Opening Cross: Data Democratization Requires Revenue Diversification

It’s the Super Bowl: America’s annual celebration of overpriced a-holes—not the players, but the tons of hot dogs of dubious origin that will be consumed during the game. It’s almost enough to put me off my food, which would be a shame because so many mouth-watering commercials air during the game. In fact, for a Brit who still doesn’t get American Football, the commercials can be the most entertaining part of the event.

After all, companies pay millions of dollars for a 30-second slot, with many saving their best ads for this one annual event. But the return can be worth it: In 1999, Victoria’s Secret reportedly received a million visits to its website within one hour after a Super Bowl commercial.

One company that no doubt would have loved Super Bowl airtime is AlphaTrade, a minor vendor of market data displays for active traders and retail brokers that had previously struck sponsorship deals with various sports organizations. But after financial problems with those organizations (two of which sued for non-payment), AlphaTrade soon ran into its own financial problems, filing for Chapter 11 bankruptcy protection in 2011, and now finally liquidating altogether.

This despite the fact that the clients targeted by AlphaTrade—retail brokers, advisors and active traders—are now the subject of much activity from other vendors, who realize that targeting an audience of institutional users in the hundreds of thousands, with an install base dominated by two main providers, pales in comparison to an audience of millions of potential consumers, plus the professionals that serve them. And with staff cuts still in force across the financial industry, the big money may no longer be in selling tools to banks in large enterprise deals, but in finding ways to bring those tools to a wider, retail-focused audience in the name of democratizing trading.

Other stories in this week’s issue bear out this trend: For example, Norwegian data vendor Marketmind is putting the finishing touches to its Taurus terminal, which banks and brokers will be able to white-label to provide a custom data and trading platform that clients among advisors, stockbrokers and even retail investors can configure to their own needs.

And while these products may not quite rival Bloomberg’s Professional terminal or Thomson Reuters’ Eikon—which was developed with the specific intent of building a product that would appeal to a new generation of financial professionals used to web tools and social media, rather the clunky terminals of yesteryear—the tools they provide have far more in common with screens used by professionals on trading floors than they do with many of the antiquated models used to attract retail traders.

If you want to attract flow, give traders the tools and ideas that encourage them to trade, rather than waiting for them to come up with their own, says Kevin Ashby, chairman of Rising Sum, a startup analytics provider that is also targeting a range of end-users from investors to advisors and small hedge funds by seeking to strike distribution agreements with brokers serving that client base.

And even Nasdaq’s move to consolidate its market data and index groups—having already consolidated its market technology and corporate solutions businesses earlier this month (Sell-Side Technology, Jan. 18)—in a bid to create a more “diversified” business smacks of a recognition that its clients are no longer just the institutions with the big budgets to spend on direct feeds, but increasingly the average investor who may not be trading huge block trades, but feels empowered to trade equities, exchange-traded funds and options.

The question that all this activity raises is how long current commercial models for market data can last if the industry’s focus shifts to consumers without thousands of dollars to spend per month. And in that theoretical future, revenue diversification that rewards a higher volume of lower-paying customers might prove a saving grace for startups struggling for traction, or existing players able to adapt.