Opening Cross: Providers Court New Ways to Carve Their Slice of Data Pie

Traderforce’s decision to shut down its market data business and concentrate on trading platforms for emerging markets reminds us that while the data industry’s addressable market extends to $25 billion per year, according to research from Burton-Taylor International Consulting (IMD, Feb. 6), carving out a sustainable slice of that pie when the largest vendors have already gobbled as much of it as they can is still a challenge.

The vendor—originally set up by a consortium of French banks before being sold to trading systems vendor FlexTrade in 2005—says its data business was simply not profitable enough. A major challenge for vendors in this space, as many startups can attest, is the cost of data and connectivity required before you can even begin to offer a service and generate revenues.

And it’s not always plain sailing for the large vendors, either: Thomson Reuters, which reported a 3 percent increase in overall revenues to $3.58 billion in its fourth quarter results last week, was hit by a $2.59 billion loss for the quarter overall as a result of a $3 billion goodwill impairment charge. The vendor’s Markets division (a structure that will change for future reporting cycles, following a reorganization last December) reported a 5 percent increase in revenues, with its Enterprise unit performing best, with 13 percent revenue growth for the year, and 9 percent growth over Q4 2010.

Thomson Reuters could also face more expenses as it prepares to defend itself in court against lawsuits from Wall Street Source and Famanet, alleging unfair business practices by Thomson Financial and Reuters, pre-merger. Regardless of the outcomes, trials are expensive propositions, with no guarantee of success, not to mention the cost of any reputational damage. And WSS chief executive John Albert believes that portraying Thomson Reuters as “the 1 percent” in a David-versus-Goliath battle will play to a New York jury in the current economic and political climate.

Among exchanges reporting financial results last week was Canada’s TMX Group, which saw a 10 percent increase in fourth quarter information services revenue to C$43.3, largely as a result of its acquisition of Atrium Network and a 4 percent increase in the number of professional subscribers to TMX’s real-time data.

The focus on complex analytics in this week's stories... serves to demonstrate that having the smartest tools—just like having the lowest latency—is no longer a nice-to-have, but is now the basic requirement to stay in the game.

However, like the exchange’s overall Q4 revenues and profits, revenues for TMX’s energy markets declined, though many expect commodities and energy to be a growth area this year.

But perhaps the real growth area will be analytics, across all asset classes. The acquisition of R2 Financial Technologies by S&P Capital IQ, StatPro’s continued addition of capabilities to its Revolution portfolio analytics platform, Dow Jones signing up vendor partners for its News Analytics sentiment analysis service, as well as Connors Group’s expansion of its The Machine trade signal generator to serve different user bases such as investment advisors, all serve to demonstrate that having the smartest tools—just like having the lowest latency—is no longer a nice-to-have, but is now the basic requirement to stay in the game.

But desperate times breed innovation, and those who aren’t fastest, or who don’t have the best analytics, may be those who—rather than sit on the sidelines—devise another strategy sufficiently disruptive to render them competitive. That could be applying practices that already exist in the most liquid markets to other asset classes such as energy, finding a new way to quantify news sentiment, or doing something else more efficiently, in a way that gives them a first-mover advantage while their rivals are still obsessing over latency and analytics. And I suspect that the next big thing won’t be one thing at all, but rather, an indicator that incorporates all the above, and perhaps more.