Adapting to shift in tech landscape
Research gurus scrambling to expand offerings and merge
Research firms rode high during the high-tech boom, advising businesses to use technology to cut costs and boost efficiency.
Now, they may be victims of their own success.
Their corporate customers, scrambling to lift profits in a slow economy, have been scaling back on the technology research they buy and paring down their stables of suppliers.
At the same time, they have been employing technology -- from search engines to business analytics software -- to do more of their own research.
The result is that revenues at the $2 billion-a-year technology research industry, clustered heavily in Massachusetts and Connecticut, have been drifting downward for the past four years. And when META Group of Stamford, Conn., hired an investment banker in August to "evaluate strategic alternatives," it seemed likely to accelerate a trend that already has propelled brand-name firms like Giga Information Group, Yankee Group, TowerGroup, and Analysys Ltd. into the arms of buyers.
For the first time in a generation, technology research is looking like that bugaboo of growth businesses: a mature industry.
Research firms lost customers when the dot-coms melted down, and the customers that remained struggled with tight budgets. New competition has also emerged from "boutique" research firms, typically focused on narrow technology niches and staffed with professionals who bailed out of established firms and took their customers with them.
"We forecast more consolidation," said Louise Garnett, lead analyst at Outsell Inc., a Burlingame, Calif., research house that tracks the information market. "Most of these firms grew up by knowing what the hot new technology was. But the Internet was the hottest technology in the last 30 years, and I don't see something that big coming again."
Research firms are responding in a variety of ways. In addition to the merger boomlet, which has recently picked up speed, they are branching into consulting, organizing peer networking roundtables, and expanding overseas or into new sectors.
Industry leader Gartner Inc. of Stamford, a full-service firm that has more than 40 percent of the market but grapples with the pressures of the industry at large, is beefing up its sales force to reach companies that don't now buy research.
"To me," said Gene Hall, who took over as Gartner's chief executive in August, "the toughest challenge is tapping the 80 percent of companies that don't use us or anyone else."
Framingham's International Data Corp., the number two player, known for its detailed reports on global product shipments, has launched two "vertical" subsidiaries, Financial Insights and Life Sciences Insights, to provide more sector-specific research. IDC plans to add Manufacturing Insights in January, followed by new units specializing in energy, healthcare, and government. It is also expanding an executive advisory service it introduced last year to offer job-specific technology advice.
"Line executives have become more technology conversant," said Kirk S. Campbell, IDC president and chief executive. "So we're investing millions of dollars in these new businesses."
Number three Forrester Research Inc. of Cambridge, which aggressively capitalized on e-commerce and the Internet, is now looking to diversify. It is generating more consumer data, helping clients develop technology strategies, and letting customers vote on research projects through a new "clients' choice" offering. With a new program, Oval, it is organizing networks of peers, from information to marketing executives. And next year it will launch a magazine, called Forrester.
"Surveying our clients, we've found executives still like to deal in paper," said Brian E. Kardon, chief strategy and marketing officer for Forrester, which offers most of its technology research online.
While each firm has developed its own focus, the core technology research business provides companies with reports mixing market data with forecasts and advice. It was an unbeatable formula in the 1990s, when businesses had to cope with everything from Y2K to Web-based competition. Dot-com start-ups, in particular, depended on research firms to chart the scope of their markets. It wasn't unusual for companies to purchase research from a half-dozen firms.
Today, cost-cutting executives are known to turn to search engines like Google to glean market intelligence on the cheap. "It's part of the Googlization of America," lamented Forrester's Kardon. "People expect great content to be available just through a Web search."
Especially vulnerable are mid-size research houses with neither the scale of the giants nor the flexibility of the boutiques. The largest firm in that category, Boston's AMR Research Inc., is positioning itself to be a survivor by helping manufacturers manage technology.
"The dust hasn't settled yet," said Tony Friscia, AMR's president and chief executive. "There's going to be three or four major players at most, and there's going to be more growth globally. So unless you have the scale, it's going to be very tough to compete."
A number of firms have reached that conclusion. Forrester's purchase of Giga last year, a $60 million deal that united two neighbors in Cambridge's Kendall Square, was the first in a flurry of acquisitions. MasterCard Advisors snapped up TowerGroup of Needham last February, Monitor Clipper Partners bought the Yankee Group of Boston in May, and Datatec International absorbed Analysis in August.
Much of the industry is buzzing over the future of META. Its chairman and cofounder, Dale Kutnick, notified the Securities and Exchange Commission over the summer that he wanted to take the company private. In response, META's board retained the firm Wachovia Securities to independently evaluate other options -- a sign the board was amenable to selling the company.
"Obviously there's uncertainties in the market, and in employees' minds," said C.D. Hobbs, who took over last month as president of META, the fourth-largest research firm.
The uncertain environment at research firms, which have pared hundreds of jobs over the past few years, may be hastening the departure of experienced analysts. "Many of them can make more money on their own," said Barbara French, editor of the Industry Analyst Reporter website in San Francisco. "And they can walk out with a foundation of clients."
But not everyone believes the growth is over for the research firms. "Technology continues to become more important to companies every day," said Gartner's Hall. "There's more interest beyond the chief information officer in how to use technology to help run the company."
Robert Weisman can be reached at firstname.lastname@example.org.