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Suing Gartner Won’t Solve Your Magic Quadrant Problems

October 27th, 2009 | 4 Comments | Posted in Management, Product Management, Venture Capital

On May 29th of this year ZL Technologies sued Gartner Inc. and one its analysts, Carolyn DiCenzo, over their placement of ZL Technologies in the 2009 Email Archiving Magic Quadrant.  It is interesting to note that Gartner published their 2009 Magic Quadrant 10 days earlier.  In their original complaint ZL asked for over $1.696 billion in general and punitive damages, plus attorney’s fees and disgorgement of any of Gartner’s profits from the unlawful acts claimed by ZL Technologies.  The actual legal documents are fairly amusing to read.  You can read a full copy of the complaint here, a copy of Gartner’s Motion to Dismiss, ZL Technology’s Response to Gartner’s Motion to Dismiss, and Gartner’s Response to ZL Technologies Response

According to their website “ZL Technologies is a recognized leader in the development of innovative software for email and file archiving, legal discovery, compliance, records management, and secure messaging. Built upon a proven, GRID-based application platform, ZL applications are designed to manage the digital assets of today’s leading enterprises.  The company employs about 60 people and it is estimated that they generate between $9 million and $12 million a year in revenues.

The ZL Technologies complaint can be summarized into four major parts.  First, because ZL Technologies was placed in the Niche quadrant, large scale enterprises interpret that ZL and the ZL Products are not good choices for enterprise email archive applications.  Second, Gartner’s assessment that Symantec’s products were the undisputed leader is flawed because of technical inadequacies of Symantec’s products and the true technical superiority of ZL’s products.  Third, Gartner’s methodology for calculating placement in a Magic Quadrant is flawed and elevates ‘marketing puffery over serious technology” and is not transparent or fair.  Finally, prospects reactions to Gartner’s reports and discussions with the primary email archiving analyst, Carolyn DiCenzo, have resulted in ZL Technologies being eliminated from consideration during RFPs and purchasing cycles. 

It is important to put ZL’s position in the Magic Quadrant into perspective.  There were 17 vendors included in the 2009 Magic Quadrant.  Two vendors were ranked as leaders (Symantec & Autonomy), one was ranked in the Visionary Quadrant (Mimosa Systems), and 14 were included in the Niche Quadrant.  ZL Technologies was ranked about 10th overall from an Ability to Execute perspective and 7th overall from a Completeness of Vision perspective.  If you a need a refresher on the details associated with Magic Quadrants, review this Gartner document here

The central problem with ZL Technologies and their placement in the Gartner Magic Quadrant is that ZL has, after 10 years, been unable to scale their business to match the competition.  While the ZL Technologies products may have superior features and capabilities, and the market leaders may have all of the deficiencies cited in ZL’s legal filings, the fact remains ZL Technologies remains an extremely small player in a market dominated by huge technology companies.  Take a look at the following table that lists the major vendors in the Email Archiving MQ, their total revenues (not just email archive related), as well as the number of employees:

Gartner1

With the exception of two small private companies (Mimosa Systems and C2C Systems), all of ZL’s competitors are 20 to 1,000 times the size of ZL.  ZL targets large scale enterprises with greater than 10,000 employees.  Companies that size want to buy solutions from vendors who have significant size and lasting power.  Folks are not too worried that Symantec or IBM are going to go out of business.  Betting your long term email archive strategy on a 60 person firm is a different story. 

Success in the technology marketplace at the end of the day is measured by revenues, profits, and customers.  If the market is buying much more of your competitors’ solutions that yours there generally are reasons for that.  ZL claims that the reason they are where they are in the marketplace is because of Gartner.  If only customers could see the superiority of the ZL solution without any of Gartner’s biases, then ZL would be as large as CommVault, Quest Software, or even Symantec.  ZL Technologies is trying to pin all of their problems on the ‘evil’ Gartner and by doing so discounts the capabilities of their prospective customers to effectively and honestly evaluate solutions they wish to buy.  If ZL Technologies had their way, all products that were in reality ‘technically superior’ would be placed in the Leaders quadrant, regardless of their commercial success.  Wouldn’t it be great to see products like Word Perfect, VisiCalc, Lotus 1-2-3, Turbo Pascal, and dBase III make a comeback?

I’ve been briefing Gartner and other analyst firms who cover the enterprise software market for over 16 years.  I have represented five different companies as either the VP Product Management or the VP Marketing.  I have participated in four different magic quadrants for multiple years since 1994.  I can appreciate what it is like when your firm is not in the ‘Leaders Quadrant’ and what it takes to steadily improve your ranking in an MQ.  While I may have been frustrated at times with my company’s placement in a specific MQ, we eventually found a way to improve our position.  With this litigation, it appears that ZL has recognized that they cannot achieve market leadership based on their own execution.  Rather than try and sell their way out of this problem, they decided to resort to the courts and hope for a big payday.  I am not an expert on the various legal arguments that ZL Technologies asserts in their litigation, but I am hard pressed to see them prevailing either in the short term, or in the long term.  I think it would have been better for them to invest the $300,000 to $500,000 they are going to spend on this unsuccessful litigation to hire a top email archiving sales rep from Symantec and take the battle for true market leadership to the marketplace instead of the Federal court system.

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4 Responses to “Suing Gartner Won’t Solve Your Magic Quadrant Problems”

  1. Michelle Jones Says:

    I agree they could have used the $300k to get a better sales person, participated in expos, conferences and given more presentations. The CEO of ZL must be an inexperienced person in the tech industry. Maybe he should move out of this industry.

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