A week in Bavaria

I'll be in the Munich area between February 22 and 27, meeting up with analysts and AR professionals there. Let me know if you'd like to meet up.

The business culture in Europe's German-speaking region poses some special challenges to both analysts and to AR professionals. Not the least of these is the need to communicate with the English, who dominate the region's analyst community.

Germany's strong base of mid-sized firms means that approaches are less Anglicised than elsewhere, and that cross-cultural frictions appear between German buyers and culturally American analyst firms. This partly because Anglo-Saxon analysts don't address either German buyers' information needs or their skeptical view towards offshore research. In turn, this produces a vibrant market for custom consulting projects.

All of this means that AR managers need to show the difference between analyst influence within the region and how it plays out elsewhere; it posed analysts with a similar challenge, to adapt their research to the greatly differing information needs of their buyers.

A 'Central Limit' on bias when surveying analysts

When surveying analysts, many AR managers are uncertain about how many analysts need to be surveyed for the results to be significant. Few AR managers are interested by statistical theory, and statistics is an area where intuition is greatly misleading.

When firms are aiming at a small number of analysts, it's a non-problem. If you're selling a niche application into a niche market, then perhaps the number of analysts who might express an opinion on firms in your market is small enough for you to survey them all. If that's the case, then you've no need for statistics: your research can find the actual attitude of the whole community you are targeting.

However, if you cannot survey every analyst then you need to consider what kind of sample works best. There are three key variables: randomness, sample size, and bias.

1. Statistically random samples tend to show an accurate picture, and non-random samples do not. While totally random and totally biased samples are rare, most tend towards one extreme or the other. Generally, providers and vendors make a very deliberate choice about random samples and tend towards one end or the other along a spectrum. Some vendors and providers want an accurate picture of analyst sentiment, and others do not. For example, selecting participants by hand is quite likely to introduce bias (if only because the selector will tend to select analysts that she or he is aware of, and who typically will be more favourable than a random sample). On the other hand, random selection of analysts will tend to give a more accurate picture.
   
2. Larger samples are more accurate than smaller samples. One of the two principal ideas in statistics is the Central Limit Theorem, which (amongst other things) helps us to sample data which might not be normally distributed (Scott Lynch, a Princeton sociologist, has a painless introduction here; Dartmouth's quantitative literacy course covers it well in a good guide published for the American Mathematical Society). One of the key discoveries of the Theorem is that sample sizes below 30 are much less reliable. Above that, larger samples improve their accuracy. For example, Lighthouse's Analyst Attitude Surveys survey very large numbers of analysts, which gives us quite a powerful sample.
3. Bias is the final major variable. As mentioned above, hand-selecting participants biases the results. For example, a firm that is followed by 150 analysts might survey those that it considers to be the top 15. However, its selection of the top 15 is certain to not fully reflect influence on the market with total accuracy. Generally, a range of biases are often seen in surveys, and not only through selection: AR managers tend to be better at getting results from analysts who are more amiable, who are closer to them geographically, who share the same maternal language, who spend more time with them and who have more rapport with them. Bias is also reflected in the analysts' reactions: for example, analysts tend to give more favourable feedback about a firm if that firm is identified as a primary sponsor of the study, or if the analyst cannot control whether their participation or responses is given to the vendor or provider.
   

Surveys are not the only way to measure, and the risk of producing poor results with biased data extends into other areas. However. survey data are the more sensitive to bias. The bottom line is this: AR managers need to develop their understanding of statistics to get the best use from statistical data.

P.S. There's another factor I should mention here, which is the difference between invasive and non-invasive research. Individual analysts do not know it when we analyse research, in our Analyst Index, Analyst Mindshare and Analyst Track services: however, they do know if we survey them. Generally, people are happier about being asked their opinion than not. Taking an interest boosts people's feelings, as GE discovered in the famous experiments at its Hawthorne plant. Perhaps it's a modest effect, but it's real. However, if you use a hand-picked sample, rather than a random one, then you will concentrate this Hawthorne effect into the sub-set of analysts you sample, and make the positive bias in their data even stronger. Ralf Leinemann and Elena Baikaltseva have shown that some relationship managers only want good news, but weaken themselves by introducing such bias.

