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| Shore's
Research, Commentary and Consulting Receives Prestigious
Recognition.
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Market Magic: The Financial Market
Data Industry Tries to Tailor Itself for Better Times |
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10 January 2005 |
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O the tales of woe that have bled forth from financial
market data vendors these past several years. While the
worst of the damage seems to have passed, it leaves many
wondering what future this industry - now USD 7.11 in girth
according to
Shore's latest research - will be as the
financial marketplace continues to wrestle with lean and
competitive times. Wishing for an uptick in the markets is
not enough to stave off the bears at the door of most
market data vendors. It will take a fresh look at what
really makes a profit in today's financial content
marketplace to turn the tide - and some hard-nosed
decisions that some may be hesitant to make. |
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The global
financial securities industry isn't what it used to be. What
once was a gentlemen's profession punctuated by the clacking of
ticker displays and long lunches at the club has given away
largely to hyper-efficient trading "factories" with on-floor
cafeterias. Only in a handful of inefficient markets and
higher-up circles do people putter around at leisure with
prospective clients while the pink-slipped legions struggle
with career changes. Drinks down at
Harry's? You must be joking. Or dead.
The game has never changed at its essence
- it's still about trusting those with whom you execute
business - but the hyper-efficient nature of what supports that trust has changed profoundly. Government regulation in
many markets has whittled away the layer of consciously
exclusive content to a very thin layer and sent market data
vendors scrambling for finger-thin advantages. To support these
efforts the efficiency of financial market data delivery has
never been higher - and the fates of financial market data
vendors rarely lower. As detailed in Shore Senior Analyst
Jack McConville's new report on the financial market data
industry the USD 7.11 billion financial market data
industry may have wriggled its way out of the worst bleeding of
the post-dot-com-slash-9/11 debacle but like the rest of the
financial industry it's largely treading water waiting for the
next wave to develop.
The few surviving market data players -
now down to Bloomberg, Reuters and Thomson Financial for the
lion's share of the business - hope that they can wait out the
tide by continuing to press on richly featured workstation
solutions that will roll out high-margin sales as trading
floors expand. But the very efficiency of these solutions
in increasingly global markets and competing offerings from
systems specialists such as SunGard will help to limit the
potential upside from any recovery. Content efficiency for
efficiency's sake has won, validating our three-part
model
of content value: content with technology and little human
input or value chases a never-ending spiral of commoditization,
a lesson that other content sectors should study carefully. If
you're an aggregator trying to be more efficient than a pure
I.T. shop, most days you're going to lose.
But does this have to be the final fate
of a once-leading industry? Not really. In the ashes of
market data burnout are signs of how the industry can plot a
new path to increased profit margins - and more robust times
ahead. Here are a few offbeat and provocative thoughts as to
where the financial market data business could be turning next:
- Leave the ticker business to the infrastructure
companies. I realize that this may sound like suggesting
that General Motors leave the car business, but it may take
such a radical rethinking of the business to get it
restarted. Such small differences in ticker performance
differentiate one market data from
one vendor to another and such small advantages exist over
direct exchange feeds in an IP-centric and XML-normalized
delivery environment, it could be the time for them to leave
the tickers to companies focused on pure infrastructure
plays. Market data companies need to stop
spending money and time on market data products that don't
deliver margins - or client loyalty - and focus on new ways
that content can add value to financial transactions in
professional circles. Standard & Poor's
swapped ticker provider Comstock for CapitalIQ's leading
analytic solutions and seems to be none the worse for wear.
- Bring back the pigeons. You'd think that a
leading-edge content company like Reuters would have been
founded on another era's leading technology. But no; it was
bone-simple technology - carrier pigeons - that Julius Reuter
first used to bridge a
gap in the telegraph line being built between Frankfurt and
Paris. In other words, while execution advantages go
to the most efficient technology, the real margins go to those who
know how to exploit inefficient technologies effectively.
For example hedge fund managers have become expert
information arbitrageurs in the past few years by developing
advantageous insights from otherwise common content via content
mining technologies and content analysis tools. Market data vendors need to
reposition themselves as content service providers, creating
opportunities out of content tailored to very specific and
transitory market opportunities and moving faster than any
one financial institution can to grab the best of them. That
gap in the telegraph line only lasted a few months, after
all.
- Bring back the human touch. The early history of electronic financial market data is
stocked with odd little devices that were
tailored to work the way that traders think. Alpha-ordered
keyboards, weird clanking displays - with limited technology
to fill the gaps in their clients' needs market data
companies did a lot of listening and a lot of manufacturing.
Today the bean counters to financial firms have limited
physical funkiness in market data to those who still get to
use a Bloomberg keyboard at their trading turret. With
Blackberries peppered around Wall Street like latte cups and
a widening array of consumer devices delivering standardized
content you'd think that
market data vendors would catch on to the fact that a
trade show filled with look-alike flat
panels is just not getting people juiced any more. Shore sees content sees as a combination of
information and experiences: unfortunately the sensory
uniqueness of typical professional financial content systems has slid down to a near-oblivious
level. Having some
neat patented and industry-specific information appliances that can add
some sorely needed 3-D human element to electronic content may
not please the bean counters at first but with a bull market
brewing it's time to start thinking about designing some "gee
whiz" into financial content that can add Apple-like flair to a stale user
environment.
Better times are ahead hopefully for market data vendors,
but they'll turn out to be pretty lean times if they continue
to trend towards off-the-rack content drabness when they need
to get that tailored suit panache rolling along. Fasten your
sewing kits, it's going to be a bumpy recovery.
-
John Blossom
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