Jupitermedia (JUPM), Industry Research and Conflicts of Interest

A VC endorses JUPM, but is he right? argued that research from Jupiter suffers from severe conflicts of interest. Jupiter analyst David Schatsy responded:

I can understand why other research firms get the rap he's laying on us -- because, according to numerous first-hand reports from their clients--they treat many of their clients in such a smarmy manner.

I have always been opposed to creating the impression with prospects and clients that [a] paying for a Jupiter contract is the same as paying protection money or buying PR. And I hope and believe that that attitude is shared throughout the JupiterResearch organization. Thus, it is pretty disappointing to be painted with that brush.

David's right, and I owe him and the other Jupiter analysts an apology, since my comments weren't based on any specific experience of Jupiter Research. (His full post is here.)

However, this is an important issue for the market research industry, and Jupiter is part of that industry. Market research in general is rife with undisclosed conflicts, and as a result small companies often view the cost of industry research as a marketing expense rather than a business planning expense. David's comments about his competitors seem to confirm that.

Currently, industry analysts do not have to disclose potential conflicts of interest, and there's no Chinese Wall between the
business unit that accepts payment from clients and the analysts who comment on companies' products and positioning. The potential for abuse is a problem even in an organization of ethical people.

That problem could at some time bite Jupiter and its shareholders. So far there have been no major law suits from companies claiming they were misled by biased industry reports in which conflicts of interest weren't disclosed, or from companies claiming they were ignored because they didn't pay for research subscriptions. But who knows about the future?

So Jupiter should grab the opportunity to (a) prove that it operates at a higher ethical level than its competitors and (b) limit the risk of future litigation. Like the investment banks' equity research divisions, it should shield its business relationships from its analysts and disclose all paid relationships with companies mentioned in its reports. Hoping and believing & quot;that that attitude is shared throughout the JupiterResearch organization" isn't enough.

Although disclosures and Chinese walls may increase costs in the short term, they would be a good long-term investment for JUPM shareholders.

Comments

[DavidJackson]

Ross, I don't think this is about which companies could potentially benefit from the outcome of research. It's about using research as a way to generate revenue, thereby compromising the objectivity of the research: <em>If you pay us, we'll include you in our research. And we obviously won't trash you in the research report because then you (and others) won't pay us in future.</em>

I personally know of one private company that was told that the industry analyst wouldn't listen to their story until they paid up for research.