Tuesday, August 9, 2011

Open Letter to Geoff Beattle, Tom Glocer and Bob Daleo

With the dramatic changes at Thomson Reuters and a long time former employee who still has a soft spot (must be my Canadian ties), I thought I'd offer my advice to the senior executive as they assess what to do next with the firm.  I'm not going to name people here or offer my opinion on who is best for which roles, but simply to offer a possible organizational structure for the new Financial Professionals and Marketplaces group.  As always, comments are welcome - enjoy!

As a long-time former employee of Thomson Reuters (over 14 years), I took little pleasure in seeing the changes announced last week.  It has been a difficult period following the acquisition of Reuters by the Thomson Corporation and it has not been made any easier by upheaval in the world's financial markets and economies.  However, change to the organization was necessary to meet the changes in Thomson Reuters customers and the marketplace since April 2008.  I have no skin in the game, as it were, and speak only as someone who hopes to see Thomson Reuters continue to grow as an organization and reach the potential we all saw in the days following the acquisition announcement.  With that in mind, I humbly propose the following changes and formal structure for the new Financial Professionals & Marketplaces group.
  1.  Create a unit focused on top global investment, multi-service banks.  Banks have grown increasingly complex and as a service provider, Thomson Reuters needs to dedicate focus to them.  Institutions like Goldman Sachs or UBS are not only global, but have investment banking, asset management, wealth management, prime brokerage and prop trading groups.  Trying to serve them with a Chinese menu of services from a number of sales and business unit groups makes no sense.  Address it.
  2. Unify the Research portfolio.  Research is a transactional business now.  Sell-side, buy-side and independent providers need better end to end management of the research services they offer and consume.  New issues of compliance and readership liability need to be addressed for this market.  Further, a more sophisticated retail class is looking for more insight and an opportunity to invest in thought leadership, based on editorial excellent exists.  Merge the Investment Banking and Investment Research groups dealing with research and address it in one capability.  Having it fractured creates chaos and competing motives.
  3. Hedge Funds are unique - treat them as such.  A good move was enabling the Enterprise group and Sales & Trading to work together to deliver a hedge funds trading service.  Put  the quantitative capabilities from Investment Management (including Starmine) and from S&T to create a group focused on Hedge Funds.  Follow that by moving out all direct customer datafeed services into the new Enterprise group.
  4. Mutual Funds are a big enough business to stand on their own.  At the end of 2010, approximately $16 trillion dollars according to ICI sat in global mutual funds.  Consolidating your view of mutual funds allows you to both deliver into the US market as well as address international opportunities (Islamic Finance funds, BRIC funds), and be flexible enough to look at strict asset-class and multi-asset class funds holistically.  As well, consolidating allows you to integrate front and back office much more effectively leveraging assets within existing Sales & Trading, Investment Management and Wealth Management groups.
  5. Merge the M&A and Deals activities into the Professional group.  M&A is not a financial activity - it is a legal activity.  Underwriting and lending are legal activities.  Move the unit to the legal businesses, specifically the newly formed US Law and/or Business of Law units.  The Financial unit competes with Lexis Nexis, OneSource and other nascent legal competitive offerings, so move the entire business to compete more aggressively
  6. Don't Sell Risk Business - Sell Corporate Services.  At a time with management of risk is becoming the key issue thanks to Dodd-Frank, you want to sell the business?  Ask yourself this -  are the businesses of corporate investor website hosting, web-casting, corporate communication services and business intelligence services really businesses you ought to be in?  Your better served leveraging your data through the Enterprise division than trying to build tools and services outside your main business.
  7. Get serious about your alliances business.  Third party data distribution constitutes about 10% of the ex-Investment & Advisory business.  The business is high-margin, low cost and high retention - why not focus on it?  Its not the threat to your desktop business as many insiders would let you believe.  Ask the customers - they love this business and would want you to do more here.  Carve a separate unit to show dedication.  Your customers will respond positively - and your competitors will hate you.
 The result of these changes would be an organization along these business lines:
  • Global Financial Customers - global multi-service banks
  • Hedge Fund Customers - hedge funds and fund of funds
  • Investment Management Customers - asset management firms and mutual fund companies
  • Research & Advisory Customers - wealth advisories, private equity and venture capital firms
  • Strategic Alliances - in-bound and out-bound content and technology partnerships for the desktop and support market transparency
As well, you will need a horizontal group addressing the various functional needs from a desktop/workflow solution stand point.  Within that horizontal, have the following 'capabilities':
  • Transaction Solutions - delivering order management, trading and market execution capabilities across all asset-classes
  • Risk and Compliance Solutions - delivering the next gen of risk and compliance solutions for the front office while supporting back-office needs thus unifying the two groups
  • Analytics and Tools - delivering next gen analytics and tools including visualization and quant tools for hedge funds, traders, as well as performance valuation tools for asset/portfolio managers,
  • Mobile Solutions - encompassing the next gen of applications and services for non-tethered users
  • Collaboration Solutions - providing next gen collaboration tools for buy and sell-side collaboration, intra-company communications and collaboration including research access, control and distribution across all sources and consumers
The result is a simplified business with clear focus; capabilities become 'shared services' to be leveraged by each business unit; central management of the strategy sits firmly within the unit, yet flexibility to address unique regional needs exists; clear accountability for business growth or capability development is set; focus on alliances - both content and technology - to hasten time to market, improve acquisition returns and meet customer needs.

