Hi, this is Andrew Stein. I'm your Business Information Services Analyst here at J.P. Morgan. This is the Ultimate Services Investor Conference. This is the Info Services Track. This is the Gartner Fireside Chat. We're pleased to host the CFO, Craig Safian. It's going to be 30 minutes in total. I'll start with my questions, but I expect you to be inspired. So please be brave and ask your questions. It gets quiet in these rooms sometimes, but if you want to be invited back, ask your question. Anyhow, Craig, why don't you start for us with an overview for some people that might not be familiar with Gartner as a company? Everyone's familiar with Gartner, the product, but help us with an overview as brief as the company.
Sure, happy to, and thanks, everyone, for joining in person and out there in the ether as well, so Gartner is a growth business, and it's a people business, and important to recognize both elements of that. We believe that given the size of the addressable market opportunity, which we estimate to be around $200 billion, our relatively low penetration of that addressable market, which right now we're at about $5 billion, and our ability to execute, coupled with an amazing value proposition that we offer our clients, leaves years and years and years of runway for significant, sustained, and consistent double-digit growth. We have three businesses. Our largest, which reflects a little more than 80% of our revenue, is our research business. This is a recurring revenue business with high renewal rates and high growth expectations as well.
We expect our research business to grow about 12%-16% per year. We have a conferences business, which represents a little bit less than 10% of revenue. Over the medium term, we expect that business to grow between 5% and 10%. And then we have a consulting business, again, a little bit less than 10% of total revenues, with a long-term or medium-term outlook of 3%-8%. The one thing I should say.
Just one question.
Yeah, of course.
I don't love the word "recurring." When you say, you know, research business recurring, do you mean fixed subscription, or do you mean the customer continues?
On the research side, we are selling minimum annual subscriptions. The majority of our deals are actually multi-year subscriptions. So hopefully it meets your definition of recurring.
Wait, do they pay extra for special projects or no?
So the way the structure works is you get, so let's say you are a Chief Information Officer, one of our prime targets that we have. And you subscribe as a licensed user to Gartner. What you get for that, depending on your tier of service, but let's say you go for our most premium offering as a Chief Information Officer, you would have access to all of the insight that we have in the Gartner library that is pertinent to your role. You would have access to all of our experts whenever you want to speak to them. You would have access to a senior-level service person, typically a former CIO, to bounce ideas off of, to be your thought partner, and also to help you navigate through all of the great things that Gartner has to offer. You have full access to a peer community of other CIOs.
You get a ticket to attend one of our industry-leading conferences where you experience, forgive me, all the magic of Gartner with 10,000 of your peers, and so you get all of that, and the really cool thing about our value proposition is we sell around key operating executives what we call Mission Critical Priorities, so what are the three to five biggest things that you're most focused on, so for a CIO, it might be cybersecurity, implementing artificial intelligence, and building a data and analytics infrastructure, and we make sure that we map all of our assets, whether it's written research, tools, templates, peers, conferences, to consistently delivering value against those priorities over the course of the year, but the world's a dynamic place, and things change, and so if suddenly that CIO's major initiative goes, you know, stop, don't worry about the AI right now.
We need to make sure that we completely transform the user experience of all our client-facing applications. You don't have to buy anything different. You just metaphorically change the channel and get access to the insights that you have contractual entitlement to and access to from one day to the next. So it's a very flexible product with a really strong, deep, and broad value proposition. And again, the CIO example, it applies to CFOs and CHROs and Chief Supply Chain Officers and Heads of Sales and Chief Marketing Officers. Same structure from a product perspective, same structure from a value proposition perspective, and same structure from a pricing and value delivery perspective.
Then just help us understand what the research product is. I think like when we talk about credit rating agencies, we know what the research product is. And we're surely very familiar with Magic Quadrant and Hype Cycle. But what exactly is it? And why is it so mission-critical? Just the research product.
