This was and is meant to be a generally-applicable post. It just turns out to be laced with examples from my own experiences. I hope those aren’t too distracting from the broader points.
It is widely believed among analyst relations professionals that one should engage the services of the analysts most influential in one’s industry, in the hope that the analysts one pays will speak well of one’s company, publicly or privately as the case may be. Thus, the best way for an analyst to make money is:
- Become influential in the industry s/he covers.
- Say nice things about the companies in it, especially the ones with larger budgets.
On the whole, I think I do better at the first of those tasks than the second.
Sometimes the connection between money and saying nice things is pretty blatant. For example, I’m often asked “Hey, would you be interested in doing a white paper that highlights our product’s advantages?” Unfortunately for my bank account, I almost never think it’s a good idea to accept the commission. It’s not that I dispute that it is possible to be ethical when writing white papers. I just don’t find it easy. And frankly, even analysts I regard as ethical commonly turn out white papers with somewhat more bias than I like to see in documents carrying my name.
Even more directly, I’m occasionally grilled to the effect “Is your view of us sufficiently favorable that we should retain your services?” Those discussions generally don’t end up in a paying relationship, but so be it; the companies who do that aren’t clients I’d much enjoy having anyway. More discouraging right now is that the two Monash Advantage members I’m having the most trouble renewing from last year are two of the ones I’ve written the most pointedly skeptical things about, creating a $80,000 hole in my expected revenue run rate, and keeping me from helping some people I’d grown to think of as friends.
Other times the money/praise connection is more subtle, involving part or all of the sequence:
- Analyst gets paid for services –>
- Analyst learns more about the vendor and its products –>
- Analyst is more confident in any favorable opinions about the vendor and its products –>
- Analyst finds it easier to write and talk about the vendor and its products –>
- Analyst takes the trouble to write and talk about the vendor and its products –>
- The fact that analyst takes note of the vendor and its products is perceived as an endorsement.
It is, frankly, hard to avoid being a part of that. I think I’m pretty strict about following my rules for credibility in what I say. But with only a limited number of hours in the week, it’s hard not to be biased in the choice of which subjects I take up in the first place.
And so I’ll close by calling your attention to what I wrote five years ago about sources of analyst bias, and excerpting part of it below. Upon rereading it, I stand by almost every word, except that our client list has of course changed significantly in the interim.
1. Good vendor relationships are an important factor in an analyst’s success. It’s not just revenue; you also need access to information. This is true whether you’re a stock analyst or an industry analyst. …
2. Analysts typically have more confidence in the companies that are their paying clients. I honestly call ‘em as I see ‘em, no matter who is or isn’t paying me. But some of my calls have to do with confidence. And who will I be more confident in? Company A, which has disclosed almost all their current activities and intermediate-term plans to me, and has given serious consideration to expensive advice they’ve paid me for (and hopefully done something with the advice)? Or Company B, with whom my relationship is largely being fed marketing pabulum, with only the occasional renegade getting off the reservation and telling me what’s really going on? Obviously, it’s often Company A. …
3. There’s a reinforcement cycle that confuses questions of bias. Companies give money and attention to analysts who are positively inclined towards them. They buy consulting services from analysts whose worldviews are compatible with theirs. The resulting relationship, if it goes well, reinforces everybody’s positive opinions of each other.
Meanwhile, companies give cold shoulders to analysts who don’t like them. And that just reinforces analysts’ opinions too.