(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.....

The End of No Software?

The other day, I caught a story how Salesforce.com - the pioneers of No Software and Cloud Computing - are building an app for the iPad and Android devices both expected in 2011.

That's right: the leader of the cult of no software is developing - gasp - a software application.

Clearly I am missing something. Yes I understand how important mobile computing is and the rest of it, however, I am at a loss to understand why Salesforce.com would step out of the cloud and onto terra firma in the world of deployed software. I am wracking my brain to understand why they would do this. Their applications and platform work just as well on Safari and Chrome as they do on IE and Firefox so why divert valuable development resources into building a closed box application on the iPad.

Then it struck me - might some merger or the like happen between Apple and Salesforce.com some time in the very near future?

It makes perfect sense (to me anyway). Salesforce.com are completely complementary to Apple in so many ways and together they are devastating. I'll explain:

Apple has:
1) Great devices
2) Great application platform for mobile computing for consumer apps
3) Great ecosystem of firms building consumer apps
4) Great customer loyalty and numbers
5) Market cap of over $240 billion
6) Strong central leadership and a CEO who is a visionary and thought leader

Apple hasn't:
1) Trust of enterprises/large corporations around security or application development
2) Any real revenue from corporate businesses
3) A clear successor for Steve Jobs (sorry - they don't)

Salesforce.com has:
1) Great application platform trusted by large corporations
2) Great customer loyalty and growth
3) Market cap of just under $12 billion
4) Strong central leadership and a CEO who is a visionary and thought leader

Salesforce.com hasn't:
1) Any consumer-based revenue
2) No device business
3) A tough road to go from $1 billion in revenue to $5 billion as planned

So what if you put these two firms together, what do you have:
1) A firm that can deliver end to end applications - browser or device-based
2) A huge ecosystem of partners building apps for either businesses or consumers
3) A firm ready to merge consumer and corporate apps into one channel
4) Technology trusted by businesses and consumers
5) A firm to really compete with Microsoft and Google and win - big
6) A successor for Steve who is 10 years younger than he is

I might be enjoying the glorious Friday weather too much but this makes way more sense than those Google-Salesforce.com or Oracle-Salesforce.com rumours/stories we've all heard. Imagine - the power of the device leader with the cloud computing leader. Wow.

It would be an absolute game changer for the industry and complete the shift to cloud/mobile computing. Businesses would be able to buy in more heavily into the mobile cloud story with the combined entity. Parker Harris and his team would address any security concerns with the OS and take the Apple productivity tools into their cloud with relative ease (that's my guess). The ecosystem could tap into two channels - consumer and business - and start to develop huge revenues through each.

RIM would be done and really have no choice but to sell to Microsoft to give them a viable device business. Microsoft would need to double-down on Azure and hope their .NET developer community can win out over the Apple OS and Java developer community that the Apple-Salesforce.com entity would carry.

If there is something to this hypothesis, it would be a good year or so away (didn't Salesforce.com say they would have an iPad app by mid-2011) and does assume Mr. Jobs is ready to pull back a from running Apple much like Bill Gates has done with Microsoft. I think Mr. Jobs concern is he has a Steve Ballmer type ready not a Steve Jobs type. No offense to Mr. Ballmer but he isnt in the 'visioning thing'.

Marc Benioff is - big time. There are parallels between Mr. Jobs and Mr. Benioff in that Mr. Benioff worked for a time at Apple, has been the slayer of giants and mover of mountains in leading the cloud computing charge. Mr. Jobs we know has done similar in the mobile space. And both have a passion for getting Microsoft.

What if......

Poisoned Apple?

Sitting here in Times Square between meetings, gazing at the ad on the Nasdaq board for their new iPad app a thought occurred to me - if AT&T has introduced a new 2-tier data plan (which I predicted 6 months ago to my ex-colleagues at Thomson Reuters), won't this have an impact on the usage (and value) of this app?

In looking at the new AT&T models, it appears most users will stay under their $25/month plan - but those numbers are not with devices running multiple apps simultaneously, something only recently can mobile devices do on the AT&T network. The usage described in their press release is very single-threaded and does not factor streaming updates to devices (if it does I missed it) which begs the question I asked my ex-colleagues - if the wireless carriers govern last-mile delivery of information, who holds the power for mobile computing?

Add to it the proposed alliance of over 20 of the largest carriers to build an app platform themselves, have information firms offering apps on the Apple devices jumped the gun? Have they now boxed themselves and have those who have yet to move into mobile computing have an advantage?

Have, as I suggested to my ex-colleagues, info providers made a error in jumping on the Apple bandwagon, only to be hung out by carriers themselves?

I'm sure many will say, no, Apple rules, but Apple has a terrible habit of imploding at their height. I'd argue they are on the verge of doing it again. For example:

- they aggressively push a closed, proprietary platform which they offer at a premium over their competitors

- they aggressively sue competitors or competitor's partners to defend their near-monopoly position

- their strength rests on the harmony of hardware and software

- their products follow a linear path and are not significantly different then their flagship product

Looking at Apple today and Apple of 20+ yrs ago, I see a similar company behaving the same way. Will history repeat? We'll know in 5 years......

...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....