Absolutely. So think about there are three tiers of service from a research product offering that we have. Lowest tier of service, think $20,000-$25,000 per year per license, gives you read-only access to all of the insights we create, which you access via gartner.com. So that's insights in terms of written research, tools, templates, et cetera, but read-only. You can't pick up the phone and talk to any of our experts. We actually don't sell a ton of that because the next tier of service, think $45,000-$50,000 per year per licensed user, is what we call Advisor-level access. It's all the access we talked about from a read-only perspective, plus the ability to do what we call Inquiry.
What inquiry is, is I read a report or I interact with a tool or a template, and I have questions, and I want to talk to an expert. You can schedule a 30- to 45-minute call with one of our experts, and you have actually unlimited access to be able to do that. Now, one of the things we often get a question on is unlimited access. That's crazy. Do people call you 30 times a year? Short answer, no. No one has time to do that.
I know.
So on average, people are doing six to eight inquiries per year, but significant value add on top of access to all our research. With an advisor-level product, you also get a conference ticket. And our conferences are an amazing way to enmesh yourself in Gartner insight and intellectual property in a short, condensed time frame off-site. And so we have an order of magnitude around 50 destination conferences per year organized by role around the world. You can attend any of them for your role. So if you wanted to go to London and you're in the U.S., you obviously can use your ticket entitlement for that. And for three or four days, you basically are absorbing Gartner insights. You can connect with Gartner experts. You can connect with peers.
And we also have an exhibit show floor where you can interact with the top vendors who sell into that space. So that's an advisor-level service, again, $45,000-$50,000 a year. And then the level up from that, which we call our guided products, or what I described a little bit earlier with our Chief Information Officer example, where you're spending $80,000-$100,000 a year. And in addition to all the things you get with that advisor-level service, you get assigned a senior-level service person dedicated who is often a former practitioner of that space. So in our CIO offering, there are often former CIOs. Same thing in supply chain, finance, et cetera, where the, what we call, executive Partner would be a former CFO. So that's sort of the product structure: read-only, advisor-level, guided kind of premium-type products.
And the way it's structured, the primary way you interact with the product is through Gartner.com, our portal. So behind the firewall, you get access to all of the insights that our experts are creating, all the tools and templates that they are creating, an online peer community, again, managed behind the firewall. So it is essentially a pre-qualified peer community. And a lot of our clients really love engaging with peers. And they love to do it at conferences, but conferences happen once a year. They can do it online over the course of the year. And then depending on the level of service, the interaction with analysts, the interaction with senior-level service people, and attending our conferences. It's all part of the suite of the offering.
And as I mentioned earlier, the really cool thing is in each of the roles we serve, the breadth of content that we have on topics that are important to that operating executive is a very, very, very long list. Too long for any one person to consume in a given year, but long enough so that if priorities change over the course of the year, as I talked about earlier, you just metaphorically change the channel and go deep on that topic.
Right. And do clients have APIs where they could download the tables? And there's a lot of interest for that.
So generally, no. So they are generally operating, again, within the Gartner.com portal. They can download documents. They can download graphics. They can download tools and templates that they can then use. I mean, one of the things we have found our clients really like is downloadable graphics because they can pop them into presentations for their board or for their teams or what have you.
Why you presented the way you presented them in the report?
Correct.
You don't want them to represent.
Correct. Exactly right.
I gotcha. No problem at all. The thing that caught my ear was the $200 billion number. It just seems like a large number. I know you're saying it's a small penetration now, so you don't exactly have to figure out is it 100 or 200. But could you help build up that, Tim?
Yeah, absolutely. So one resource we have, or a couple of resources we have on our investor relations site, we have a couple of videos that actually do this, and we'll do it much more articulately than I'm going to do for you right now, but I'll give you my best effort. So the way to think about the TAM is it really is a P times Q buildup for each of the major functions that we serve, so we estimate that in the markets in which we operate, there are about 140,000 enterprises that are large enough, complex enough to get value out of a Gartner subscription, and if I zoom back for a second, one of the unique things about our market opportunity is we are really horizontally oriented, so we go after roles.
