What the analysts told me

The economic mood is bad we hear, and is likely to get worse. It's hard to believe that just a few months ago IT evangelists could hardly keep themselves from reciting the old cliché about a rising tide lifting boats.

There are still many mixed signals being sent to the marketplace. On the one hand, based on an economic slowdown, this is being validated by the number of companies that are falling short of expectations, including the bell-wethers of the industry like Cisco, Lucent, Oracle, CSC and Uncle Tom Cobbley and all.

So what do you do? Do you ring around your friendly analysts to take advice from the people who have never been ones to let a good band wagon pass by unjumped? If the people are hungering for a window into the future, they can be as big a pain as anybody -- I know, I've been there.

The question becomes, what can A offer that B can't and the investor analysts cannot? What irreplaceable wisdom can I expect to receive?

This futures business is a hell of a racket. Imagine people paying money today to be told what's going to happen in the future! And if the information is wrong, you can't get your money back.

I keep wondering how many more flavours of research they are going to come up with. If I could tell you that, I'd be a wealthy man.

Doomsaying

All the analysts have to do is let fall some dire-sounding comments about the impending techno-apocalypse and the legions of IT executives fall worshipfully at their feet. And it is not hard to develop any extraordinary insight or vision when one is swamped daily by volumes of information from the vendors.

When you're spending $A10 million to implement a new technology, it may be worth another $A20,000 to ensure you're investing in the right technology. These research and advisory companies should provide some assurance in the high price/high risk world of computing. In the worst case, if the technology blows up in your face, at least you can say an analyst recommended it.

Given the size of IT expenditures, subscribers are generally getting a low-cost/high-value-added product from the research companies.

These outfits win over customers by quality of service, meaning that they provide answers in a timely manner and maintain contact with the leading players in their chosen segments.

And technology vendors cannot afford not to buy the watchers' reports lest their own goods and services wind up negatively assessed by one of the "powerful" analysts at he research firms.

Showbiz

Most of the watchers also throw in a dollop of show business at their regular conferences, where they charge high admission prices and line up big names as speakers.

The crystal balls of the watchers can sometimes be cloudy. In 1986 a Gartner analyst predicted that in 10 years four companies would dominate the computer universe, whatever that was going to mean. Only one -- IBM -- remains a serious player. The other three -- AT&T, Fujitsu and Hitachi --have faded badly.

Research has also been used to back up the business plans of start-up companies. But that does not mean that venture capitalists accept the figures or the analysis. What they primarily look for -- well until now -- has been the management team and the entrepreneurial zeal displayed by that team. It's always encouraging to know they are targetting growing markets with a lot of potential, but that is not a key issue, said one venture capitalist recently. The same person also noted that in his observation of the IT industry, "it tends to overestimate what it can do in two years and underestimate what it can do in five -- that is if the company can live that long."

Hocus pocus

Forecasting is a far-from-exact science, but any time there are different forecasts out there people are going to ask who's right. Although analysts have been accused of back-of-the-envelope calculations and hocus pocus, despite good techniques, even the most sage economists have been vexed by the unprecedented changes being wrought by developments like the Internet.

Time and again, when the press or customers ask about the differences between the forecasts, it turns out it is because they are measuring different things. Indeed, many of the variations between forecasts lie in the various companies' definition of IT&C and the product categories they include in their various studies.

Research companies spend lots of time debating whether user/consumer or vendor/retailer surveys generate more accurate forecasts. Since most of the larger companies use both methods, as well as a host of secondary sources, an even better differentiator is the primary basis of a forecast -- whether its growth is in the user base, the technology adoption rates or a retail category, for instance. Another critical requirement is to be able to be walked through the model's assumptions. Businesses today want facts, particularly facts that will be useful in their business or profession.

But facts from the local analysts are generally elusive. Sometimes the information does not exist in data form about Australia or a particular segment. Or perhaps the data has not been updated for the past 12 months or so.

At other times, the facts are known to some degree but are carefully guarded. And worst of all, sometimes the facts are known and available but are just too darned hard to find.

Look for a leader

When you really think about what makes the IT research business model work, it has consistently been the leadership of one or two people in each company worldwide. These characters have unique visions and have managed to translate those visions into their entire organisations. To create a brand for the corporation that extends a "central" vision to every analyst is a challenge, although it is not without precedent.

But more about that next time.

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