Not all financial information suppliers are suffering the outrageous torments of the big three vendors -- Quotron Systems Inc., Reuters Holdings PLC, and Telerate Systems Inc. -- as detailed in IMD's last episode. Despite the dismal economic outlook for 1991, a few bright spots remain.
Unfortunately, the business development outlook may be a lot brighter on the far (east) side of the Atlantic. The countdown to 1992's European Big Bang has been punctuated by the arrival of many new electronic exchanges and data sources, as EC member countries compete for financial custom. Europe should continue to offer superior growth opportunities in 1991.
Business development efforts will continue to target the flourishing derivatives markets as well as dealer markets in debt securities and foreign exchange. There will be continuing emphasis on addressing buy-side automation needs, including integration of news, quotes and historical data with portfolio management and trading systems.
Ancillary services development will also be high on the agendas of forward-looking financial information suppliers. Risk management, position keeping, proxy services, order routing and post-trade messaging can all add to basic data revenues and improve customer retention.
1991 is the year of the user. Consumers of real-time market data and decision-support products will be dictating system development projects more directly and with greater assurance. No longer intimidated by the complexities of value-added network services, the sell side of the street is forging its own links to data sources, transactional centers and investors.
Perhaps the best example of the increasing influence of users is EJV Partners L.P. Motivated by the need to control soaring market data costs and loosen Bloomberg L.P.'s grip on their clients, Citibank, First Boston Corp., Goldman Sachs & Co., Morgan Stanley & Co., Salomon Brothers Inc. and Shearson Lehman Brothers Inc. capitalized this new joint venture.
All six of the EJV partners are primary dealers that had been embargoed by Merrill Lynch & Co. until November 1988 from purchasing Bloomberg terminals (Micro Ticker Report, November, 1988). Since then, many of their own clients and traders have become loyal Bloomberg users.
Many observers say the EJV will share the fate of most joint ventures in the market data business; i.e., after squandering $100 million or more, it will disgrace its partners by melting into a puddle of mismanagement. But Bloomberg's success demonstrates the potential of a product designed and developed by users.
EJV's acquisition of experienced industry executives such as David Gertler from Salomon Brothers, Tom McDonald from Telekurs (North America) Inc. and Gerry Mintz from Telerate indicates the seriousness of its commitment. Sources say the firm recently attracted a second round of financing from its partners.
The EJV has some extraordinary resources to draw on. In addition to the analytic software and price data of its partner firms, the joint venture is expected to make the most of its family relationship with Quotron. By sharing ticker plant, network and software development resources with Quotron, EJV can minimize up-front capital outlays.
Unlike other major data vendors, QUICK faces little or no direct competition in its core franchise. QUICK is partially owned by its users, a combination of Japan's major banks, securities firms and exchanges. This relationship has a dampening effect on the growth of competitive services.
While other vendors are preoccupied with competition, management restructuring and depressed market conditions, QUICK intends to use 1991 to step up its global campaign to recruit new data contributors. Once QUICK has done the groundwork necessary to compete with Reuters and Telerate from a position of information parity, it has the deep pockets required to launch and sustain an effective global marketing program.
QUICK has many of the same tools that built Reuters: a strong global news organization, a secure electronic information franchise, financial strength and a substantial presence in systems integration (through Hitachi Corp.). But in those areas where Reuters still has an edge -- network infrastructure, international marketing and price contributor base -- QUICK intends to narrow the gap in 1991.
One of the firms with closest links to institutional investors is Thomson Corp., owner of the recently reorganized Thomson Financial Networks and Thomson Financial Information groups. While 1991 may not be a banner year for TFN's First Call and other equity research services, it should see good growth at ILX Systems Inc.
With competitive pricing, more-than-adequate functionality and a grab-bag of ancillary messaging services, ILX has a competitive product. It also has substantially lower overhead than its big-league competitors. And because ILX's data collection and distribution architecture is comparatively advanced, it's in a position to accommodate customer growth without commensurate growth in operating expenses. Incremental growth will be high-margin growth.
Both TFN and TFI are said to be working on new products that may arrive in 1991. TFN's "Institutional Footprint" project should consolidate Thomson's influence on buy-side desk tops, and a hush-hush initiative to develop a new workstation-based fixed-income product will leverage Thomson's strength in municipal and asset-backed securities data.
More than 10,000 screens installed and still no one has come along to burst Bloomberg's bubble. As Bloomberg accepts the mantle of The Company That Can Do No Wrong (from Reuters) it looks forward to yet more revenue growth in 1991. Expansion programs in Europe and South East Asia, especially the former, should begin to pay off.
Merrill Lynch's decision to turn Bloomberg loose to market its risk management system gives Bloomberg another revenue generator while entrenching its product more deeply among the dealers that decide to use it. On the buy side, Bloomberg's portfolio management system should do the same.
Looming competitive threats from Reuters, EJV and others may cloud the horizon, but until they appear, Bloomberg continues to lengthen its lead. 1991 will see continued aggressive data acquisition in the areas of cash energy and money markets. The Public Securities Association price feed (see related article) should bolster Bloomberg's reputation as a stand-alone source of U.S. government securities prices. Bloomberg's distribution of interdealer broker treasury prices has heretofore been limited to primary dealers specifically permissioned by the brokers.
There is pressure on Bloomberg to leapfrog itself technologically, both in terms of network development and delivery platform. Look for a LAN-based implementation of Bloomberg in 1991 and continued embellishment of the standard platform.
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