(R)Evolution is in the Clouds....

As I stated several weeks ago, there is a certainty for fin serv customers to move to the cloud for most of their mid and back-office operations data needs as well as move as much of their non-trading applications.  Mobility and cloud platforms/technologies are maturing at a rate that is much faster than incumbent application and information vendors can deliver new solutions on their closed, proprietary technologies.

Further, as exchanges and other information creators begin to realize the power of the cloud, it will become imperative for information vendors to react and stay ahead of the trend and differentiate themselves by something other than simply being an information 'aggregator'.  New paradigms are emerging that will apply pressure to entrenched companies and disrupt their businesses. 

Recently, NASDAQ has released a tick-on-demand service through Xignite, which offers simplified access to NASDAQ tick data through a standards-based API.  Xignite, for those who do not know them, are what I consider one of the 'next-gen' information service providers.  The addition of NASDAQ brings the total number up to 33 exchanges or exchange groups, covering Asia, North America and Europe.  In addition, they have connected to other data sources such as Morningstar, Dow Jones, Cantor, Tullett and others to offer a very robust list of information assets.

Unlike traditional vendors, Xignite specializes in 'plug-and-play' data access.  Whereas traditional vendors like Thomson Reuters or Bloomberg have built a desktop business and allowed data access through APIs to be an off-shoot of their core business, Xignite has come without the baggage of a desktop interface.  Preferring to be the plumbing for non-latency sensitive data, Xiginte (and their emerging competitor Flexisphere), have subversively gained traction where the incumbents aren't - data solutions for off-trade floor and corporate web solutions.

This model very much is in line with where the world is moving for non-latency sensitive applications.  Now, an application builder for an iPad has only to connect to the Xignite data cloud and deliver a wide range of content into a highly functional application.  Further, since the incumbents are directly focused on a ground war within the application space, Xignite, through continuing to build an extensive inventory of data assets, could easily become a data-arms dealer to the off-trade floor market, which is approximately a $10 billion business by my estimates.  This does not include other markets where financial data is important and widely used, such as the legal, business/corporate intelligence, etc. and other services such as public and private websites.

The lesson for the incumbents is this - your days are numbered unless you take a swift and painful change of strategy.

In the 80s and 90s you were the only games in town.  You had the technology advantage and you had the scalability to allow niche providers to plug into you and 'advertise' their content under your commercial terms and sometimes draconian restrictions which always favoured you.  Now, technology is cheap and those same, small, niche content owners, (like other industries such as advertising, music and a lesser degree televised programming), now have other means and channels to get to their customers and can interface more directly with them through things like social media.  Cloud-based technologies and services like Amazon or Xignite allow these firms to grant easier access to their information without an intermediary.

Now, to be fair, do I expect the incumbents to disappear overnight or at all - of course not.  They are all multi-billion dollar companies with some very viable businesses.  But there are cracks in each and some markets they serve are changing dramatically right out from under them.  But like Microsoft and Oracle when Salesforce.com finally proved the SaaS/Cloud model, the large vendors will need to pivot and alter their strategy to stay relevant. 

The key point is that for these desktop providers, they need to stop being the very thing they are - a product provider - and become a service provider.

While doable, it also is a great threat to their current economics and revenue.  The question for these providers is: do you have the right people to rebuild and revolutionize your business?  Microsoft had to re-think their very strategy and bring in several new people to redefine what Microsoft was for its customers and its future.  Some stayed, some left but they did change.

Next move is yours gentlemen.....

...Of Trojan Horses

Thank you for those that took the time to read my initial post - I appreciate it.

In my first post, I indicated that traditional information vendors Bloomberg and Dow Jones have taken a lead position in expanding their footprint through mobile computing. I also noted that both are breaking down the walls they have built up around their content, they have opened the doors to expanding their user base. However, I also noted there is a catch - a Trojan horse - in mobile computing. I'll explain:

If information vendors continue to focus on delivery at the edge to mobile devices, they will run into issues with the following: a) the device manufacturers and their unique standards and demands; b) the pace of innovation at the user/device level to increasingly devote limited resources into mobile computing solutions and away from core competencies; c) address the the ever-increasing combinations of browser, operating systems and devices by diverting even more resources into mobile computing solutions.

The net result is a firm either becomes 'locked in' to a mobile device ecosystem, and effectively cuts itself off from the others or they become trapped in an money pit of development, testing and QA to maintain a strong presence on each device/browser combination.

It could be argued that by adopting standards, a firm can play the field and rely on standards and user tastes to dictate the direction of what devices to invest in. As we've seen with Apple, many device manufacturers and mobile OS providers aren't necessarily interested in standards - other than their own - unless of course it strengthens their grip on the device market (more on Apple another time).

With Microsoft now making a serious play into the mobile market, you have at least 3 or 4 dominate operating systems and device platforms, plus an equal amount of browsers to contend with. So singular adoption of a leading manufacturer and platform isn't going to happen any time soon (plus I doubt the EC and DOJ will allow a single player without stepping in anyway, but that's another discussion too).