With these changes, the existing business lines are broken down and reformed in clear vertical stacks, allowing sales and the business unit to be aligned on customer types.  Further, instead of separating front and back office in some customer groups (as today's hedge funds are for example) the business can take a unified view on delivering end-to-end solutions.

Enterprise Solutions can focus on its core competency - data management and distribution - and can seamlessly fit with the new desktop alignment for all customer types.  Further, by centralizing the alliance business within the new desktop group, commercial and alliance strategy can be meshed with each desktop unit, thus addressing potential channel and revenue conflicts.  Enterprise can continue to focus on data management, distribution alliances to further build out their core capabilities.

These changes will mean selling off the Corporate Services business.  The web casting and corporate communications business would have a number of potential buyers (Cisco & PRNewswire come to mind) and the investor website hosting and IR desktop business would draw interest from exchanges as well as number of niche web site providers

The business intelligence portion of the Corporate Services business, is in a highly competitive market.  Competitors such as InfoGroup, Jigsaw (backed by Salesforce.com), Dun & Bradstreet/Hoovers and ZoomInfo on the information side and Business Objects, Cognos/IBM and Informatica from the technology and tools side, not to mention the hundreds of niche players, create a very crowded market for Thomson Reuters to operate.  A better strategy would be through building content-based alliances to fill gaps in coverage by the other information players or fuel the advanced tools the technology companies offer, rather than trying to deliver packaged application solutions.  

Another change would be to break the current Sales & trading structure to merge into these new business units.  With a more focused horizontal capability group delivering transactions and connectivity solutions, each segment can easily incorporate those tools as best serving their customers.

The final change, would be moving the support of solutions for mergers, acquisitions and underwriting (deals) to the legal business.  Although not trivial, the expertise of the Legal business in addressing this unique workflow will allow for new solutions around deals (such as virtual deal and clean rooms) to be incorporated into a law firm's overall business.

This is my view based on the current state of the Market group's customers.  As we've seen, events can lead to significant changes to how customers operate and are structured.  Thomson Reuters remains a strong brand with valuable assets, but aligning those assets are key to success.  I believe my proposed changes to help further that alignment.


One final personal note - two former colleagues of mine passed away over the weekend.  One, Peter Jackson, died suddenly on August 5.  The other, John McHugh, suffered a massive stroke a couple weeks ago and passed away Saturday afternoon.  

Both were gentlemen in every sense, never speaking harshly of anyone and always offering to help a colleague.  Both had a willingness to learn and expand their knowledge.   I had the pleasure of working with John for a number of years and I'm glad I did.  Peter, was a mentor, helping me with my first blogging attempt while still at Thomson Reuters, challenging me to push boundaries.  I am a better person for knowing them both.