We're agnostic in terms of industry because technology, finance, HR are important to every industry. We're agnostic to size. We go after the largest companies in the world down to companies with $50-$75 million of revenue on the enterprise and user portion of our business. And we're agnostic in terms of geography because, again, wherever you are in the world, technology is important. HR is important. Finance is important. That's why that 140,000 enterprise number is big. The other thing I'd note is we sell to public companies and private companies. We sell to the private sector and the public sector. We sell to education, et cetera. And so the opportunity set is really, really large. So roughly 140,000 enterprises out there. Based on the size of the enterprise, we then estimate how many executives within that enterprise are targets of Gartner.
So if you take a $1 billion company, you assume there's one Chief Information Officer, and they have five to seven direct reports, and they might each have five to seven direct reports. And so that becomes sort of the opportunity set for the billion-dollar company. For the $20 billion company, that's global, they probably have multiple Chief Information Officers. And so we model in multiple Chief Information Officers. And then each of those CIOs will have a team of direct reports and a team of direct reports and a team of direct reports. And so we essentially come up with, based on that 140,000 and based on a view by size, how many operating executives are there within each of those 140,000 enterprises. And then we multiply it by the average price per product of each of the target segments we're going after.
So a little bit higher for the C level, a little bit lower for the directs of the directs. And then it's simply, I say, a P times Q multiplication across all of that to come up with a market opportunity. Now, the $200 billion breaks down into logical piece parts as well. So we estimate our enterprise technology and user business has about a $45 billion market opportunity. Our tech vendor business has about a $10 billion market opportunity. And that leaves about a $145 billion market opportunity across the various GBS practices we have. So finance, HR, supply chain, marketing, sales, legal.
How have you?
How did I do?
Perfect.
Okay, good.
How have you found your pricing power to be?
We are generally a rounding error in most people's operating budgets. If you think about our average price per license is around $50,000 per license per year. We have consistently taken our pricing up 3%-4% per year. In 2021 and 2022, when inflation was running hotter, and in particular, wage inflation was running hotter, we took pricing up a little bit more than that, think in the 5% range. That has abated a bit. We've been able to get back to that 3.5%-4% level for last year and for this most recent price increase. We generally get very little pushback. I wouldn't say it's completely frictionless, but very little pushback because even on the GTS side, the average enterprise is spending about $300,000 with us.
And so the difference between a 3% price increase and a 4% price increase is $3,000. And again, it sort of goes back to that rounding error thing we talked about a little bit earlier. So we have good pricing power. We don't want to be wildly aggressive on that because we also don't want to put sand in the gears of the thousands of deals that we have to renew every year and the thousands of deals we want to close from a new business perspective.
Right, and so when you go back to the way you did your TAM, and I know you're just a fraction of the $200 billion, but where do you feel like the penetration is low? Is it we're just not addressing so many of the clients out of the 140,000, or is it we're not addressing the number of professionals that should be commensurate with the size of the target? What's the key numbers that we just don't have the number of clients?
So, short answer is both. And so again, unique to us, we believe that even though we're doing business with, call it, 14,000 or 15,000 of the 140,000 opportunity out there, we still believe we are woefully underpenetrated even within our existing client base. And so we think we can grow at a really nice clip within our existing clients. And we've actually been doing that for the last 20 years. Just doing that, though, doesn't get us to our 12% to 16% target. So we need to further capture the 140,000 minus 15,000, the 125,000 enterprises that are out there that we currently don't do business with. And so we've been growing our sales force to both further penetrate our existing clients, but also to go capture more and more of those enterprises that don't do business with us.
So in math terms, bigger opportunity on the 125,000 enterprises that don't do business with us. In terms of the near-term opportunity, we're focused on both elements, expansion and new logos.
