The Cold Hard Truth: Most Industry Analyst Firms Have Lost Their Objectivity

Imagine if your doctor always gave you a positive bill of health, every single visit. Amazing if you were that healthy, but we tend to go to the doctor when there is a concern. “I wouldn’t worry about that rash. I don’t think it will spread. Oh that growth. Sure it’s discolored and hurts, but it doesn’t seem to be anything to worry about.”

We’d quickly become suspicious of a doctor who doesn’t give us the difficult news and probably get a second opinion. The same goes for the mechanic who tells us to ignore that rattling sound and burning plastic smell when we drive. Who trusts the food critic that finds every restaurant wonderful, every dish delectable? Even that raw chicken tartare appetizer that makes everyone who eats it sick.

There are certain professions that we rely upon for objective assessments that can help us. Provide that cold, hard truth when necessary that can cause us to change direction and improve. This is especially important for business leaders, who too often surround themselves with a ‘yes’ team.

Industry analyst firms used to serve as that important reality check for tech companies that were overly optimistic about future products and services. Based on industry trends, customer demands and even what other competitors were developing, we could help vendors avoid pitfalls and focus on products that would gain market share.

I’ve had my share of awkward and even uncomfortable conversations, bursting a tech team’s bubble with sobering facts that made them rethink their strategy.

In a few cases, they even scrapped the product altogether and started over from scratch. These weren’t pleasant discussions, and yet they were highly constructive and ultimately saved vendors from costly and even embarrassing mistakes. There was respect for delivering the tough news and tremendous value in the information that helped them find a better course of action.

Sadly the dynamic has shifted from objective, honest experts with data-driven advice to a resource that doles out third-party validation rather easily. Don’t get me wrong here. Independent, third-party assessments are the real value that an industry analyst firm can deliver. But they don’t mean a thing if they become a paid-for seal of approval. And that is exactly what has happened to most of the industry.

The easiest way to make money as an analyst is to offer a vendor a positive report to help spin a flawed product or unpopular feature. We saw this with Windows Vista, Google Glass, Windows Phone, Amazon’s Fire Phone and many other products that are now on the scrap heap.

One top analyst firm predicted in 2011 that Windows Phone would surpass Apple’s iOS by 2015. A year later, faced with data showing the opposite, the analyst doubled down and said Window Phone would need another year, but would outpace Apple in 2016. They had data showing otherwise, yet continued to ‘promote’ the product.

Unfortunately some vendors are more incented to spend budget with an industry analyst firms to counter a difficult product critique. It’s misguided, because vendors get more value engaging a truthful analyst early on and working with that firm throughout the process to optimize its offering. So how have analysts gone from trusted advisors to collecting hush money?

Consider the pressure industry analyst firms face to make their financial numbers. The top two firms are publicly traded companies tasked with earning value for their shareholders. And there is potentially very easy money to be made helping a vendor present a product in its very best light – perhaps as an effort by said vendor to meet its own earnings projections.

I’m not saying that I know for sure such deals happen quarterly, but it is a huge conflict of interest for an ‘independent’ third party. Which begs the question; can a publicly traded industry analyst firm be impartial?

And how did industry analysts become an extension of the vendors’ ‘yes’ teams? When I started Nucleus Research in 2000, I didn’t set out to win a popularity contest. In fact, I left another firm that I believed was heading down the wrong path to form a team of analysts that deliver the hard, fact-based truth. Because I believe this is a service that helps vendors, the industry and especially customers.

We’ve delivered some tough assessments over the years and in some cases, have had vendors fight back. Even try to discredit us. A challenging task for them, given the data we were backed with. In every case, the vendor backed down and eventually admitted that our assessment was actually constructive.

I’ll share one case from many years ago. One of the first vendors to disagree with our research was exceptionally vocal in discrediting us. They claimed that our data must be wrong and told anyone who would listen. A few months after publishing the report, we got an interesting package in the mail. It contained a copy of a confidential survey that the vendor’s senior management team had commissioned a month or two before our report was published.

And yes, it found almost the exact same results we did. Gratifying for us. More importantly for Nucleus as a firm, some of the senior managers from that vendor have gone on to work at other companies and have become great clients. You see, in many cases the vendors know the truth. They need a firm that can help validate the truth, not spin the PR story.

The technology industry should demand more from industry analysts. There is no long-term value in rubber stamping everything a paying vendor puts forth. It’s time for the cold, hard truth. Find an analyst firm willing to offer that and I guarantee you will greatly increase your chances for success.