Ward-Dutton and Chapple to discuss open source analysis

The open source approach to industry analysis is an interesting approach to exploiting the power of the internet to analyse a product/vendor. Recently, a number of leading figures in the analyst industry have come together to produce a wiki guide to open source analysts.

At its core of those firms' mission is the belief that open source is really an idea applicable to industry analysis as it is to software.

You are invited to a free conference call on Thursday Feburary 15 with Neil Ward-Dutton, of Macehiter Ward-Dutton, and Duncan Chapple, of Lighthouse Analyst Relations, who will discuss their thoughts on the topic. The call will be at 8 am Pacific, 11 am Eastern, 4 pm UK and 17.00 CET that day.

To register, send an email from your business email account to analysts at lighthousear dot com.

AT&T leaps into Telecoms Index top ten

After two months in third position, Motorola has managed to up its game, increase its share of voice and beat Ericsson for the second spot. Nokia are still ahead in pole position.

Enterasys, AT&T and Brazil Telecom have performed exceptionally well. Between them, they have risen a total of 28 places in this month’s Index with AT&T managing to squeeze into the top ten. In fact, AT&T’s future looks good following the completion of its merger with BellSouth. Its enterprise revenues are beginning to stabilise and it is enjoying increased revenues from its consumer and small business units. Incorporating BellSouth alone should ensure that its overall revenues grow both quarterly and annually.

Interestingly, mentions of MCI rose too, allowing the brand to enter the top 25; analysts are still mentioning the company former known as Worldcom, a full year after completing its merger with Verizon: that brand has staying power! Alcatel-Lucent was also up 5 spots.

Brocade and Vanco top the drop chart this week both falling seven places. Considering Vanco's long-standing commitment to major sponsorship of Gartner's Symposium, falling out of the top 50 must be especially irksome for them.

If you'd like to be sent the top 25 of the Lighthouse Telecoms Index each month, please send an email to analysts [at] lighthousear.com.

Preparing for a US slowdown, linked to growth elsewhere

Many of the people I've discussed with over the last week in New York stress the deep impact of an unfolding decelleration in the US economy. But what will be impact be on analyst relations?

Since many other major economies are in a pretty good condition, it's easy to think from the outside that the US' difficulties are focused in their real estate sector. However, it's clear that many businesses expect that trend to deepen and broaden. Sharp retrenchment has started in a number of sectors. Recent announcements by UBS, Pfizer and Motorola suggest an accelerating trend.

The CFO survey, which generally predicts the economy by one quarter, now shows that capital spending is being scaled back by one third, while more CFOs are pessimistic about the US economy than are optimistic. The balance between pessimism and optimism about their economy is close to a five year low.

In the financial sector, this is also reflected in the declining dominance of 'Wall Street'. The number of hedge funds in New York has fallen by a third in the same time as the number in London has quadruped. The CFP survey stresses a shortage of of skilled staff in the US: Some organisations here in the US struggle to overcome government restrictions on hiring overseas talent. For example, Deutsche Bank appointed a German born in Iraq to the number two role at its New York office, but was unable to get a visa for him.

The US is working to stimulate its financial sector. Commodity markets are weakened here (something which some investors see positively), and it's probable that the government will lower interest rates to encourage investors to buy shares. However, US equities seems generally overvalued, and the ratio of risk to reward makes investment overseas much more appealing.

In contrast to the gloomy US picture, the CFO survey shows that European CFO are optimistic, and intend to increase staff numbers.

So, what does this mean for technology? Above all, it means the trend for US firms to obtain a growing share of their revenues from outside the US will continue. The CFO survey shows that anticipated growth in technology spending has fallen by 3% in the US over the last year, but risen by 1% in Europe. Asia remains the region in which technology spending will grow the most.

The implication of this is clear: AR needs to focus more on supporting sales in growth markets. In the mid-market and SMB sector, is also means focusing more on analysts who write in local languages, since few IT buyers in those segments outside the English-speaking countries prefer to use research written in English.

P.S. One fascinating observation: news magazines such as Time and The Economist often run different covers when their magazine discusses issues facing the US economy. That's an interesting example of reacting to consumer preference. For example, Time's U.S. edition carried a special report on the brain on January 29. Its international edition instead carries a special report on the global economy with the headline [shown above]: "LEND HIM A HAND! The U.S. needs help puling the world's economy along", with a cartoon showing a tortoise that wears an Uncle Sam top hat while attempting to pull a much larger planet Earth. The principal article explains how US GDP growth has been below the global average for each of the last several years, and has fallen in 2005 and 2004, to below Germany's growth.