Right. You mentioned before how horizontally focused really your product set is. Is your sales force also horizontally focused?
They are.
That's a quick comment. Why not verticalize?
Yeah. So what we have found through trial and error over the years is we can drive greater productivity if the sales force is focused around a function, if you will. And so GTS is tech-focused sales force. Within GBS, we have an HR-focused sales force, a finance-focused sales force, and so on. And when we've.
It's simple, right? You say, "That's our product. We might as well have sales in the same format as our product.
Well, and domain expertise from a selling and servicing perspective as well, right? So functional expertise in those areas. And again, what we have found is that drives higher productivity. And the other thing I'd add is when we have scale, we're able to take advantage of industry specialization as well. So when we have scale, we will set territories up so that our rep in New Jersey only has healthcare clients. Our reps in New York only have financial services clients. And so it's specialization within specialization. And again, what we have found over time is that drives greater productivity because of that functional and then industry specialization within that function.
So you're right. So you are doing some verticalization.
But function is the primary. Function is the primary.
I gotcha. Well said. No problem. So recently, when looking at your contract value, your organic revenue growth hasn't been commensurate with your medium-term targets, which are 12%-16%. Recently, it's been more like 7%. Is this just kind of something in the macro? What's holding it up? How do we get back to target?
It's a great question. So several thoughts there. So one is if you disaggregate the business, the biggest drag on our overall CV growth over the last four to six quarters has been our tech vendor business. And our primary business, as I talked about earlier, is selling to operating executives in the various functions that we serve and helping them with their Mission Critical Priorities. Because of where we sit and because of the value we provide there, technology vendors get real value out of our products and offerings as well. And again, we help operating executives on the technology vendor side with their Mission Critical Priorities, but they are different, right? So they are about capture of market, developing great products, and things of that nature.
The tech vendor market has undergone a significant recalibration over the last several quarters after the post-pandemic bounce or bubble, whatever you want to call it. And so as that retrenchment has happened, where many large technology companies have been going through significant and multiple layoffs, and many small technology companies have not been able to get funding, run out of money, et cetera, that has put a pretty significant pressure on our contract value growth in that space. And so order of magnitude, that technology vendor contract value represents a little less than a quarter of total CV and is now growing in the low single digits. Over the medium term, there's no reason why that part of the business can't and won't get back to 12%-16% growth, but that is the biggest impact on overall contract value growth right now.
And you found over time that you talk a lot about CV, contract value growth. That translates into organic revenue growth without a hitch.
It's the best forward-looking indicator we have for future revenue growth, future free cash flow growth, future profitability. It happens to be what I would characterize as a killer metric for us, which is why we are so focused on it.
Okay. Perfect. It's no secret that Gartner is a real kind of sales-oriented culture. The salespeople have quotas. It seems that you guys count on sales growth just driving Gartner Group growth. How do you know what the right ratio should be of how much a new salesperson should bring in? And what does that mean for headcount going into next year?
Yeah, so we have developed.
Sales headcount.
Sales headcount. So historically, for a number of years, we grew sales headcount 14%-16% per year pretty consistently. And CV growth was roughly in that range as well. But when you factor in wage inflation and things of that nature, basically our sales cost is always going to be growing faster than revenue or CV, which put a lot of pressure on our overall operating margins. Back in 2019, we made a modest pivot in how we think about sales force growth. And our framework now for sales force growth is if our target is CV growth of 12%-16%, we're going to target quota-bearing headcount growth of 8%-12%. So essentially a four-point gap between CV growth and headcount growth. Why?
That's a positive.
It's a positive in that.
Get it done.
If we can get it done, and the reason we're doing that is one, 8%-12% headcount growth is still healthy net headcount growth. Two, it's easier to digest and operationalize 8%-12% growth versus 15% growth. And three, it sort of normalizes sales expense as a % of CV. So it puts less downward pressure on overall operating margins, and so that is our framework, and so if you think about 2024.
