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,
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.
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
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
Plan for the Future
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?