Are Analysts Really ‘Pay to Play’?

By: Chris Nicoll

Are Analysts Really ‘Pay to Play’?

For as long as I’ve been in the industry I’ve heard of complaints about certain analysts or analyst firms being ‘pay to play’. Let’s first define what we mean by that and then see if the issue holds water.

The idea that a company must buy a subscription or services from industry analyst firms to get positive coverage is a misnomer.

For the record let me say that no reputable analyst will sell his positive opinion for a check. There are some disreputable analysts, but they are quickly found-out and their value just as quickly evaporates.

However, what is increasingly happening in the industry is not ‘pay to play’ for positive coverage, but ‘pay to play’ for feedback on briefings and announcements. That is a business model that more firms are embracing to boost revenues by monetizing their most valuable assets – the insights of their analysts.

But notice that I’d purposely referred to ‘pay to play’ for POSITIVE coverage. Most analyst firms will take a briefing from someone they do not currently cover or know about if the company can demonstrate they have some new technology or approach to some definable problem. It may only be a 30-minute introductory briefing to hear what the new company has to say, but it’s a start. Just don’t expect to get a lot of feedback in return. I think this is where a lot of the ‘pay to play’ complaints come from. That and getting left out of reports. I’ll come back to this point in a minute.

Industry analysts from my generation usually will provide some level of feedback during or at the end of the briefing as kind of a quid-pro-quo for the briefing. I’ve long felt that if you took the time to share some insightful feedback on your company and what you were seeing from your customers, then I would give you at least some comments in return. If my feedback was extensive, then I would require a paid engagement, but you would have a pretty good idea where I stand – positive and negative. My advice is to listen to the tone of their feedback. If you sense any red flags and believe the analyst could be valuable for your sales or marketing efforts, it might be worth paying for a consulting service.

But back to the POSITIVE coverage aspect of Pay to Play. I know of analysts who may temper their negative opinions of a client in their reports. My advice is to ‘pay attention to what the analyst is NOT saying as much as what the analyst IS saying’. I’m of the opinion that blatant positive coverage where it is not warranted will negatively impact the credibility of the analyst over time and that benefits no one.

I’m also not so naïve (or deaf) to not have seen patterns of coverage and positive statements coming from particular analyst firms regarding particular companies especially when it comes to market share numbers since forecasting usually requires some degree of managing or manipulating numbers. However, I’ve rarely seen someone able to objectively refute the forecasts in question either. When dealing with forecasts, we recommend working as closely as possible with the researcher to understand their particular methodology and tweaks they employ.

I think there is some expectation of coverage when you subscribe to an analyst’s program (notice I didn’t say POSITIVE coverage) such as being included in lists of companies in specific markets, etc. This falls into a gray area. Would I include them if they were not a client? Depends. Are they at the point in their technology or product development that warrants inclusion? Tricky questions with difficult answers. I used to refuse to put start-ups on speaking panels with established companies because start-ups not shipping products could make pretty much any statement they wanted about their upcoming product’s capabilities, while vendors shipping products were ‘stuck’ with what they had announced. For me, the ‘pay for coverage’ question falls into a similar argument.

I’ve seen, and we’ve had, clients with significant spend with analyst firms who somehow didn’t make into a report. Usually this is the result of an oversight rather than failure to reach some mythical ‘coverage spend’ level. But I know there are companies that do not get coverage because they have not yet shown the ability to impact the market.

And no amount of ‘pay to play’ should ever make that happen.