3.4 Business of Information, Aggregation, Fragmentation & Disruption
Irrespective of the future success of ‘The Cloud’, there already is the question of the relationship between the sources of data and the end users.
As we have discussed previously there are multiple drivers, but two stand out as they are related.
- For the big banks, they need to get costs down to compete but are locked into legacy systems which use proprietary codes and inputs. These are hard to change, but if the dollar benefit is big enough they will make this happen. It is very hard to displace proprietary information once it has become embedded in large scale platforms with multiple applications on a global basis. There is often no effective way of knowing where information is really flowing to. Universality comes at a cost.
- Depth of market. This is a tough one, the universal vendors are quite simply a ‘one stop shop’. Theoretically, this supermarket approach argues that accessing multiple vendors is likely to be more expensive proportionately, and introduce chaos at the data governance level. However, where the growth in the market is, even if the average spend is higher, by selecting sources on their individual merit while resulting in higher average costs actually results in lower total costs, with the value of additional depth in the selected markets.This changes the dynamic for smaller financial institutions as well as smaller sources of data. It creates a new dynamic in terms of relationships outside the large financial institutions where total cost is under constant pressure, which paradoxically means sticking to the known can be a preferable option to the risk coming with change.
What it does do is create new markets for information and market data where the financial institutions invest in potentially better market data for the markets they invest in.
Summary & Forward Looking Market Data Strategies
There are strong and sound arguments for continuing to offer and subscribe to aggregated services. The sheer universe of data offered by the Tier 1 aggregators, Bloomberg and Thomson Reuters, and their Tier 2 brethren is unlikely to be replicated by anyone else, and for many financial institutions subscribing to aggregators is a logical strategy.
However, flexibility of choice introduces new elements of both fragmentation and disruption, which is fundamentally changing the balance of power in the source to vendor to consumer chain as the graphic below details.
Consumers of market data and financial information now have easier access to a wider range of sources, on both global and local levels. This creates new found freedoms when devising market data strategies, and most importantly, allows the consumer to adapt and change their strategies at times of their choosing, lessening their reliance on the whims of vendors, or even sources.