Join me in keeping our thoughts and prayers with both men and their families as they cope with their tragic losses.

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Monday, August 1, 2011

2011 - Check In on Predictions

August 1 - can it be the summer is nearly gone and the year over half way gone?  It is true and as a result, I thought I'd take a look back on my 5 fearless predictions for 2011  and see how I've done.

Prediction 1 - Organizational Shake up at Thomson Reuters.  I guess I got this one right.  After one minor adjustment in February, the much needed shake happened just a couple of weeks ago.  More changes are sure to follow as the Woodbridge team look deep into the organization.  Whether the changes turn around lack-luster performance in some of the units remains to be seen.  We'll weigh in once more becomes available.

Prediction 2 - Factset expands into Investment Banking with more gusto.   Ok, I guess Factset hasn't done much here.  In reading through their quarterly releases, sell-side business has been 18% of new revenues since early 2010.  They remain arguably the choice desktop for portfolio managers and researchers and continue to make in-roads within M&A functions.  However, if they did more to tie the buy and sell-side together through research and advisory tools and collaboration, they could hit 20 to 25% growth.  For now, this is a miss, but to reach a billion dollar company, diversification of their portfolio of products is needed and Banking makes the most sense.

Prediction 3 - InfoGroup enters into financial services.  This might be a 2012 actuality as opposed to 2011, but signs are there.  The company, under Clare Hart, has sold off a couple assets and Gemma Postlethwaite has brought on board ex-Thomson Reuters I&A content strategist Christian Ward, who's work in the financial data space is well known.  With the pending changes at TR, I would expect Ms. Postlethwaite and Mr. Ward to poach a few former colleagues for InfoGroup to set the stage for an aggressive 2012.

Prediction 4 - Market data accelerates to the cloud.  Well, this one was true, and as expected it wasnt a named vendor but an exchange that set the bar.  NYSE Euronext made a couple announcements the first part of the year which showed the exchanges commitment to the cloud as a technology solution for the industry.  In particular, their announcement of a "Community Platform" in cooperation with VMWare and EMC.  As I noted in this research report in partnership with Saugatuck Technology, this move has tremendous upside for customers and NYSE.  Will more exchanges follow NYSE's lead?  It remains to be seen.  As for vendors, they seem to be lagging well behind.

Prediction 5 - Apple acquires Salesforce.com.  This one hasn't happened (yet) but it still remains appealing.  As noted by Business Insider, Apple has over $76 billion in cash on its books, more than the US government at the time of this post.  Saleforce.com market cap is only $19 billion.  Apple hardware and Salesforce.com software/platform make an ideal combination for the enterprise.  Salesforce.com's annual conference is scheduled for August 30 to September 2 and each Dreamforce they have a major announcement.  What will this year's be?

Of the 5, 2 have been correct, 1 is leading to be correct and the other two are still out - not bad.  With another 5 months to go, here's hoping I go 5 for 5.
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Wednesday, March 16, 2011

Customers - To the Cloud

Apologies readers for being away, it has been a busy few weeks.  Over the past month, we've seen exchanges begin the consolidation dance - again - and several of the largest financial services firms begin to re-think their technology and data collection infrastructure.  The current supply chain of data is on the verge of severe disruption, and will likely change the structure of the industry.

For today's post, we'll focus on the customer side of the equation, (the demand-side if you will), and we will focus at the top of the food chain- the top 25 of so firms.

On the one-hand, we are seeing these customers more than ever recognizing that they have over-invested in data and data management solutions and are looking to lower that investment.  Cost control has always been a driver but what's different is that these firms have technology - cloud technology - as enabler of change to the way they acquire, store, manage and deliver that data out to their user population.  In the past, customers relied on their Market Data Distribution Systems (MDDSs) to transport data around the enterprise to applications and users.  The primary use was for their trading applications and businesses and as latency became more critical to success, they invested in direct feeds to exchanges and used vendor feeds primarily as back-up/secondary service and used the these vendor feeds to power off-trade floor applications - or in many cases simply used the vendor applications and supplemented with niche ISV solutions.  Many firms built multiple infrastructures centred geographically to support their local business units - many since leveraging internal/private networks to feed data from say New York to a user based in Sydney was not efficient and carried with is high costs.  In essence it was cheaper (and less risky) to build redundant systems and service users locally than centralize the effort and distribute out to the edge.