Check Point check in to the top 25 of this month's Software Index

There has been considerable movement in this month’s Software Index. Microsoft, Oracle and SAP still retain the top three places whilst BEA maintains its ninth position. After that, it’s all change in the top 25.

The biggest climber was Check Point Software which increased its share of voice by eight places and entered the top 25. Check Point recently acquired NFR and plans to combine its SmartDefense with NFR’s Hybrid Detection Engine. Interestingly, this deal only cost Check Point $20 million and gave them many of the capabilities that they were seeking when they tried to buy Sourcefire for $225million.

Another big climber this week was Compuware which also rose by eight places, following its announcement that it intends to buy back £200 million of discretionary shares. Borland also rose eight places as did i2. Kronos had another great month of analyst coverage and managed to consolidated last month’s six spot gain with an even more impressive seven places rise this month.

It seems that all the momentum MySQL had last month has been lost as they fall back seven places and out of the top 25. Also down are Trend Micro, Entrust, Sophos and Comverse.

If you'd like to be sent the top 25 of the Lighthouse Software Index each month, please send an email to analysts [at] lighthousear.com.

Looking forward to 3GSM

February's GSMA's world congress, 3GSM, is set for record attendance. After 50,000 attendees last year, at least 57,000 are expected this year. Lighthouse principal consultant, John Moroney, will report from the event for Analyst Equity: drop us a line if you'd like to meet with him there.

The growth of the event seems pretty unstoppable after the growth in attendance last year, the first year in Barcelona, and a 30 percent rise in attendance at 3G Africa. Lighthouse's money is on the total attendance next month exceeding 60,000.

The growth represents more than the ubiquity of mobile technology. The GSM Association has made 3GSM a highly attractive event by developing a plurality of niche streams and sideshows. Specialist events for Government executives, marketing leaders, innovators and other reflect the many aspects of the mobile dimensions of life. The Barcelona venue's astonishing scale is exploited fully.

However, the 3GSM event is also a key place to do business. For a number of reasons, the telecoms industry is slightly more relationship-driven than other tech markets, partly because of the regulatory environment. People are there to seem colleagues, and see solutions, in the flesh. That's part of the reason why Lighthouse will be there, to demonstrate our telecoms Analyst Attitude Surveys. We'll be joined by more than 1,000 exhibiting firms and over 2,000 journalists.

We see no reason why 3GSM should not continue to grow each year, until it reaches the full capacity of the Barcelona venue. And the GSMA must already be asking themselves what their options are at that point...

Analysys Research hires Kowal & Lavender

Analysys Research, the telecoms market intelligence and analysis business of Analysys Mason Group, has hired Tony Lavender as Managing Director and Jason Kowal as its US head.

As mentioned this week, Lavender's departure from Ovum was agreed half a year ago and reflects the Analysys Mason Group's continuing commitment to its business mix. This hybrid firm was formed through the 2004 merger of Cambridgeshire-headquartered Analysys with Mason Group, a UK consultancy (and Lighthouse client). Mason has an established reputation for consultancy services focused on communications system design and management. The Group has expanded further to include Catalyst, a CRM consultancy.

The group's overall goal is to become the premiere global telecoms consulting business: the ability to leverage Analysys's research and advisory services is clearly an asset for them. However, the group also also been careful to separate out the brands, and to keep a difference between Analysys Research and Analysys Consulting, in order to minimise any perceived conflict of interest (The business is not related to Analysys International, a high-profile Chinese sometime partner of Gartner and Yankee Group).

The addition of Kowal and Lavender shows the continuing success for Analysys. Our estimate is that Analysis now has around 160 staff, making it a slim majority of the Analysys Mason Group as a whole.

Tony Lavender will be a key factor in Analysys' future success. His career has spanned 18 years at British Telecom, a spell at OFTEL, the communications regulator, and several years at Ovum. As chief research officer at Ovum, he led a $26 million business spanning telecoms, IT and services. However, a key challenge for Lavender will be to accelerate Analysys' growth both internationally and into new coverage areas. Lavender follows another veteran Ovum telecoms analyst, Teresa Cottam, who is an Associate at Analysys.

