire them as well with relative ease. William Hopkins explains this very well in an analysis of the Gartner acquisition of AMR Research.
“This may be the best acquisition ever – it kills two birds with one stone. Besides being a near perfect take-out play, it also offers easy access to a buyer base that is complimentary to their existing enterprise apps business. The best of both worlds. Here is why: The take-out play – As we have said many times before, one of the great ignored truths of the analyst space is how long it takes to build a buyer facing brand, products and sales force. Just like its acquisition of Meta, by buying AMR, Gartner removes the largest and one of the few remaining buyer-facing firms in the market. Our estimates is that it takes 12-15 years and at least $250 million dollars to build a buyer-facing firm.”
Something that Gartner itself certainly realizes is that there are significant benefits to being the most prominent IT analyst in the market, including compelling competitive advantages.
The Impact of Gartner’s Reports
Gartner’s issuance of a report means something significant to corporate buyers and has real financial consequences for those vendors mentioned in the report, both good and bad. Gartner is in the catbird seat desired by many companies in that they can charge for information that many of the vendors pay to give them. Gartner is paid while it both gathers information and provides advice. Gartner is so influential that they control (in part) the fates of software vendors and set specific standards to which software vendors must adhere. Gartner has a series of preferences to which vendors either subscribe or pay the penalty in the marketplace.
Not only is Gartner a significant influencer in software purchases and vendor strategy, but less frequently discussed but also quite substantial is its influence on the stock prices of the public software vendors, and the ability of software vendors to raise capital
Many banks and investment banks maintain subscriptions to Gartner and rely heavily upon Gartner’s analysis to make their investment decisions. Investors don’t even have the luxury of implementing software; so much of their information about software comes from sources like Gartner. The extent to which Gartner caters to the investor market is greatly underestimated by those who work in the software industry. This is covered in detail in Chapter 5: “The Magic Quadrant.” Gartner is also hired by vendors to raise capital from investors.
 “Buyer facing” means that the company primarily provides research for buyers. Gartner is both buyer and seller facing, but more of its income comes from buyers.
Gartner’s Size and Scope
In 2012 Gartner had revenues of $1.615 billion, with around five thousand five hundred employees. The best estimates I could find indicate that there are roughly nine hundred analysts and six hundred consultants. However, sometimes the consultants are lumped in with the analysts, even though they have different jobs. Gartner is headquartered in Stamford, Connecticut. Gartner covers thirty different technology areas, with many full-time analysts who focus on each of these areas. These thirty areas are listed below:
- Application Development
- Application Integration
- Business Process Management
- Business Process Platforms
- Consulting and Systems Integration
- Content Management and E-Learning
- Customer Relationship Management Vision
- Data Management and E-Learning
- Data Management and Integration
- Emerging Markets
- Emerging Trends and Technology
- Enterprise Operations
- Environmentally Sustainable IT
- Enterprise Resource Planning/Supply Chain Management
- High-Performance Workplace
- IT Sourcing
- IT Performance and Business Values
- IT Service and Enterprise Management
- Mobile and Wireless
- Open Source Software
- People, Work, Culture and Society
- Personal and Distributed Technologies
- Project Portfolio Management
- Security, Profile and Risk
- Software as a Service
- Web Technologies
 However, there are significant discrepancies in how prolific and well-known these analysts are. A small percentage of the analysts listed above are responsible for a disproportionate amount of the research that is performed at Gartner.
Some IT analyst firms have a more straightforward offering – selling research reports for a specific published price, and in most cases, they also offer to consult. However, because of the breadth of Gartner’s offerings and how to control the information about these offerings and what they cost, understanding how to best use Gartner can be a challenge.
The Problem: Thinking that Gartner is Focused on What is True
Gartner is hired by companies who fundamentally don’t understand how Gartner functions. Gartner has virtually no first-hand experience in the technologies that they evaluate and get most of their information from speaking with executives at buyers or executives at vendors and consulting firms. Gartner is also not a research entity. They compare very poorly to real research entities once you dig into the details as we did in the article How Gartner’s Research Compares to Real Research Entities. Gartner serves to direct IT spending to the most expensive solutions as these are the companies that can afford to pay Gartner the most money. Gartner has enormously aggressive internal sales goals that place accuracy far below revenue growth in importance.