Today, cloud technology, lower bandwidth costs, increased network efficiencies and security improvements has altered this model.  In addition, users are increasingly mobile, pushing their access point from inside to outside the firewall.  As a result, the old distribution and network architecture is out-dated and being replaced by one which is centralized, cloud-based and mobile.  Thus firms like State Street who have invested in a massive architecture redesign to embrace the cloud expect to realize over $600 million in savings annually AND increase efficiency and user satisfaction.

And State Street is not alone.  Deutsche Bank, UBS, Northern Trust and others have publicly or privately announced programs to drive more and more of the collection, storage and distribution of data assets to the cloud.  In a webinar yesterday  hosted by Waters Magazine on the cloud, Elliot Noma, Founder and MD of Garrett Asset Management stated flatly that without the cloud his firm would not exist.  This is not uncommon as more and more hedge funds and asset management firms leverage the utility cost model of the cloud to build their business (more on these firms another time).

However, what is not talked about much, is the net impact on REVENUES for data and technology vendors as a result of these programs and the new way firms are started and operate.  Assume for a minute each of these top 25 financial firms realize a savings of $100 million - one-sixth of State Street's target - that's a contraction of technology AND data spend of $2.5 billion.  The pie for the thousands of data and application providers just shrank by nearly 10%.  Expand that over the tens of thousands of customers across all market segments and the market for data and technology could shrink 20 to 30%.

And folks thought the 2008-09 recession was hard on data and solution providers.

But some might question - will customers realize these savings?  Short answer - yes.  It should be fairly straightforward actually.  Staff reductions will factor as well into the cost savings (State Street expects nearly 5% staff reduction) but the bulk will be through data and infrastructure savings.  By eliminating redundant data acquisition fees, (two groups in two different geographies buying two fundamentals feeds for example), buy eliminating MDDS infrastructure that served non-trading applications, and ripping out desktops and replacing them with mobile-based platforms, each firm will realize tens if not hundreds of millions in savings. 

Another source of savings will be the applications these firms will use.  With lower costs to build, test, deploy and support application built in the cloud (regardless of there being public or private cloud infrastructures), firms can build many of the sophisticated applications they once relied on vendors/ISVs for at a cost that is significantly lower than before.  Some firms expect to have as much as 50% of new technology spend to be on cloud-based services.  Given that the data used by these applications will be in a cloud architecture, it is a natural fit for these applications to be cloud-based.

The final cost savings - and likely most deadly for the data aggregators - is the push to connect directly to data sources.  As firms have realized, their investment in direct exchange connections has paid off.  Although there is a higher initial investment in building and supporting the exchange connections, firms have learned they gain greater control of the interface with the source, they get better performance, and they get better support.  Firms are starting to realize that this 'model' can be expanded to non-latencey sensitive data as well.  Many times as pointed out in prior posts, firms increasingly see less value in the 'normalization' myth and want raw data from their sources.  This means some of the services introduced by vendors, (such as entity management) will need to be done by customers but again cloud-based technologies and ISVs specializing in data management solutions (such as Asset Control), make this process easier to run by customer's themselves.

Firms will increasingly look to leverage their direct connections to power their data warehouses as well as seek new connections to pull raw, 'un-managed' data into their centralized repositories.  This too will lead to further cost savings on data spend and shrink the market data pie.  Spurred on by their customer's demand, exchanges are increasingly seeking to monitize their historical and reference data assets more and more.

All in all, customers are getting smarter in their data and infrastructure strategies and are seeking to leverage cloud technology and other best practices (such as direct-to-source connections) to build the next generation market data stack.  The result is substantial, real economic pressures that force data aggregators and application providers to truly show value and differentiation.  

