The truth behind Industry Analysts

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One of the most popular stories about mobile services that is doing rounds on the internet is about a Juniper report that predicts that Mobile Entertainment is going to be affected due to recession and the growth in next  five years would be half of what the earlier predictions were. Juniper estimates that the mobile entertainment is now going to increase by $13 billion against the earlier estimate of $ 26 billion. I differ from Juniper on recession as a reason for the slower growth in mobile entertainment.

 

In one of my earlier posts, My Predictions for Telecom Industry in 2009/2010, I had predicted that the mobile entertainment is likely to increase as it would be the cheapest source of entertainment. I stand by my prediction. Would you go out and spend $10 on a movie which would last two hours or rather spend a few dollars on a mobile game that you can play many times over.  Juniper is also saying that the mobile entertainment would grow but would grow at a slower pace. However, I do not agree that recession is a reason for slower growth. To my mind, Juniper was earlier too optimistic about the market place and hence had estimated the market growth wrongly to grow by $26 billion. In the last few months, all the analysts have realized that they had built up the unnecessary hype around the potential of many of the mobile services and now it’s a good time to do some reality check. It is not due to the recession that they are revising their forecasts but it is possible that they are correcting their previous wrong forecast.

 

The way the Telecom analysts are reacting is no different from other industry analysts. Even in real estate industry, if you pick up any pre-recession report, you would find ridiculously high levels of predictions on level real estate prices by end 2010. Equity analysts were busy outdoing each other in predicting the high levels of stock market index in the next 2-3 years. The same analysts are predicting doomsday. Goldman Sachs had predicted that oil would touch $200 in April, 2008 and within four months they came out with a new forecast of oil dipping to $25 levels. It is not surprising that both the predictions have not come true. We saw similar phenomena before the dot com bubble. The reason why analysts go wrong is because they just ride the wave. It is like every morning they see the direction of the wind that then decide the direction in which they would sail their boat

 

I do not solely blame the analysts for the way they predict the market. If they take a contrarian view to the industry expectations, their reports are dismissed as rubbish. The industry stalwarts look at the analysts to stamp their own views about the industry. They have already made up their minds on the investments that they would make in the company and then use the analyst reports to justify them. The same is true even in a downturn. In such a scenario, it is not fair to expect the analysts to come out with an objective report.

 

Industry analysts have a role as a counterweight to the strategy departments of various companies. They are expected to take a dispassionate view of the industry. They need to invest money in primary and secondary research and should track the accuracy of their forecasts. Analysts should work on different scenarios and should refrain from making a catching headline to their research work by highlighting only a part of their scenario. No analyst firm can be accurate on 100% of its prediction but by doing so, it would build a huge reputation that would be difficult for any industry leader to ignore. It is a difficult task but this is what they are paid for!!!

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4 Comments on "The truth behind Industry Analysts"

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Rohit Agarwal
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7 years 2 months ago

To be true, I have doubts even in the multiple models they are using for prediction. It is certainly not possible to give a prediction with 100% accuracy, but even then I don’t find their report anywhere close to 50% many a times. One of the reason could be that for an upcoming industry like mobile entertainment, Mobile advertising etc., the parameters that could impact the business model are still not clear.

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The truth behind industry analysts - why we’re more like tomatoes than beans |
7 years 2 months ago

[…] blog called Telecom Circle and today found a post by  Mohit Agrawal in my inbox entitled The Truth Behind Industry Analysts. If you haven’t read Mohit’s blog it’s worth a read if only to view the very […]

Teresa
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Teresa
7 years 2 months ago
Mohit There’s certainly a lot of truth in what you say. There are many reasons why forecasts aren’t accurate: 1. Some analyst firms undoubtedly pander to industry needs – they know that bullish figures sell better than more conservative ones. Not all firms do this, however. 2. Sometimes it’s just a case of them getting a junior analyst to build a model which is mathematically correct but is simply not sophisticated enough as the analyst does not have the experience to put in enough industry factors that will drive/retard take up. 3. Other times it’s time pressure to get a… Read more »
Andy Hamer
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Andy Hamer
7 years 2 months ago
I have been in the technology consultancy business the problem analyst’s find is that the user or receprient of the information doesn’t want to hear the whole true only part that backs their view of the market opportunity. I saw when I was analyst looking at the fax market back in the ’80s when it was booming – it was obvious to me that penetration levels where getting to saturation plus prices where fallening so they needed more volume not less and other technologies such as email was a big threat. Did any of the fax manufacturers listern!! No because… Read more »
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