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22 August 2013

What Data Vendors can Learn from Apple

Today's article is by James van Bregt. The dissemination of information - data, statistics, news - is a vital part of the market. In this piece, James considers how the model may be changing.

I returned last week from my annual family summer vacation in southern Spain, having spent much of it in the shade, reading “Steve Jobs”, the authorised biography by Walter Isaacson.  I had never been a fan of Apple’s products, nor of its illustrious leader, but was persuaded by colleagues in the data vending industry that this business book was inspirational and a ‘must read’. The burning question for me was, why?

The Book of Jobs

As I read, it transpired that former colleagues of mine had also been inspired by Jobs. Having spent four years with Thomson Reuters (“TR”), working on the metals component of their Eikon desktop, it dawned on me that some in TR’s leadership must have read ‘the book of Jobs’ and bought the T-shirt. There were many similarities in the ‘Team Eikon’ management style, though perhaps without the crying to which their business hero was prone. 

My impression of the man remained unchanged after completing the book’s 600 pages; Jobs was given to hyperbole. However, I couldn't help but wonder what he would have made of the state of the struggling data vending industry and how he might have transformed it, just as he had the music business.

While I come at this from my metals markets perspective, I don’t doubt that many of the key issues apply not only to other commodities, but probably to most markets and exchanges as well. The landscape for these is generally dire and while Bloomberg and Thomson Reuters slug it out for ‘top tier’ clients -- the financial institutions that buy terminals in their thousands -- the truth is that the biggest banks are unlikely to regain their former glory anytime soon. I say ‘terminal’, though these days no hardware is typically supplied nor supported by vendors. The dealing room desktop is now a simple software download, installed on a standard PC. That’s a Windows PC and not an Apple Mac, of course…

Elephant in the Room

The elephant in the room is that the market itself is shrinking rapidly before their eyes. Then throw in the proliferation of smaller data providers in niche markets, offering data sourced via low-cost aggregators, as well as brokers offering their clients free Direct Market Access with live prices and, even, exchanges themselves, all distributing data directly via the web. The only customers in the market for terminals are the ‘professionals’ in the marketplace. But even here, the largest now require only data feeds to populate in-house transactional and reporting systems, while the view-only terminal becomes a thing of the past. So quite where this leaves these two high-end desktop providers one has to wonder.

Even at the lower end, the niche providers with staff levels in the low dozens can now concoct a custom XML feed for industrial users, delivered more quickly and cheaply than the Big Two can muster. Live feeds that are integrated into dynamic risk management software are no longer a mystery, even to metals scrap yard operators in the world’s industrial backwaters.

Arms Race

The premium data providers will counter that they offer access to hundreds of exchanges globally, analytical tools, calculators, real-time logistics mapping, deep history, tick data, news, research and secure chat functionality. Their content and functionality are continually being upgraded in a kind of arms race, firstly to outdo each other and secondly, to justify the hefty price tags they command from their premier clients. However, the reality is that only the most diversified of hedge fund analysts will ever use all of the toys in these expensive boxes.

Key Differentiator

The pricing strategies for the Big Two are radically different. TR’s Eikon for Commodities is a pared-down version of the Premium product, with users paying for any additional data they need. Bloomberg sells its terminals at roughly double the price -- one BIG price -- in which it includes everything by default, with the exception of certain exchange-levied live data fees. The curiosity here is that Bloomberg’s better analytics and broader datasets hardly justify the huge extra cost for the majority of users. No, their key differentiator is ‘Instant Bloomberg’ (IB), its closed, proprietary messaging platform. In terms of security, privacy – a touchy subject for Bloomberg, of late – and even functionality, IB probably lags TR’s Eikon Messenger and offers little that even free products such as Skype or Yahoo! Messenger don’t. With one not-so-small differentiator; the directory of 315,000 notable individuals that use it actively.

Bloomberg’s chat network rules because it was there first, having been launched in the early 1980s, years before most of us had email, never mind instant messaging. While this function may at the time have been no more than a handy gadget for young traders to socialise and advertise their hot hatchback cars for sale or to find a likeminded roommate, today it’s the lifeblood of trading. Another happy accident was that Bloomberg stemmed from the bond markets, a core business of investment banks. The largest players in commodities markets today are these very banks, while hedge fund managers too are mostly ex-bankers, so their data provider of choice was always Bloomberg. Consequently, if you have to be on a network that anyone who matters is also on, the answer is obvious. TR is trying its damnedest to change this, but most traders would rather part with a limb than voluntarily cut themselves off from the world’s most influential communications network.

What would Jobs do?

So, what would Steve Jobs do, if he were to set about shaking up the data vending status quo? The reality is that most of today’s customers need something else. The biggest players want wholesale feeds to drive their proprietary platforms, the analysts want industrial strength analytics, while everyone else wants just the data they need, without latency and via the cheapest means possible. And not many traders read news anymore of course, unless that includes textual data, such as interest rate announcements and the US Non-Farm Payroll.

Most users are currently forced to rely on a patchwork of services or they buy bundled data from one provider who packages selected services into a semblance of a single platform. Not one provider gives the user exactly what they need; just as cable or satellite TV providers bundle channels and force customers to pay for content they don’t watch, all in the name of providing ‘value for money’.

Plan for the Future

Unfortunately Steve Jobs isn’t here to show us how exactly he would transform the data market, but just as Jobs was a master of reiteration, rather than of wholesale new ideas, I don’t apologise for borrowing his concept of an ‘app store’ for financial data. Perhaps the future is a collection of apps, compliant with a standard such as iOS, Windows, or Chromium, licensed by me to be sold directly on my platform, where users can cherry-pick from a smorgasbord of data offered by a wide range of suppliers. These could be created by exchanges such as the LME and CME, while one might add the FX app from Interactive Data, analytics from CQG, precious metals rates from Fastmarkets, minor metals from Metal Bulletin and physical non-ferrous rates from MetalPrices.com. Just as Apple does today, I own the relationship with the subscriber; the data suppliers are responsible for and have complete control over compliance, maintenance and usage monitoring, while I take 30%. Sounds like a plan? 


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