Expert Networks' Future – Investorside Panel

I dropped by the Investorside conference last week to hear the panel discussion on ‘The Future of Expert Networks’. Given my work in the expert network industry, I was excited to see some of my former competitors.

The fastest growing sector of the $1.8b independent research industry are expert networks, which are now approximately a $300m industry, according to Integrity Research. The expert network industry puts investors in direct contact (usually via phone, but also in meetings or via survey) with industry experts. The industry leaders include: Gerson Lehrman Group (the industry pioneer and market share leader), Coleman Research Group, DeMatteo Monness, Guidepoint Global, Kingfish Group, Primary Global Research, and Primary Insight.

There are a number of firms specializing in medical experts, including Sermo and Summer Street Research Partners. There are also a number of experts networks owned by prominent parents, including Evalueserve Circle of Experts and Reuters Insight.

It was a high-quality panel with 3 leading expert networks:

– Kevin Coleman, CEO & President, Coleman Research Group

– Dmitri Mehlhorn, Managing Director, Global Operations, Gerson Lehrman Group

– Anne Maffei, President, Vista Research

The moderator was Bruce Fador, COO, Decision Resources. My notes:

Bruce Fador (Moderator): How’s the current market treating you?

Kevin Coleman: revenues up in 1Q09

Anne Maffei: usage is up over 2008 . (David: She didn’t mention revenue trends.) Clients have downsized, which creates more needs for outside resources.

Bruce Fador (Moderator): What’s changed?

Anne Maffei: Turnaround time expectations are dropping. Clients say, "I want this expert in 3-4 hours or not at all". I also see more demand for non-consult products, and more demand for compliance processes.

Bruce Fador (Moderator): How has compliance changed?

Dmitri Mehlhorn: Compliance and scale are two key areas where expert networks need to deliver. Post-Madoff, clients do not want to accrue long-term liability for short-term gain.

Kevin Coleman: Clients doing even more research.

Bruce Fador (Moderator): Parts of the expert network process are becoming standard. Does this process risk being commoditized?

Dmitri Mehlhorn: Compliance is very complex. Every company, every fund, and every regulatory authority has its own policies, each of which intersect in every consult. Each of these sectors expect the expert network industry to take the lead in compliance. In 2005-2006, this was our #1 focus. We spent millions of dollars on this. We lost some short-term market share, but now we’re seeing the benefits. Some major clients recently said they’re going to sole-source through us for compliance reasons.

Compliance rigor has to be industry-wide, because a small player can easily make a match which will create a regulatory issue for all of us.

There are about 1.5m expert consults facilitated to date, 80% of them by GLG. The next 5 players have facilitated the next 15%. This is not the sign of a commoditized industry.

Bruce Fador (Moderator): How has your business changed?

Kevin Coleman: We continue to look at the market and add products accordingly. 9 months ago we added a team of people to do moderated events. We started in healthcare and branched out from there. Lot of success from that.

Anne Maffei: We’ve increased the diversity and frequency of demand. Products include: weekly teleconferences, polls, conference product (which experts are at which conferences).

Two new products we’ve introduced: longitudinal studies. And proprietary data products.

Dmitri Mehlhorn: If a niche player out there is doing a good job in a niche vertical, it means we failed. People should go to ebay for a niche product, not a local strip mall.

We pay 500-1000 experts / day, and about half every day are new. Areas of expertise constantly changes. We need to give our clients fresh opinions.

Bruce Fador (Moderator): Has vetting process changed?

Dmitri Mehlhorn: We track what people answer to our questions. Without scale, a network has to match based on where people work, which is not as good as matching based on what they know. LinkedIn tried to get into this market, but they failed ("had egg on their face") because just knowing where people work is not sufficient.

Anne Maffei: We use technology for scale. Before every consult, expert must confirm:

– No conflict on topic or client

– Re-agree with Terms & Conditions

– Must have undergone webcast training

– Must confirm they’re still at employer

Kevin Coleman: We have dedicated data team to make sure expert is tagged appropriately with respect to outside data sources.

Bruce Fador (Moderator): Is there more interest in the corporate side?

Dmitri Mehlhorn: Yes, extremely expensive to penetrate that market. Lot of direct sales. We’ve been penetrating that market for 3 years. They do much deeper drilldowns than financial clients. We think the global market for expert networks is $30bn.

There’s a huge group of consultants below the top-tier McKinsey/Bain/BCG level, who provide 40% of the value of the top tier for 60% of the cost. They’re ripe to be disintermediated.

Kevin Coleman: We’re focused exclusively on the buy-side.

Anne Maffei: We’re starting to sell to corporate. They want ongoing help.

Dmitri Mehlhorn: One of the reasons we moved into corporate is that we think that they’re going to demand experts in certain areas before the financial players. Then, we can go to finance clients, and say, we already have a panel of experts who are tested & approved, and no finance client has ever spoken with them.

Audience Question: Who do you target for sales in a corporation?

Anne Maffei: Dmitri might say CFO. We’d say biz dev, R&D, product manager, competitive intelligence.

Dmitri Mehlhorn: We’re not good for competitive intelligence, because of our compliance structure.

Bruce Fador (Moderator): What is biggest hurdle you face?

Dmitri Mehlhorn: Compliance is biggest risk. We spend a ton of money on S&P , e.g., to know who the subsidiaries are.

Cost is not a big issue, because we’re high-value vs. client’s other options: not knowing the information, or hiring more people.

Bruce Fador (Moderator): is financial services channel expanding? VCs, sell-side (e.g., Credit Suisse)?

Dmitri Mehl
horn: There’s a flight to quality.

Bruce Fador (Moderator): What are your predictions?

Dmitri Mehlhorn: 2-3 of the other expert networks will be acquired.

Bruce Fador (Moderator): Trends in compliance?

Dmitri Mehlhorn: in the past, hustle & client service were the focus. Now compliance is critical. In the future, 2 models: parent company with strong compliance interest (S&P/Vista); or very large player with scale to afford compliance technology (only GLG). There are other 13,000 entities that have restrictions on who can contact their employees. We have over 150 technology developers.

Kevin Coleman: We have 150 clients.

Dmitri Mehlhorn: We have 900 clients.

Anne Maffei: We recently partnered with Futuresource to package their data + consults to clients worldwide.

Dmitri Mehlhorn: We are aggregating demand which would be too episodic for many experts to service.

We’ve sent our ‘do not contact’ registry to other players. Some accept it, some don’t; they say it’s too much work. We’ve also have shared a lot of compliance information with the other players.

Bruce Fador (Moderator): Do you analyze ‘what’s hot?’

Anne Maffei: We disseminate a list of hot topics to our clients.

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For my notes on some other panels on expert networks (some of which I participated in), see:

World Hedge Fund Summit
New York Society of Security Analysts Panel
Investorside conference
Harvard Business School Club of NY Investment Research Panel

Also, for relevant background, see
MIT Enterprise Forum of NY: Collaborative Investing Startups
Software & Information Industry Association Panel on Content and Community

(Image via Wikipedia)