Have you had nice positive gaps like that in the past?
Well.
It's a nice positive.
So we made that pivot in 2019. We entered 2020 with that as our goal. And then the pandemic happened and all bets were off. And then there was the post-pandemic bounce and our growth rate accelerated, so all bets were off. And then we had to catch up in 2022, so all bets were off.
2020. Yeah.
So I'm hoping that 2025 is a "normal year." But we believe that the combination of modest productivity gains, growing headcount about four points slower than CV are the ingredients to 12%-16% CV growth and modest margin expansion each and every year.
Yeah. Okay. Open up for questions.
Hi, Tony.
Hi, Tony.
Good.
Oh, thank you.
Just dovetailing on that last question, how does Gen AI and the improvement in productivity, you mentioned small increases in productivity, presumably given that your cost structure is a lot of labor, that should help. I know it's early days, but can you sort of dimensionalize what that could do to that productivity and for you specifically at Gartner?
Sure. So like everyone else, we have been well, back up for a second. So we've been leveraging AI in various forms for a long time. The Gen AI wave and opportunity, like everyone else, we are experimenting and building use cases and testing those use cases across the board. On our earnings call last week, Gene talked about one of the more promising use cases. What I would caution is when we're looking at productivity enhancements right now, we're seeing modest incremental productivity gains.
My philosophy is if we can do a lot of modest incremental gains, they add up over time. The example Gene talked about on the call last week was for our senior-level service people, one of the things that they do is they want to make sure they are current on whatever we're producing from a research perspective so that they can speak to their clients and summarize those things. We've built a Gen AI tool that can do that for them so instead of having to read everything, they can now query our LLM, which is crawling all of our IP, and they've found it really, really valuable. It's a modest productivity benefit. In fact, our belief is it just frees up more time for them to spend with their clients, which we believe is a net positive from an engagement and retention perspective.
We continue to look for other opportunities to leverage AI broadly and Gen AI. The one I just described is the most promising use case that we've got going right now. But we continue to.
Are you counting on that in 2025? Like when you say 8%-12% sales growth versus 12%-16%?
No. No. So again, will it help salespeople over time? I think so, right? So we can let them have access to that same tool. Should that make them more effective sellers and retainers of our business? Absolutely. Is it dialed in?
You're willing to prove it first and then you have to.
That is generally our philosophy, yes.
Other questions? Must be other questions. We still have two minutes. Conferences have been performing well. Could you just mention what's driving that and has it fitted to your medium-term framework? I remember you saying it's 10% of the business. And also, are those really just knowledge sessions, client benefits, or are those also business development forums?
They're both. So conferences is a great standalone business, but we're not in the conferences business because it's a great standalone business. We're in the conferences business because it's an amazing complementary catalyst to our research business for a couple of reasons. So one, it's just great branding and marketing. These are big conferences. They make the news. They're out there. Two, they are primarily client conferences. And so any engagement is good engagement. High-quality engagement correlates to stronger retention. When our clients go to conferences, they retain at higher rates. And then your point as well, they represent excellent business development opportunities for us, for new clients, because going to a conference is amongst the best proof of concepts that we can deliver to a prospect around the full value of Gartner Research.
So I know I didn't really let you say what the other 10% of revenues are. You said 80%.
Consulting, yes.
Yeah, and I think in consulting, you have something called Contract Optimization. What's that?
Contract Optimization is a small piece of the overall consulting business where we help clients and advise them on saving money on large purchases. It's a contingency fee-based business where we only make money if we save them money and they actually sign the deal. We talk about that business being a little variable because it's reliant on deals, us saving money on the deals, and the deals actually getting over the finish line for our clients.
Okay. I think that's where we'll end.
Awesome. Thank you, Andrew.
Great. David, appreciate you joining us.
Thanks. Thanks for having us. Thanks, everyone.
Okay. And if anybody wants a data book, it's up here. Thanks, everybody.