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Gartner Inc. (NYSE: IT) is the world's largest information technology research shop, and a leading information technology and advisory consulting company. The company's research is used by its client companies' chief information officers (CIOs) and senior staff to keep abreast of technology trends, industry benchmarking, and best practices. Gartner sells its research and consulting services, and hosts industry events, for clients in 80 countries that include 400 of the companies in the Fortune 500. The company earns the majority of its revenues selling research reports, and in 2009 this totaled $752.5 million.

Three firms - Gartner, Forrester, and IDC - collectively account for 60% of the IT research market. [1] Gartner maintains a commanding 40% market share in the IT research industry. Its biggest competitor is Forrester Research (FORR). [2]

Company Overview

Gartner's research segment is the foundation of Gartner's business. It generates the highest revenues for the company and the intellectual capital generated by the research segment is used by both its consulting and events sectors.

Gartner sells its services to executives in charge of making strategic IT decisions such as CIOs, other IT leaders, and IT investment professionals, and Gartner markets its products directly at these specific roles. Other than the United States, no individual country accounts for 10% or more of Gartner's revenues, and no single client accounts for 10% or more of Gartner's total revenue. [3] The company's research covers the Internet, computer hardware, software, telecommunications, and related technology industries. For examples of the various topics covered by Gartner Research, see the following articles - Blades Server Analysis, iPhone for Business Review, and Cloud Computing Review.

Business and Financial Metrics

For 2009, Gartner's total revenues were $1.14 billion and its operating income was $134.5 million.[4] Compared to 2008, both its total revenues and operating income declined. Most of these losses were a result of its consulting business declining by 17% in 2009.[5]

Gartner's growth can be assessed using several key metrics:

  • Contract Value - Contract value is the annualized value of all Gartner's subscription based products, recognized at a certain point in time without regard for the length of the contract.
  • Client Retention Rate - Client retention rate measures client renewal of Gartner's products as a measure of client satisfaction. Client retention is calculated on a percentage basis by dividing Gartner's returning clients from a year ago, by all clients from a year ago.
  • Wallet Retention Rate - Wallet retention rate measures the amount of contract value retained with clients over the past year. Wallet retention is calculated by dividing the contract value of Gartner's returning clients from a year ago, by the total contract value from a year ago. A higher wallet retention rate than client retention rate implies either the retention of higher-spending clients, increased spending by retained clients, or both.

Business Segments

Research (66% of 2009 Revenue)[4]

Gartner's research revenue is largely subscription based, often for multi-year subscriptions. In 2009, Research revenue reached $752 million, a slight decline from its 2008 revenue of $782 million.[4] Contract value, which represents the value attributable to all subscription-related research products, was $784.4 million in 2009. The research client retention rate for 2009 was 78% while wallet retention reached 87%. [5]

Consulting (25% of Revenue)[4]

Consulting revenue for 2009 declined 17% to $286.8 million in 2009, compared to $247.4 million in 2008.[4] This primarily was driven by unfavorable foreign currency fluctuations as well as a decline in core consulting. Utilization in core consulting was 68% for 2009. Backlog was $90.9 million at December 31, 2009, a decline of 6% from December 31, 2008.

Events (9% of Revenue)[4]

Gartner held 54 events in 2009.[5] Garner had to cancel or discontinue a number of events in response to the economic downturn. As a result, Events revenue declined by 33% in 2009 to $100 million.

Key Trends and Forces

Gartner's business segment revenue from 1998-2007.
Gartner's business segment revenue from 1998-2007. [6][7]
Forrester Research's business segment revenue from 1998-2007.
Forrester Research's business segment revenue from 1998-2007. [8] [9]

Research revenue is insulated from immediate IT industry fluctuations

IT research revenues are tied to, but not immediately impacted by, the strength of the IT industry. From 1995 to 2000, the IT industry experienced extremely high growth with the NASDAQ Composite index rising to record highs and the founding of a group of companies known as dot-coms. By 2001, the NASDAQ Composite plummeted in value and many of these companies failed.[10] Because research contracts are typically multi-year and paid in advance, both Gartner and its main competitor, Forrester Research, did not feel the effects of the dot-com bubble on their research revenues until 2002 and 2003.

When the IT industry downturn finally caught up to the IT research industry, Gartner was less effected than its closest competitor, Forrester Research. From 2002-2003, Gartner's research revenue dropped approximately 13% from a high of $535 million in 2001 to a low of $467 million in 2003. Their closest competitor, Forrester Research, was more dramatically affected by the decline in the IT industry and saw their research revenues decline 25% from a high of $123 million in 2002 to a low of $92 million in 2003.

Part of the insulation also stems from that fact that IT research typically constitutes a low cost relative to a client's overall IT budget - the average enterprise client spends $70,000 on research versus total enterprise IT budgets in multi-millions of dollars. [11] Companies generally continue to need strategic IT information regardless of the economic climate.

Competitors

Gartner, Forrester Research, and IDC account for 60% of the total IT research market with Gartner maintaining a dominant 40% share and Forrester and IDC both maintaining 10% market share.[1] Gartner's most direct competitor is Forrester Research (FORR) as it competes across Gartner's industry verticals. Other private firms such as IDC, AMR, and the Yankee Group compete against Gartner for specific industry IT research. IDC is similar in market share to Forrester but mainly focuses on IT vendor data rather than covering the entire IT industry.

IT Research Market Share
IT Research Market Share [1]
  • Forrester Research (FORR) - Forrester competes directly with all three of Gartner's business segments and with much the same strategy as Gartner.
  • IDC - IDC is a provider of market research data and advisory services for the technology industry. IDC is a subsidiary of International Data Group (IDG), a technology media, research, and event company.
  • AMR - AMR Research offers analytical research reports covering a range of information technology topics such as customer relationship management (CRM), supply chain management software (SCM), and other enterprise applications.
  • Yankee Group - The Yankee Group provides market research and analytical reports for technology business research leaders. The company also monitors consumer electronics trends.



References

  1. 1.0 1.1 1.2 Boenning & Scattergood April 29, 2008 report on Forrester Research
  2. "Boenning & Scattergood Announces Investment Opinion on Forrester Research Inc. and Gartner, Inc", BNET, April 29, 2008
  3. IT, 2007, 10-K, Notes to Consolidated Financial Statements, Page 53
  4. 4.0 4.1 4.2 4.3 4.4 4.5 IT 10-K 2009 Item 6 Pg. 11
  5. 5.0 5.1 5.2 IT 10-K 2009 Item 7 Pg. 13
  6. IT, 2002, 10-K, Item 6, Page 6
  7. FORR, 2007, 10-K, Item 6, Page 14
  8. FORR, 2002, 10-K, Item 6, Page 16
  9. Wikipedia's Dot-com bubble Page
  10. Boenning & Scattergood April 29, 2008 report on Gartner
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