One escape for information vendors might be to build devices themselves - not a bad proposition, but unlikely. By building devices, they would by building another walled garden and perpetuate their exiting business model. Also, they would run into adoption risks due to the fact their existing user base has already adopted Apple or Blackberry or other mobile devices, and getting these users to switch to an unknown commodity would be near impossible. I wouldn't put it by at least one to try this strategy. Who knows, it might work - but I doubt it.

Most so far have chosen to build applications serving each mobile platform and ecosystem. The result is either a nice app but not one that generates any revenue, or one that replicates to some degree the desktop experience which is a fee service or bundled with their desktop service.

It will be seen how long they can sustain this approach, especially as users require more and more capability/functionality at the device level but have become accustomed to getting their 'app' for free. I've always questioned the value of the free services by companies like Bloomberg and Thomson Reuters. Free isn't a model they are familiar with and in my experience, they've shown a tendency with their pay products to put more and more content and functionality without corresponding fee increases. My suspicion is they will follow their same tendency and put more content into their free apps to maintain a presence.

This is the true trap of the mobile Trojan Horse. Unless there is a sound commercial strategy behind the freemium model, they will feel the pinch on their fee-based services. Customers will start to ask - why am I paying for something which I can get for free. Once this happens, that will spell the end of their walled gardens and they will need to figure out how to get those pesky Greeks out of Troy.....

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One final note - I think Bloomberg might understand this trap and has demonstrated such through a partnership with Major League Baseball.

They've created a Fantasy Baseball service through MLB.com which leverages some of the Bloomberg analytics to baseball stats to help Rotisserie players better manage their teams - a brilliant use of existing capabilities. Given a good percentage of traders - Bloomberg's core customers - play Rotisserie baseball, they've secured another way to keep their customers happy and attached to the Bloomberg brand. This is a fee-based service, and clearly they are showing value of their analytics outside of financial data - which strengthens their financial information desktops and differentiates it from their free services. Good move all around.

More on the implications of this another time.....

Castles Under Siege

As my first post, I have been struggling with where to start. Over the past few weeks, there have been some interesting events inside - and outside - the industry which I believe will change the way information providers operate to remain successful.

Inside the industry, the biggest move arguably is the announcement of Bloomberg to not only allow freer use of their proprietary symbology by industry participants but also their agreement with the NYSE/Euronext for the exchange group to use the BSYM, effectively replacing the exchange's own ticker symbol for datafeeds. These moves put Bloomberg at the forefront for the effort standardize symbology that the industry has been requesting for decades. Could BSYM be that industry standard?

Staying with the Bloomberg theme, Google has hired ex-Bloomberg FX head, Philip Brittan to run their Google Finance franchise. This would seem to indicate Google's desire to revamp their finance portal and 'professionalize' the experience. As well, Bloomberg lured a former senior Product Manager from Google to the Bloomberg multimedia team to drive Bloomberg's web, TV and mobile properties.

Could a 'trade' of sorts occurred between these two firms? Who knows, but it does seem to foretell of a possible deal between Bloomberg and Google for Bloomberg news through Google. Earlier this year, Dow Jones entered into a limited exclusivity arrangement with Microsoft's Bing search engine. In this action, Dow Jones also 'decoupled' themselves from Google's search engines. A deal by Google for the same level of exclusivity with Bloomberg news makes a lot of sense for obvious reasons - especially if Google is redoing their finance page.

Dow Jones has been busy lately, not only tying into the Bing search engine but also securing a deal with Factset to deliver its DJ Investment Banking product through the Factset terminal. This deal makes sense too given after tying to push its own desktop properties, it appears Dow Jones is focusing on its core assets - news and information - and start using channels to generate revenue.

For Factset, they have had some success in the Investment Banking segment but nowhere near the same success they had in the Investment Management market. This deal with Dow Jones strengthens them against both Capital IQ and Thomson Reuters and could lead to strong growth. My sense is neither Factset nor Dow Jones are done and they will be active in the coming months. What's driving these actions I believe is the current siege on their fortified walled gardens from the trends in mobile computing and users wanting freer access to information.

Apple's iPhone and iPad successes are based on one simple fact - people want simple and easy way to access and use information that is important to them right now. The Apple app ecosystem (outside of the games) is a list of information providers that have used Apple's platform, interface and customer network to generate millions for themselves and Apple. Everything from wine ratings, to restaurant guides, to movie listings, to books and newspapers are all applications driven by information. Dow Jones and Bloomberg I believe clearly understand that putting their information behind high walls cuts them off from the far larger and potentially lucrative handset/mobile market. They seem to understand that the rules have changed. The see smaller information aggregators making headway into these markets at their expense. Through innovative partnerships, clear commercial strategy around free and premium, these two firms are adapting to the changes in user behaviours and are seizing the opportunities mobile computing offers them.

It remains to be seen if this will pan out in the longer term for these firm since there is a catch - a trojan horse if you will - in mobile computing. More on that my next post....