The multibillion dollar industry you've never heard of: How do the top investors get their edge?
Expert networks are on track to be worth over US$2 billion by 2022, accelerated by continued double-digit growth that show no signs of dwindling.
Despite this, you’ll be hard-pressed to easily find someone who even knows what an expert network is.
In 2018, there were 50 expert networks globally and that number has grown to over 120 in 2021.
Despite its more recent explosive growth, the industry was founded over two decades ago by the Gerson Lehrman Group (GLG), which raked in more than US$550m of revenue in 2019.
A call is set up between the expert and the client for a fee of up to US$1,200 and on the call, the parties exchange compliant & publicly available knowledge around a specific topic to further enhance the client’s research.
The industry has undergone drastic changes during its relatively short lifetime, and at Pitch Networks, we’re expecting six massive shifts that will shape the expert network industry in the next 12-24 months.
There hasn’t been much technological innovation in the industry within the last decade.
Only a handful of expert networks like Prosapient have invested into building great in-house tech to reduce industry inefficiencies and allowed providers to scale without the need for large delivery teams.
Large expert networks used to monopolise the latest technologies through in-house solutions costing millions, but recent years have witnessed new tech providers enter the industry, offering bespoke solutions to players outside the Big 4 (GLG, Third Bridge, AlphaSights and Guidepoint).
Finally, there’s Exlink, an independent expert network software provider. They offer a customisable and white-label solution taking care of conferencing, data analytics, project management, automated scheduling, an expert database and expert registration, allowing expert networks to manage their entire business in one ecosystem.
Technological breakthroughs in this space will continue to accelerate, which improves the overall experience for all parties involved and encourages more competitive pricing.
Barriers to entry are being broken down by independent software providers.
Thus, it would be prudent to expect new market entrants from players already servicing the same client base with different offerings.
The cost to create tech that is user-friendly, has robust compliance frameworks and doesn’t require large amounts of manpower was the moat contributing to large expert networks’ defensibility and was also the largest barrier to new entrants.
Investment banks and independent research houses now have a clearer path to market they can act on if they wanted to, especially with an existing client rolodex, familiarity with the similar regulatory environment and a strong brand in providing investment research.
For investment banks, expert networks could be the replacement for the now economically defunct broker research model. Simply put, traditional sell-side research is dead.
The synergies were apparent around clients, services and the regulatory environment– UBS can refine their investment research with expert insights while Lynk benefits from UBS’ referrals to large clients.
Expert networks are also partnering up to strengthen their global presence, as shown in 2020 when Japanese provider VisasQ and US-based Deepbench announced their partnership and the former’s investment into the latter, and in 2021 when the former acquired US-based Coleman Research for US$102m.
We foresee that activity like this will increase in the future as midsized and local expert networks look to expedite their growth.
Expert networks are now constantly popping up globally, and we have seen the number of players in the market increase by 2.2x since 2018.
However, expert networks like Knowledge Gate Group are moving away from the traditional model by carving out specific niches like healthcare, where it is one of a few of its kind in an increasingly saturated industry.
Another niche provider is Ask Wonder, which offers an expert Q&A service that tackles questions like ‘What is the size and breakdown of the mattress industry in the United States?’ and ‘What percentage of people whip out their phones to check social media while they're waiting in line?’ with an answer for you in your inbox by the time your alarm goes off at 6:30am.
For the longest time, incumbents have been able to charge steep margins with hourly consultations generally priced above US$1,100.
However, with an increasingly competitive market due to developments in tech that have reduced costs, the market has already been pressured to drop prices. Some expert networks in lower-cost markets are already offering expert calls from US$500, a 55% decrease from the norm.
Pricing pressures are already especially apparent in Asia, where global players are unable to maintain the prices they have been using in line in the US and in Europe.
However, this may apply pressure on fees paid to experts as the businesses look to pass this reduction onto their network, which could reduce willingness to advise. We expect greater variations in pricing, with an overall falling trend based on the two pressures.
The organic double-digit growth the industry has seen for over a decade will continue as the industry expands into new verticals through diversified product offerings. An example of this is Third Bridge’s Forum which launched in 2011.
Reduced barriers to entry and increased awareness through the entrance of well-known brands will result in new end markets for the industry. Expert networks’ applications extend beyond investments. When there is an abundance of knowledge in one place and a need in another, expert networks remove the imbalance by bridging the gap.
These changes should be viewed positively and play into the maturing of the industry, which comes with increased awareness and more players.
The past two decades have built the foundation for expert networks, and the next two will pave the way for it to become a leading player in the market research industry.
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