Jason Kowal is therefore a highly strategic hire for Analysys. As well as leading the growth of the research business in the US, he will initiate new service areas for the firm. Kowal was formerly president of TeleGeography, a long established research house best known for primary metrics on telecoms markets. Interestingly, Analysys emphasise that Kowal led TeleGeography through merger & acquisition successes, first with bandwidth exchange Band-X in 2000 and later with PriMetrica in 2003.

P.S. Therese Cory is another Ovum alumnus now working at Analysys.

Lavender, Bieler, Dines & Darabi leaving Ovum

As predicted, there's a lot of change at Ovum as its purchase by Datamonitor moves ahead. Chief Research Officer, Tony Lavender, has been set to leave the company since the summer. However, the news follows the recent departure of Daniel Bieler, Ovum's research director in Germany covering the telecoms market. Other long-time Ovum staff leaving this month include CEO Chris Dines and Fash Darabi, Corporate Development Director. However, we don't think that's the start of a major analyst exodus.

The departure of Dines and Darabi is unsurprising, since they were shareholders in Ovum as well as holders of now-redundant senior management roles. Ovum is making a number of 'back office' and services roles redundant. As a result, a few of the firm's experienced administrative staff are also looking for new opportunities (let them, or me, know if you want to hire one).

Ovum may regret the loss of Lavender and Bieler. Both have long histories at Ovum, having worked for the firm when I was there in the late 1990s (Bieler sat opposite me). Someone will replace Lavender, while Ovum is searching for a new Principal Analyst to join Jessica Figueras' practice to look at the next-generation telecoms issues that Bieler followed.

Dan Bieler is now joining IDC's European Telecommunications & Networking Consulting business as consulting director. He will advise on topics including next-generation networks (NGN), multimedia convergence and Web 2.0 in Europe. IDC has now around 200 industry analysts in EMEA. Lavender is becoming managing director at Analysys Research; we'll discuss that tomorrow.

So far, the rate of turnover in Ovum's research team isn't much different from the normal start-of year turnover. Furthermore, that has to be put in the context of substantial growth in Ovum's consulting team over the last half-year; it might even have doubled.

On Thursday the IIAR will be meeting with the two Datamonitor executives leading the expansion of that firm's technology businesses: Anthony Parslow (ex-Forrester) and Tim Royston-Webb (ex-Giga). We'll update you on that discussion, of course.

P.S. Analysts will continue to come and go at Ovum, but we'll look closely to see if the trend changes. Other managers are set to leave including Fiona Glennon, who we mentioned in October. For example, we also know that one of the firm's telecoms software analysts is leaving. However, most of the recent analyst departures were agreed before the acquisition.

IBM sales to plunge in Texas?

If you can spare a few minutes, take a look as this video demonstration of IBM's digital pen solution. I was a big fan of IBM's 1990s work in this area, which used some of the machine learning algorithms I used back then, and was an early adopter of the solution based on IBM Ink Manager.

The IBM guy takes a few minutes to show what seems to be Anoto functionality in their solutions, and then asks his audience, rhetorically, how long does it take to train someone to use a pen? "In West Texas, about two hours", he answers. I'm just waiting for an HP salesperson in El Paso to add this into their competitive pitches.

Dell regains third spot in January Systems Index

Dell regains its third spot in this month’s Systems Index which has been relatively stable. The top ten firms are virtually identical to those topping last month's chart and, unusually for any of the Indexes that we publish, there hasn’t been a single new entrant into the top 25.

Unsurprisingly, Nintendo leapt six spots in the rankings. Sales of Nintendo’s Wii peaked at just under 280,000 in the third week of December last year. That was almost four times the volume of Playstation 3 units sold. NetApp had a great month too, rising up four places and entering the top 30.

EMC has increased its share of voice by two places and almost entered the top five. EMC enhanced its core capabilities of information protection and recovery management with the completion of its purchase of Avamar. This, it is hoped, will accelerate the widespread move from tape to disc-based recovery solutions. Gartner also named EMC as a leader in the Magic Quadrant for Midrange Enterprise Disk Arrays.

