How did the recent financial meltdown occur? How did so many bright people get “it” wrong? Obviously, there were many factors. But one important factor was the role of credit risk analysts and their risk assessment of mortgage securities (CDO’s). They were close to their customers, sometimes paid by their customers, and yet were in a position to analyze and provide an “independent” analysis of risk for the purpose of insuring securitized assets.

A similar scenario played out in the 2000’s dot-com era where Wall Street financial analysts covering the technology sector became celebrities and helped to create the “irrational exuberance” that led to the dot-com meltdown. See: Blood on the Street by Charles Gasparino.

Although many of their opinions were honestly believed, nonetheless, the lack of thorough analysis led in part to the dot-com era in which the NASDAQ went from a dot-com high of over 5000 to below 2000 - over 3/5 of its entire market capitalization.  There were hundreds of millions of dollars of misplaced-investment and over investment in vapor based business models which led to massive market losses. 

Clearly analysts are powerful - whether credit, financial or industry based. Their opinions, backed by the credibility of the firms that they work for - matter. Their opinions shape customer decisions. They help to drive capital investment. And they influence the course of innovation.

Because the opinions of industry analysts carry so much weight, there are commonly accepted standards for how they conduct analysis and reporting. For instance Porter’s Five Forces.   No one would seriously challenge the premise that one of the standards fundamental to any credible industry assessment is an accurate inventory of industry competitors.

The Flawed Process of Forrester’s Wave.

This is the starting point of my criticism of the Wave - Forrester’s recent report on the emerging social media industry. The survey of the industry was incomplete - having left Neighborhood America out of consideration entirely.  But more than that, the Forrester staff, given the opportunity to correct the error, elected to turn a blind eye to the obvious mistake - before completion and publication of the Wave report. Speed became more important than accuracy.

Let me address any perception of “sour grapes”. There is none. I have nothing but respect for Jeremiah Owyang and his staff, and we recognize Forrester as a pre-eminent firm. (Neighborhood America, unlike at least one firm in the Wave, is not a client of Forrester).

Nor do we discredit competitors. In fact we encourage and support their success because we believe that it moves the whole industry forward. Most of the time we are cheering them on. But logically, for the industry to have credibility, all companies in any industry should compete and be evaluated on a fair and even playing field.

That is not to say that industry leaders - including Forrester - won’t have different opinions - they will. That is legitimate and to be expected. We would not be human if we did not see things differently.

So what is the problem?

Neighborhood America, one of the pioneers in the social media industry was not included for consideration - or even an interview by the Forrester staff. Is that such a big deal? Yes it is.

Forrester bills its methodology as “rigorous”. Implicitly, we have to assume that at a minimum, they correctly identify key industry competitors. In this case, the means used was submission to the Forrester product catalogue, or a direct outreach from the Forrester staff. Predictably, we missed the product catalogue call.

There was no direct outreach. Neighborhood America was not considered, not interviewed, not discussed - hardly a “rigorous” effort.

When the list of 100 was published with the omission of Neighborhood America, and fellow CEO’s in the social media industry began calling and asking what was happening, Neighborhood America initiated a flurry of email and direct communication to Forrester staff. Our outboxes floweth over. An interview? Nope. No time.

So let’s play the devil’s advocate for a second and ask ourselves how could Forrester have gotten this so wrong?

1. (1)Could it be that Neighborhood America is not established? No. We have been around for 9 years with a reputation for consistently taking leading positions in the industry specifically for brands and marketers. Neighborhood America is deployed for marketing applications for brands for some of the largest companies in the country. See, The Neighborhood America media room.
   

2. (2)Could it be that Neighborhood America was not easily discoverable?  Not really. Key indicators include:
   

1. i.Awards and industry recognition. National and International Awards. Neighborhood America received the 2008 SIIA Codie Award for Best Social Networking platform (awarded in SF at the SIIA convention in May, 2008); the Always On 250 sponsored in part by KPMG for its work in social media and marketing. And also of relevance, NA received the Mobile Marketing Association award for the best mobile marketing campaign for a brand (the Adidas/NBA all star game).
   

2. ii.Recognition of technical competency. Neighborhood America has been considered against most if not all of the companies on the Wave’s list of 9 finalists in the awards described above and prevailed over each one in “rigorous” technical and business evaluations. Its technical teams are led by industry veterans from Lexis/Nexis and AOL.
   

3. iii.Coverage by industry analysts. . To name just a few who have provided extensive coverage of Neighborhood America’s ability to deliver enterprise-appropriate applications to drive business results (or something stronger than 'unique social media apps'.:
   

1. (i)Saugatuck Research. Analyst Mark Koenig
   

2. (ii)Wainhouse Research, Analyst Will Zachman. Contributor Redmond Developer News
   

3. (iii) CRM most influential analyst of the year 2008, Paul Greenberg.
   

4. iv.And then there is Google.
   

   

The real bottom line.

Are the employees and staff of Neighborhood America disappointed? Absolutely. That is just human nature. My full opinion is published in the comments section of Jeremiah’s blog the Web Strategist. 

But as importantly, the failure to consider known industry leaders is not demonstrative of the leadership that is going to be important for the emerging social media industry. Marketing customers and brands need accurate guidance. The industry needs to be properly defined. Otherwise it is all contrived hype and we are destined for a fate similar to and largely caused in part by analyst failures in the dot-com environment.

Sometimes it is not the people, but the process itself. As said above, we have the highest respect for the Forrester team. But the inability to do even the most basic research or outreach, or to correct a mistake once recognized with a simple interview, is not demonstrative of fair play and dependability that is going to be important to the health of the social media industry.

Possible outcomes.

There are some logical actions that consultants in Forrester ‘s position would normally take to present its “findings” in the correct light:

1. (a) Acknowledge. We made a mistake. (probably not going to happen). Doing the right thing is sometimes hard. But advising Forrester clients solely on the basis of the Wave report is not necessarily intellectually honest either.
   

2. (b) Qualify the report results. Let the world know that the “rigorous” process was based on vendor submission and did not include independent outreach to known industry vendors.
   

3. (c)Prevent. Examine Forrester procedures to avoid similar outcomes with any company similarly situated.
   

Part II

The Wave implicitly embodies a point of view. on the direction of the social media industry. There is a great deal of value in the high level points made by the Wave based on our experience.

That being said, we believe that there is a more developed vision that should more accurately guide the industry and the many organizations who seek cutting edge thought leadership. That is going to be the subject of The Wave Part 2. 

www.neighborhoodamerica.com