This blog is written in response to Gideon Gartner's blog "Advisory Industry, a future redesign: the “Payment” Model". As I called out in two blogs in 2007 Gartner is now a small fish in a big pond as it attempts to compete in the larger management consulting market.

As such neither it nor Forrester or IDC can achieve organic growth and catapult themselves into the 10’s of billions of dollars of revenues (and higher profit margins) that the wider industry commands. For that reason I completely agree with Gideon that the required changes to existing pricing models in the ICT analyst advisory market are unrealistic in today’s environment. However, the “king of change” as Gideon called it in one response is well within reach of the firms that stand capable of changing and re-educating the industry.

I believe that the future of the large ICT analyst houses is inextricably tied to the innumerable boutiques that exist in every market that is geographically and economically relevant to the ICT industry. To maintain relevance as the global benchmarks, Gartner and Forrester must follow the lead of major banks and airlines and address a different business model that will include the addition of lower cost subsidiaries that offer either changes in service, pricing and delivery structures to companies that represent a larger and more diverse demogrpahics. Let me elaborate.

The advantage of a low cost subsidiary is that the “master” brand can continue along its traditional path, offering the same services and style of operation that brought it market success, while at the same time using an associated brand to initiate and drive change over a long period of time. This approach delivers immediate change to the market through a new innovative service without cannibalising existing revenues (in this case the 100’s millions of dollars in annuity subscriptions).

For the airlines, their lower cost subsidiaries meant that they could bring lower cost labour arbitrage to their high-cost pilot workforce. It also included changes to refreshment services, baggage services, checking services, valet services, rewards programs and even branding. All this accumulates in lower pricing with increased options. But despite all these significant changes the low cost airlines and their master brand owners have continued to thrive.

The immediate challenge to overcome is that low cost is perceived as lower value when in fact low cost simply refers to the operational model of the business. Airlines such as Jetstar and Virgin Blue in Australia command a strong loyal brand following as do the regional banks such as Bendigo and Bank of Queensland which succeeded when they opened their doors in places that the major banks decided they no longer wanted to operate.

The boutique analyst firms that have developed over the past decade, including ours, arose due to market demand. And that market demand was not based on library services but rather on the basis of trusted advisory relationships. Boutiques generally operate with lower overheads than a multi-national and it is not uncommon to find that the advisory service fees for such firms being as much as 3 or 4 or 5 times cheaper. Much of this is cost-base related and has nothing at all to do with brand and output quality.

So rather than acquiring a company such as Burton and AMR and totally rebranding them into the Gartner fold, it would set a far more lucrative precendent to acquire on the basis of being a brand subsidiary, such as “Longhaus – a Gartner Company” or “Longhaus – a Forrester Company”. 

The benefits of that to the mother brand is the brand traction and awareness that has brought those boutique company’s market trust, solid client relationships and millions of dollars in revenue. The issue of cannibalisation is less a problem as the end-user organisations (what Gideon called buy-side) would acquire different levels of service depending on their requirements in the same way that a traveller today would choose between a Qantas and a Virgin Blue or an American Airlines and a South West.

The boutique subsidiary that retains its brand would also allow the mother company to introduce new pricing models such as the "per user per month" (PUPM) model so familiar with end-user organisations thanks to SaaS. It could even extend to new business models - such as internet television based research. Staking a boutique business model on a PUPM pricing model in order to test future strategies is a clear claim to value-based pricing and such a move comes without the risk to the mother brands of jeopardising existing retainer revenues.

For example, the long discussed move towards free research and paid advisory could be explored ad nauseam within the confines of a boutique with little impact on the mother company. If the services proved successful then a wider rollout across other subsidiaries and over time to the master brand would follow.