Not much further down our chart, Apple had a great month moving into the top ten. The long awaited Apple phone was announced this week. Steve Jobs called it an iPhone which is a trademark held since 1996 by Infogear, which Cisco aquired in 2000. However, the validity of the trademark is disputed. This branding may be a very shrewd business move by Jobs to publicly lock horns with Cisco as the PR generated may well drive sales noticeably beyond the cost of disputing the iPhone trademark with Cisco. Time will tell.

The losers this month include OCE, ATI Technologies, Qualcomm and Panasonic, which despite inventing a lithium-ion battery that doesn’t overheat (which might please Sony after its recent recall of laptops because of overheated lithium-ion batteries), Panasonic still fell 4 places.

If you'd like to be sent the top 25 of the Lighthouse Systems Index each month, please send an email to analysts [at] lighthousear.com.

Xansa storms up the January Services Index

The big service companies' profile in analyst research remains pretty much as last month. Accenture tops the pile with EDS second and CSC third.

More interestingly, Wipro snuck in to the top ten in December. This is no doubt in part due to its announcement of a strategic partnership with ITV to develop a platform for automating the slotting of advertisements through a robust optimisation engine. Moreover, Forrester named Wipro as having the strongest IMS offering amongst offshore firms. This month Wipro has performed very well in the Lighthouse Services Index securing ninth spot, a feat it hasn't equalled since last September. Cognizant has also had a good month. It rose up four places as has Verisign which is new to the top 25.

The biggest riser this month without doubt is Xansa. Its half yearly results were very positive. Pre-tax profits were up, underlying operating profit was up and Xansa maintained a 100% contract renewal and also acquired some major new clients such as the BBC. Interestingly, as government becomes more open to offshoring, Xansa has opened more facilities in India. This in no small measure helped Xansa win sizeable public sector contracts, such as the recently expanded joint venture with the UK's Department of Health to deliver finance and accounting services to some 113 NHS Trusts. Xansa has raised its share of voice eight places this month.

Down this month are T-Systems and CGI Group. Equant has fallen off the top 25 list, reflecting the rebranding of that business as Orange Business Services.

If you wish to be sent the top 25 firms in Services Index each month, email us at analysts at lighthousear dot com. You can also read how we do our Analyst Index rankings.

Why the AR community is a global as the tech industry

The chart on the left shows the location of 500 frequent visitors to this blog. As you can imagine, in conurbations quite a few of the dots are covered by other dots. However, the chart is still a good illustration of how widely distributed the industry analysis community is.

Most of our readers don't come from any one country. They are in Texas and in Delhi; in Massachussets and in Ho Chi Minh City; in Munich and in Madrid. In that respect, they are much like the technology industry itself, and like many of the analyst firms.

Maps like this should remind us to ensure that analyst relations outreach crosses borders. Your competitors are building relationships with analysts and technology suppliers in a wide range of locations. If you know that the best informed and most professional analyst following your firm is on your doorstep, don't assume that in some other country analysts and clients with his firm will defer to him, or even consult him, on a deal your company hopes to win. Influence within analyst firms is not as tightly centralised as they might like to pretend.

As we pointed out many years ago, in our paper called "Industry analysts are all in the US, aren't they?", allocating AR effort internationally isn't the same as allocating AR budgets. Bulding relationships with analysts outside your domestic market may take widely differing expenditures of effort and money.

Why has mainstream PR stopped growing?

The PR industry has stopped growing. The annual PR Consultants Analysis, which reviews the top 1000 PR consultancies, is an annual study whose 2006 findings were also depressing. The 2007 report states that average sales growth has fallen to zero. Pre-tax margins remain around 4%.

Roughly two companies in five experienced falling sales last year. One quarter are in serious financial difficulty. On average, firms in the poorest-performing quartile suffered a 25% fall in sales, while their invoices took on average 79 days to be paid.

According to Christopher Evans, the senior analyst on the Plimsoll report, "the next six months will be a time for tough decisions and painful measures as their managers attempt to put them back on a firm financial footing." PR agencies are often short on financial prudence and use discredited metrics. However, it is PR's trivial reputation and weak brand alignment that undermines it. That also partly explains why many AR managers avoid the PR label.

Of course, every cloud has a silver lining. There are segements withing marketing communications where sales are growing, including analyst relations, as we have discussed before. Indeed, spending on most forms of marketing seems to be rising.

