Friday, June 04, 2004

Analysts Reports - Hype or Education

Richard Luhr writes a very good piece in the ALways-On network on Analyts. His main contention is that the "forecasts" are highlighted to sell the reports whereas one of the impportant jobs of a analyst is to provide education and a balanced view.

Many people think that analyst reports are all about forecasts. After all, the big flashy forecast is inevitably what leads the press release or news articles. In truth, forecasts are often the least useful part of any analyst report.

Education is the most valuable service an analyst can provide. For without educating the reader, forecasts have no context—and hence no real meaning. Unfortunately, education doesn't sell well. So even great studies with exceptional explanations of context and subtlety tend to get marketed with an emphasis on forecasts.

Hey, trends are good. Trends are where the money is, and bean-counting is an important discipline. But before you get excited about how much money there is to be made in an industry sector, shouldn't you first understand what the heck people are talking about?

Let me explain why the lack of emphasis on education and over-emphasis on forecasts are unfortunate.

First, because in many cases there's a much greater need for education than forecasting. For example, when reading various news reports on wireless technologies, I inevitably see a lot of energy wasted in endless debates of which technology fits where. Wi-Fi, Wi-Max, Bluetooth, Ultrawideband (UWB), and Zigbee (just to name a few examples) clearly have distinct roles. It may be tempting to compare Wi-Fi to Wi-Max, but in a few paragraphs, any analyst worth paying can easily differentiate the two—and save everyone a lot of time.

Good analysts have always done this, and there are many customers who specifically buy analyst reports to rapidly get up to speed on a subject. I just wish that the marketing departments of the analysis firms would recognize this need and emphasize the clear-spoken educational nature of some of their studies, rather than always leading with the tried-and-true "big forecast."

There's another reason why leading with forecasts is "unfortunate." It's because technology subjects without (in the eyes of an analyst) great forecasting opportunities tend to get short shrift in the marketplace. This is about competitiveness—it's hard to sell a report which doesn't say something unique. Education is perceived as a low-value product, something "everyone can do."

Dave Cappuccio provides a valuable comment in which he explains the difference between two type of analysts.


I would add that there are two distinct types of analysis that folks generally get confused about. Quantitative analysis are the numbers folks who continually put out charts for the trade magazines to use and base their analysis on widgits built, sales projections and trend analysis. Generally called Market Research, some have called it steering by the wake. It's good advice based on known values - which precludes getting solid advice (or education) on the unknown values.

The second group are usually called Advisory Analysts and base their research on conversations with trend setters, early adopters, vendor labs and the like. Sometimes called opinion based research, this is more qualitative and generally results in a longer term but more speculative view of the world.

The real problem of late is that both these research categories are getting melded together in the publics mind (and in some cases the research houses), so that all questions about industry trends and directions result in the same answer; "it depends".

So, who should we believe? None of them completely, but like you said, they should be used as part of our education, and like a good textbook the data gathered becomes one small piece in the overall education process.


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