For cash-strapped dot-coms these days, getting their names in a Forrester Research report seems nearly as important to establish their brand as getting their names on Times Square billboards.
But what price are they willing to pay for expertise? Becoming a research consultancy client is an expensive proposition: Annual fees range from $18,000 to more than $100,000 for top-tier consultancies depending on the services provided. That's no small change, especially for a start-up with limited venture capital. And becoming a client of a research consultancy doesn't guarantee a company instant fame, especially if the consultancy thinks the client's business model stinks.
With limited time and money to burn, dot-coms must carefully weigh contracting with researchers as a marketing expense while they navigate the waters toward profitability.
EXPOSURE FOR EDUCATION
Consultancies such as Forrester, Gartner Group, Jupiter Communications and Yankee Group make money by bringing companies on as clients. Jupiter, a unit of Jupiter Media Metrix, earned $24.8 million in revenue from research services for the six months ended June 30, up from $8.2 million in the same period in 1999. In a mutually beneficial relationship, clients get feedback, guidance and exposure, and analysts get educated about the state of the industry.
"Research analysts play a pivotal role in helping to, in the early stages of a company's life, validate or invalidate pieces of a business model," said Nathaniel Clevenger, VP-corporate and public affairs practice group at KVO Public Relations. The Portland, Ore., PR agency helps a number of dot-coms craft strategy and often refers them to research consultancies for additional expertise.
Research consultancies, he said, are particularly helpful to dot-coms, which are "inherently youthful and therefore idealistic." Said Mr. Clevenger: "It's kind of like rent-a-brain."
"There's an obvious benefit," said Kate Berg, director of corporate communications at Jupiter. "The most obvious would be the
opportunity to brief analysts and not only have them become aware of your business model, but also have them be available for press comment. Also the data and research available to a company on the market is critical for anyone who's going to be wanting to set up shop."
Jupiter charges clients an average annual fee of $40,000 for its services. Prospective clients get a "one-shot opportunity to put [their] best foot forward" in a free briefing with a Jupiter analyst, Ms. Berg said. After about 45 minutes, analysts provide feedback. Then companies decide whether to enter into a "contract relationship" with Jupiter, Ms. Berg said. Non-clients may not quote Jupiter research in news releases.
CBS SportsLine.com has been with Jupiter since its inception in 1995, said Larry Kruger, VP-marketing, and being a client has its rewards for the site.
"There are certain benefits and services that you only get if you are a paid, ongoing client," Mr. Kruger said. SportsLine is "every so often mentioned in reports" and is able to refer reporters to Jupiter analysts.
Mr. Kruger declined to disclose how much SportsLine pays Jupiter. "It's sensitive information, probably because we are getting a reasonable price break because of our longstanding relationship," he said. "We've been able to broker a deal that is very favorable for us."
SUCCESS NOT CERTAIN
Other Jupiter clients include America Online, Inktomi, Mall.com, MP3.com and RealNetworks. Hiring a well-known consultancy is no guarantee of success: Jupiter consulted with Value America, an e-tailer that filed for bankruptcy protection in August.
Inktomi also is a client of Forrester, Giga Information Group and International Data Corp. The search-engine technology provider contracted with the four since each has its own strength, a spokeswoman said. Forrester has analysts that do a good job of "reaching out," the spokeswoman said, making an effort to visit the company on a regular basis. Jupiter offers good research, but in-person briefings often require Inktomi executives to visit Jupiter's offices.
Forrester's full advisory services start at $30,000. Dot-com clients benefit from "the ideas, the perspectives and the value for those companies," said Jim Nail, senior analyst at Forrester. "If they are trying to make strategic decisions, they need the broader picture of what direction the industry is taking."
Mr. Nail said some analyst groups charge just for writing a report featuring a company. In that case, the company's goal is more likely getting an analyst-branded marketing tool. When he was director of marketing at ad network Adsmart in 1997, Mr. Nail picked Aberdeen Group to "write a marketing piece for us" for about $8,000.
A spokeswoman at Aberdeen said: "We're not in the position of evaluating companies for end users or consumers." Rather, Aberdeen helps companies "articulate and determine their value proposition" to help them best position themselves in the market, she said.
Forrester doesn't offer such a service. "Forrester's value is a high-level perspective, totally objective," Mr. Nail said. "We tell as best we can in our vision what the truth is."
Yankee Group, which Reuters Group acquired in June, charges an annual minimum of $26,000. But Marty Kurowski, VP-marketing and events, cautioned: "We don't keep it at a fixed or rigid price." Rather, the company charges clients depending on what round of funding they've secured, the type of business they're in, the size of their revenue and the extent to which they are in the process of change, he said. A paid relationship with Yankee Group affords clients monthly research reports and "instantaneous access to our analysts."
Yankee Group grants free vendor briefings "as long as it fits into an area that we cover," he said. "The real value is using us as a strategic partner to help you grow your business. If you look at it that way, it's not a bad investment."
Industry experts agree that contracting with research consultancies could cost too much for some. "For a small mom-and-pop dot-com, it could probably be a little too expensive for their needs," said SportsLine's Mr. Kruger.
"Their pricing structures are so high that it does often exclude the small to midsize companies," those with $10 million to $50 million in funding, said Mr. Clevenger. "They find it extremely difficult to justify a $100,000 expense to an analyst when they are trying to get their act together."
Critics argue Internet consultancies charge high prices of dot-coms they know are well-funded. But Forrester, for example, said it does not recommend its $30,000 product package to start-up companies. Rather, Forrester offers summary research packages that can be licensed for $1,500 to $2,500.
DOES MONEY SKEW COMMENTARY?
Some industry players question whether client relationships skew what consultancies say about clients and non-clients in reports and media commentary.
"I have seen really strong businesses we've worked with that didn't buy the service of a particular analyst and (were) not referenced in a report," Mr. Clevenger said. "If you paid, are you then given favorability? You might find some of that."
But Mr. Clevenger was quick to note: "Of all the [analysts] I've worked with, these guys have solid reputations and they are the high priests of ethics."
Jupiter isn't swayed by client relationships when writing industry reports, Ms. Berg said. "Our value to our clients is our objectivity."
To maintain objectivity, Mr. Nail said Forrester will meet with non-clients, mention them in reports and let them use Forrester as a media reference; will omit clients from reports if they are not relevant or appropriate; and will write reports criticizing clients.
Likewise, Yankee's business is to provide unbiased research and analysis, Mr. Kurowski said.
Part of maintaining objectivity is meeting with non-client companies just to stay knowledgeable.
"The analysts are only as good as what they cover," said Pam Brewster, VP-marketing communications at OneCore, a company that provides online financial services for small businesses. OneCore has briefed several consultancies, such as Forrester, Jupiter, Meridien Research, Summit Strategies and Yankee--all without paying a fee. "If you are perceived as being an innovator in your space, [the analysts] are going to be interested in your story," whether or not you are a client.
Still, OneCore is weighing hiring one consultancy to get "more personal attention from the analysts" and research to back up the company's claims, Ms. Brewster said. So it was worthwhile for consultants to give OneCore a free visit that could lead to a paid engagement.
Copyright September 2000, Crain Communications Inc.