Has Gartner Inc. got some aspects of its respected and influential Magic Quadrant analysis wrong?
Indeed, the research firm appears to have put out figures on the 2014 business analytics revenue of India’s top three technology firms that are far higher than actual numbers.
In its annual Gartner’s Magic Quadrant for Business Analytics report published on 22 September 2015, the technology research and advisory firm estimated 2014 (calendar year) business analytics revenue for Wipro Ltd at over $1 billion, Tata Consultancy Services (TCS) at $2.1 billion and Infosys Ltd at $950 million. Revenue is one of the many metrics Gartner analysts are believed to use before giving their opinion in trademarked Magic Quadrant reports. Considered the world’s most influential report for enterprise technology, the Magic Quadrant serves as an important filter for chief information officers at companies to shortlist technology vendors. Magic Quadrant reports evaluate technology firms in over 60 areas.
Wipro, which started declaring analytics revenue from April 2015, generated about $500 million in 2014, while for TCS and Infosys, the four areas comprising digital technologies—cloud computing, analytics, mobile and social platforms—together brought $2 billion and $700 million in revenue, respectively.
Gartner analysts have clubbed the three homegrown information technology (IT) firms among the 18 technology vendors evaluated, in the “Challengers” quadrant, as it ranked suppliers based on their “ability to execute” and “completeness of vision” and placed them in one of four quadrants: “Leaders”, “Challengers”, “Visionaries” or “Niche Players”.
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Since Gartner has overestimated analytics revenues, executives say it is unlikely any Indian firm will challenge these numbers. However, the discrepancy could become an embarrassment for Gartner Inc., which generated 73% of its total $2.16 billion annual revenue from research reports, which are subscribed by hundreds of thousands of enterprises and individuals across the world. It also questions the methodology of analysts at the Stamford, Connecticut-based Gartner for preparing these reports.
Gartner did not offer a comment on how it arrived at these numbers or the methodology deployed in preparing the report despite repeated requests.
Digital technologies is a fuzzy term. Most companies are coy about sharing actual revenue splits and even definitions. However, over the last 10 months, Indian technology companies have started sharing some insights on revenues from these technologies. “We do categorise digital what we call DIS differently, although even in digital, large percentage is maintenance. So I think everybody has a different definition for these terms. Our digital practice is about 8% of business,” Infosys chief executive Vishal Sikka said on 28 May 2015 at an analyst event sponsored by Cowen and Co., LLC. That suggests that Infosys generated $700 million business from cloud computing, analytics and social and mobile platforms for fiscal year ending 31 March 2015. In July last year, N. Chandrasekaran, chief executive officer of TCS, said that digital revenue was 12.5% of company’s $15.5 billion in revenue, implying about $2 billion in business, while a fortnight later, Wipro too for the first time declared revenues from analytics space.
“Gartner MQs (Magic Quadrants) are the most influential report in any sector,” said Richard Stiennon, a former vice-president at Gartner and currently running IT-Harvest, a US-based Internet security firm. “Buyers at large organizations use the MQ to scope the entire space and often shortlist the leaders. For a vendor to be in the Leaders Quadrant means instant recognition and an acceleration in deal opportunities.” Although Gartner did not share the methodology behind these reports, Stiennon and two other experts at homegrown IT firms said that Gartner analysis is based on a “questionnaire” sent to each of the technology vendors. However, Nasdaq-listed Cognizant Technology Solutions Corp. and Infosys toldMint that these revenue numbers are “Gartner’s estimates” as the companies do not share these numbers. TCS declined to comment if Gartner’s estimates are based on the company sharing its analytics revenue while Wipro said that it “publishes these numbers every quarter” and is “unable to comment on an external report”.
Since Gartner Magic Quadrant is highly influential and because it does not fully disclose its “opinion” when evaluating technology firms, the report has over the last few years faced criticism, from analysts to even technology firms. In 2014, NetScout Systems Inc., a US-based firm which helps companies better manage their IT networks, filed a lawsuit against Gartner, questioning how the research firm placed NetScout in one of the quadrants in Network Performance Monitoring and Diagnostics Magic Quadrant report. “When a company is publicly disclosing numbers, then it’s pretty pointless to do your own analysis and come with your own numbers,” said a CEO of another research firm, which competes with Gartner, referring to Wipro’s example. “So these kind of things obviously erodes or say dents the respect you have built and questions the whole model, based on which you write these reports.”
However, Stiennon said that it is tedious to get revenues from software sales, when compared to car sales, and as long as Gartner analysts maintain consistency in their reports, this should not be much of a challenge.
“Absolute revenue is not as important as changes in revenue. As long as the analysts are consistent in their methodology from year to year, there is value in their reported numbers regardless of the overall accuracy,” said Stiennon.
“Keep in mind that tracking software sales is much harder than say automobiles where there are multiple ways to check a vendor’s claims. You can poll dealerships, vehicle registration numbers, etc. A large vendor such as Wipro can decide what proportion of a bundled sale they will assign to BA (business analytics) for instance, even though they may have discounted that portion of the sale significantly. I have seen vendors report sales figure to Gartner based on “list” prices instead of actual prices for instance”.