Opening Cross: Data Industry Still Seeks Entente Cordiale

Max Bowie, editor, Inside Market Data

Forgive the stereotype, but the French aren’t known for being subtle when it comes to negotiation. When students protest fees, they take to the streets. When farmers and truckers objects to imports of cheaper—or potentially tainted—food from abroad, they block the roads. Whether or not you agree with the tactics, you have to admit they can be very persuasive.

So I was pleasantly surprised to hear about the panel discussions from our Paris Financial Information Summit last week, where instead of drawing a hypothetical Maginot Line to defend against vendor price increases, speakers from user firms stressed the need for cooperation and communication, and described efforts to help vendors understand their business, and how their organizations consume and use data.

But while this might help vendors set more transparent prices geared more towards firms’ needs in the longer term, firms are still battling current rounds of price increases. Some of these increases are making up for lost revenues during the financial crisis, when some vendors held off from raising fees in response to clients pleading poverty, and now that banks are making plenty of money again, vendors expect to do the same. But in other instances, some say vendors are simply tweaking policies to create more revenues, without delivering more value.

Even more worrying is that some panelists reported vendors using “take it or leave it” stances during negotiations. These may be isolated instances experienced by only a few firms, and may be the point at which the deal ceases to be economically viable for the vendor. But if that kind of approach is increasing, it signals that vendors may be less willing to compete for business, perhaps reflecting that some vendors are gaining an effective monopoly in some of the areas that they service. By “effective monopoly” rather than a literal monopoly as defined by the textbooks, I mean that a service may be so entrenched that it cannot practically be removed or replaced—this could be a legacy technology or a benchmark index that can be replicated elsewhere—so that even if a healthy market of alternatives exists, people are incentivized negatively to stick with what they know.

But does this foster the innovation that panelists said vendors will need to demonstrate in future to maintain and increase healthy competition, which in turn drives more innovation? Or should we expect a period of stagnation—with only a few distractions like the use of tablet devices for displaying data or trying to figure out how to monetize Twitter feeds—along the way? Not necessarily: while smaller providers are typically associated with being the drivers of innovation—for example, check out the news about MarketPsych’s sentiment dashboard, QuantHouse’s response to the need for pan-European best bid and offer data, and CFN Services’ continued efforts to leverage its network to create a platform of on-demand content and technology services—larger vendors must continue to chase their neighbors if they are to make inroads into their businesses, rather than just focusing on their own niche. Otherwise, we end up with one vendor in the front-office, one in the back-office, one for low-latency feeds, etc.—and I can think of nothing that would do a better job of disincentivizing vendors from competing on cost or service.

But it also requires a leap of faith on the part of consumers: When banks felt stifled by exchanges, they helped set up alternative trading systems. So if they want other vendors to step up to the plate, they will not only need to support them by committing to buy services, but may also need to help them take that first step. And with budgets remaining tight for now, the chances of finding investment to take a chance on either is still slim. So for now, it seems, firms and vendors will have to pursue that elusive Entente Cordiale while they figure out their longer-term battle plans.

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