(FORTUNE Magazine) – Objectivity should be the analyst's stock in trade. In the best of all worlds, analysts on Wall Street and at tech-industry research firms would spend their time giving unbiased, educated opinions about companies, markets, and trends. But in this world, filled as it is with dot-com money blowing every which way, objectivity seems a luxury few can afford. Analysts of all stripes--from Morgan Stanley's Mary Meeker on down to lowly researchers at the likes of the Aberdeen Group--increasingly derive a portion of their compensation, directly or indirectly, from the companies they cover. That helps put pressure on the quality of their work and encourages them to become more like cheerleaders than independent observers.

Let's be honest. It has always been hard to know how objective analysts really are. Consider who butters their bread. Wall Street investment banks compete to provide corporate finance services to many of the companies their analysts report on; firms such as Meta Group and Jupiter Communications sell consulting services and research to many of the companies that their analysts cover. Such basic conflicts have existed for years.

Internet mania exacerbates the problem. With scores of companies going public each year--many of which may be dogs--investors are hungry for guidance. Yet the sheer volume makes it harder for analysts to become truly expert on any one. Marvels a Net marketing executive: "It is amazing to see some of the folks that are quoted as experts, even in your publication." Star analysts with solid reputations such as Meeker, Merrill Lynch's Henry Blodget, or DLJ's Jamie Kiggen must contend with the overload too. Each of them "covers" 35 stocks or more. They do so with much help from their research "teams"--like 17th-century Dutch Masters, the works that bear their signature are often not entirely of their own hand. "It is the same way any management situation would work," explains Blodget. "There are ten companies I am closely involved with, but I am responsible for everything."

Besides the overload issue, the reason the objective value of the research is under siege is that it is no longer clear exactly whom Wall Street analysts are trying to serve. Traditionally, their primary audience has been large institutional investors that demanded unbiased, high-quality advice. But now analysts are increasingly answering to another master: corporate banking. With the competition to handle the ever-increasing number of Net IPOs, analysts have become increasingly important in landing those lucrative deals. Bill Burnham, an ex-Internet analyst at Credit Suisse First Boston and now a venture capitalist at Softbank, puts it bluntly: "In the technology world, there is no banking relationship without the analyst." The analyst is judge, jury, and executioner when it comes to deciding whether to pursue a company as a banking client, and it is the analyst who has the closest relationship with the company after the deal is done.

"This can collapse into a situation where the analyst becomes a spokesperson for the firm he is analyzing," warns Mathew Hayward, a professor at the London Business School. His research shows that companies get higher ratings from analysts they bank with than from analysts they don't. One example: Soon after Banc of America Securities underwrote a follow-on offering for theglobe.com, its analyst at the time, Alan Braverman, initiated coverage of the stock with a buy rating. The stock now trades below its initial offering price.

Trying to determine the validity of such reports is easier if you're an institutional investor who has been trained to read between the lines or who can simply pick up the phone and ask for the straight dope. But what about the investing public, which may have access to these same reports (thanks to the Internet) but doesn't have access to the analysts? It's not as though they can get a special Cap'n Crunch decoder ring to help them figure out what an analyst really means.

Keith Benjamin, another ex-Internet analyst turned venture capitalist, sympathizes. "The retail audience is groping for any information on this unprecedented number of new stocks," he explains. "The analyst has now grown in stature from providing advice to institutions to being a beacon for FORTUNE or CNBC. It's dangerous because it's impossible to give the same amount of detail in context or tone to retail investors."

So much for Wall Street. According to many Net execs, getting unbiased market research presents an even more difficult challenge. Analysts at many info-tech research firms are compensated according to how much "consulting" work they can generate. A fed-up Internet CEO reports, "If you pay them $10,000 to $30,000, it seems to me you have nice things said about you. It's a little like doing business in a foreign country." Stuart Read, until recently VP of marketing at Palm software company AvantGo, says, "Some companies are great about paying the money and getting covered. Call me jaded, but that is the way I understand it works."

With more and more revenues coming from consulting, analysts are under pressure to meet with and write about companies that are clients. As a result, "You have to take every piece of research with a grain of salt," says Paul Johnson, a former analyst at International Data Corp. who is now director of market research at CMGI. Harry Fenik, head of Zona Research, points out an even more disturbing trend. "The Internet has created a new monster," he says, "not as controllable or visible--analysts own stock in many of the companies they cover." This can make the analyst "overexuberant" about a company. Fenik tries to avoid this conflict as much as possible at Zona, but he cannot completely squelch the practice, because if he did, "we would not have anyone working here," he says (a boilerplate disclosure is printed on every piece of Zona research alerting the careful reader that such a conflict may exist). For the record, Fenik says this practice is much more rampant at other, bigger shops. How reassuring.

--Erick Schonfeld