Big money for big research

By now it's clear that the US economic malaise is hitting IT spending. In February, for the second time in four months, Forrester revised its 2008 growth projections for IT spending downward to 2.8 per cent, 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, an analyst at Outsell, a firm that tracks the research market.

Indeed, both Gartner and Forrester, which are the only publicly traded US 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 per cent in 2007 to US$673 million, and in May 2008 the company reported first-quarter research revenue growth of 19 per cent, or US$189.5 million. Forrester recently reported first-quarter research and advisory services growth of 16 per cent to US$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.

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," KCG CEO William Hopkins 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 can also "rent" an analyst for an entire day of strategic advisory services, for between US$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 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.

Either way, there are strategies that IT buyers can and should use for making better use of their research dollars. "In general, people spend as much or more [on IT research] in a tough economy," says KCG president Steven England. "But you want to make the right decisions."