Who’s really shaping the digital future?

Professor Neil Pollock (Linkedin, @neilpollock) looks at the role industry analysts play in creating today’s markets and asks: Who is shaping this dynamic digital world?…

Neil Pollock IIAR

The words digital economy conjure images of young, tech-savvy entrepreneurs breaking molds in a world where technology is disruptive. But could the reality be much more mundane and mercantile?

When Facebook released Facebook at work early last year, the social networking Goliath laid a huge challenge at the feet of LinkedIn, a powerful incumbent that had until then dominated its corner of the market.

The market segment in question, Social Software in the Workplace, was recently identified as distinct from the wider social media marketplace by Gartner Inc.

At first glance this seems to emphasize the sheer unstoppable energy of markets for the future digital economy — with the proliferation of not only products but entire product categories. For example, Gartner has identified several new sub-markets developing around Social Media technologies in the last couple of years. But could this explosion of new segments have a different source? Dig a little deeper and Gartner’s role appears highly significant.

For more than 30 years, Gartner has been telling the business world what’s the next thing in technology. Its analysis works by listing recognized players operating in a new field and depicting them in its (in)famous graphical ranking – the Magic Quadrant.

The Magic Quadrant is central to the firm’s success and a large part of how it’s managed to retain its 30% share of the $4 bn annual market for industry analysis. But while it may be described as amongst the most important and influential pieces of business research produced today, it has (at least) one serious flaw.Magic Quadrant

Having used the system for more than three decades, Gartner knows just the right number of vendors to depict to construct a graphic decision-makers find useful — somewhere between 10 and 25. This ‘beautiful picture’ — as the firm’s analysts have taken to calling it — gives CIOs just enough information to gain an ‘at a glance’ understanding of what’s going on in the market without rendering further advice from Gartner redundant.

The trouble is, what happens when there are hundreds rather than tens of players in a given segment? How does Gartner create its picture then? As one of the firm’s analysts recently explained “…graphically you can, […] we’ve done it, you have 100 dots on the chart but its unreadable. It is just garbage.”

So when they were faced with a Magic Quadrant for Social Software which looked ‘too cluttered’ to be a meaningful analytic tool for CIOs, the analysts decided they’d break it into smaller pieces.

Thus three new market segments – Social Software in the Workplace, Externally Facing Social Software, and Social CRM – were born. And with them came three more aesthetically pleasing, marketable Magic Quadrants.

Let’s be clear in what we’re saying here. Some of the most important and high profile market segments of the digital economy were created not as a result of processes of technological innovation or product differentiation but to compensate for the limitations of Gartner’s signature research product.

Let us call the new segments that Gartner create “prosthetic markets” to distinguish from those market areas where there are real, organic relationships between vendors and adopter communities. We don’t know exactly how many of its 320 or so Magic Quadrants are prosthetic as opposed to real, but the fieldwork we’ve conducted during the past ten years suggests it’s likely to be quite a few.

Power of the Magic Quadrant

Power of the Magic Quadrant

Nor are Gartner alone in the practice. Its main rival Forrester also configures new markets around the constraints of its Forrester Wave — where it depicts around seven to 10 vendors. And given there are now as many as 700 analyst firms producing influential research on the digital economy, it may be these prosthetic markets are more prevalent than we think.

These interventions aren’t trivial. There is lots of evidence to suggest that they ultimately shape the process of innovation and product development that constitutes the digital economy.

Thankfully many of the savvy tech firms seem to recognise this. But with Facebook at Work, Facebook could easily end up losing out if it isn’t careful.

Not only is its entry late, it seems surprisingly unaware that its new battleground has in many respects been made up, meaning the dynamics of this segment could be very different those found in a more organic marketplace.

It is clear industry analysts are making their mark on the digital future in ways most commentators have yet to fully realise. What is most remarkable is not only how quickly these firms have been able to establish influence over markets and tech vendors, but on what this power appears to rest.

The digital economy is being shaped not simply by the supply and demand of traditional market economics. But it’s also being driven by — as one former analyst recently suggested to me — what needs to be done to keep industry analysts “in the game.”

Neil Pollock is Professor of Innovation at the University of Edinburgh Business School and a member of the IIAR board.book cover

His book, How Industry Analysts Shape the Digital Future, co-authored with Professor Robin Williams (Linkedin), is available now.

Thanks to IIAR members Ludovic Leforestier (Linkedin, @lludovic) and Duncan Chapple (Linkedin, @DuncanChapple) for helpful comments on this blog post.

 

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