Next time, we'll look at the supply-side of the industry - the data owners themselves and the pressure they are placing on the aggregators.

Tuesday, January 18, 2011

Predictions for 2011

Happy New Year dear readers and I hope 2011 is filled with success for you all.  With the New Year come resolutions and predictions and I've read more than a few.  So staying with the theme, I thought I'd venture a few predictions of my own on the information and cloud industries just for fun.

Prediction 1 - Organizational shake up at Thomson Reuters Markets.  Although the A-Team group's Andrew Delaney has been on this since mid-last year, I think this year is where changes finally occur.  An influx of external talent into the Enterprise and Sales & Trading organizations, a major sales re-org kicked off this year and poor performance by some of the Investment & Advisory segments leads me to think some shuffling is due.  Sources also tell me of a general hiring freeze through Q1 of 2011 which also has preceded organizational changes in the past, seems to indicate some shifting of the deck-chairs.

Prediction 2 - Factset finally expands into Investment Banking with more gusto.  Reading through the recent Factset filings indicate they have been steadily investing into their stable of content assets with high value into the IB space.  Enhancements to the ex-TF Worldscope data (now called Factset Fundamentals), new issues, M&A data as well as other PE/VC data sets, seem to indicate they are ready to go after the junior banker/knowledge worker space.  They might not have all the necessary assets for the senior banker but their partnership with Dow Jones supports that sub-segment.

Prediction 3 - InfoGroup enters the financial services space.  Clare Hart, CEO of InfoGroup, is too smart and too experienced not to.  Add to it her recent hire Gemma Postlethwaite from Thomson Reuters to run products and content, tells me they are shifting from serving only the sales and marketing segments.  Ms. Postlethwaite has significant experience in the Investment Banking space and built the latest Thomson Reuters Banking desktop product.  As well, her experience in managing the data alliances for the Investment & Advisory division of Thomson Reuters more recently, gives her insight into the other competitors and their relative content strengths.  Its a good hire and indicates to me Infogroup to make a push into financial services, specifically in Investment Banking before year end.

Prediction 4 - Market data accelerates into the cloud - and not through big name vendors. As I've mentioned before, smaller cloud-based 'data vendors' are starting to appear to support off-trade floor uses of market data.  This is the year one or two make their presence known.  While the name vendors - Thomson Reuters and IDC mainly - invest in a 'market data cloud' themselves, I expect firms of all sizes look to other providers.  Firms are already realizing the 'standardized' data product of the vendors is limiting and in often interferes with their data strategies.  Access to raw, "as prepared" data directly from sources, rather than the packaged data through data vendors, will become increasingly in demand and impact on big-box vendors adversely.  A couple firms will start to break-through and will start to erode large vendor revenues for off-trade floor data needs.

Prediction 5 - Apple acquires Salesforce.com.  With Mr. Jobs health in question, Apple will need a strong voice and leader to support if not replace Mr. Jobs for the overall good of the company.  As Microsoft has shown, putting a good operations guy in the number 1 seat doesn't lead to maintaining a leadership position and innovation.  These company traits start at the top and Mr. Benioff's resume is solid enough to replace Mr. Jobs.  As I said in a prior post, back in June of last year, the tie-up of Apple and SFDC complete both firms and puts them as the sole competitor to Microsoft, outside of search and gaming.  SFDC sees the iPad and Apple technology platforms as the clear winner and placed a firm-wide bet on the Apple products.  However, should Mr, Jobs condition be debilitating, and we hope it is not for nothing else than for him and his family's sake, Apple will need to find a new head as the firm faces increased competition on its core businesses and seeks to expand into the enterprise market.  That search for a new CEO should start and end with Mr. Benioff.

There you have it, 5 fearless predictions for 2011.  Appreciate comments on any or all of them, but we will see in 12 months time if any are actually accurate.  If anyone has any predictions of their own, love to hear them.

Until next time....