Contraints on the influence of analysts' blogs

Lighthouse's regular CIO surveys continue to show that the international influence on buyers of blogs, and even of analysts' blogs, is still modest. There's a significant difference between the impact that different 'channels' of information have and, even if the number of readers is the same, the impact of the average blog posting is lower than the impact of a similar article presented as a research paper.

It's pretty easy to show that the influence is lower. However, it's harder to understand which factors are holding blogs back, and which of them might be easiest to overcome.

Certainly, we can see that there are some general adoption trends that can already be seen in the analyst industry: there are a number of cultural difference that can be observed between different industries, markets and countries which influence the option of new information channels.

• The faster the pace of business (or more precisely, what academics call time-orientation), the less time there is for alternative sources, both in terms of slack and in terms of openess to disagreement
• The greater the risk (viewed as financial impact multiplied by uncertainty), often the less openness there is to alternative views (sadly).
• The greater the hierarchy (in particular, the power distance between participants) the less tolerance there is for instability in the quality of the information used.
• Power distance is also reflected in terms of the status of external authorities in national cultures: centuries ago, Alexis de Tocqueville pointed out that the United States' emphasis on the authority of the individual supposes "an equality of knowledge". In other countries, managers are more often required to source the most widely recognised authority.
• Similarly, the centrality of the technology's impact on the business and its maturity is also an impact. Buyers of core systems are more cautious: few bloggers can influence 'under the radar'. Technology maturity is important, because more certain choices are subject to less diligent assessment and therefore perhaps less open to outside influences. Furthermore, buying patterns for core, mission-critical mature technologies require far greater force to deflect them than do buying for other solutions.
  

Of course, there are also some personal traits of managers who are most likely to use blogs and other alternative resources, including those that Belbin would describe as a 'resource investigator'. There are also some issues of seniority: because access to research is often restricted to senior staff by firms that subscribe to mainstream analyst firms, then junior staff are more likely to access free resources, including blogs. Furthermore, bloggers tend to have a more granular, lower-level, focus on technology issues, and that meets the needs of technologists better than those of CIOs and board-level managers.

For these and other reasons, we think that blogs can cross the chasm more easily in specific countries, cultures and technologies. For example, bloggers will get early leverage on technology architects, software developers and IT managers in the US who are looking at infrastructure questions of little interest to senior executives. For the same reasons, bloggers will get much later leverage on the thinking of senior executives looking at consumer trends and core business system.

None of this eliminates the impact of blogs, but it constrains and conditions it. For example, a single mention of a new software on one analyst's blog created 50 beta-testers. However, the value of those beta-testers could be highly variable: if it's desktop search, for example, then it's worth less than if it's a high-end server. Needless to say, bloggers are currently influencing decisions which executives consider to be peripheral or tactical more than they influence strategic buying. For the foreseeable future, industry analysts will remain the preeminent independent and external influence on enterprise-scale buying.

Open source approaches to analyst relations

Industry veterans Barbara French and Neil Macehiter are amongst those co-operating in a new wiki that aims to create a guide for enterprises doing business with analysts with 'open source' business models (other participants include Jon Collins, Dave Vile, James Governor, myself and others).

It's an innovative approach and we're encouraging folk to take part. If it succeeds even partially, then it could make life a lot easier for both analysts and vendors. It could also be a model for groups like the IIAR, DARA and SPAR. I've put a button linking to the wiki at the end of this post. At the bottom of the right hand column, you'll see a feed to carry future updates from the project.

James McGovern almost certainly deserves the credit for this wiki. He has encouraged the development of a wiki space for developing a "user guide" to the open source analysis analyst community (thus, "osaa"). The volunteers on the project will be starting with James' post on the topic.

Clearly, there are some vested interests who might pose material obstacles to the success of their project. AR advisors might take a number of approaches towards it, especially since many attempt to reduce the tasks of analyst relations to just one or two firms. Furthermore, the influence of open source analysts is itself harder to track than that of their colleagues (we have already had a discussion about definitions, which it itself interesting). However, the area of open source and alternative analysts must the topic that is most open to discussion and collaboration using open sourse, creative commons, tools like this wiki.

P.S. Please join Neil Ward-Dutton and I on February 15 for a free conference call to discuss Open Source analysis.