Thursday, August 11, 2005

Bloomberg's PhatPipe: Race to the Bottom?

The recent announcement of Bloomberg's PhatPipe financial market data feed comes at an odd time for these kinds of products. Major investment banks are turning increasingly to direct exchange feeds for low-latency market data, even as vendors such as Reuters boast of sub-millisecond performance on their big pipes to keep up with the needs of computer-driven trading strategies. Why would Bloomberg want to step into this hornets' nest of competition to try to keep up with this highly commoditized side of the financial information business? To some degree the answer is: they're not.

While it's not improbable that Bloomberg may nibble a little market share from Reuters in the larger data feed installations it's more a matter of keeping up with the plethora of trading platforms that are driving a new generation of financial market analytics and electronic trading. The Bloomberg as a desktop unit is still a prestigious product and highly valued by those used to its ways and its depth of tools, but it may be facing a generation gap as traders become more used to more technology-driven interfaces into financial market information that are designed to solve more complex financial trading and analysis scenarios, oftentimes using information gleaned from sources other than traditional market data providers. Keeping these existing clients loyal to the Bloomberg name as they migrate onto new platforms is a key survival strategy, but not one that's likely to take a Reuters head-on any time soon for high-octane exchange-oriented trading.

At the same time the core of Bloomberg's unique strengths as a content network - its messaging service carrying a wide range of off-exchange deals and matrix-priced fixed income data - are also giving way to rapidly strengthening electronic markets that rely less on the "I am not afraid to pick up the phone to make a deal" players for bonds and other less liquid markets. So the more liquid these markets become via trading networks, the less important these unique Bloomberg strengths become. There's no choice but to follow these more open markets onto more the more open platforms increasingly preferred by traders active in these less time-sensitive markets.

Given Bloomberg's ongoing strength as a market brand it still has a huge reservoir of budgeted-in strength at major institutions that is not likely to fade for a few years. But as more deals begin to flow to a broader array of off-exchange execution channels and flow through back office infrastructure provided by other vendors, the niches in which Bloomberg represents a unique and undisputed channel between buy side and sell side institutions are going to narrow fairly quickly. Going the "big pipe" datafeed route is a necessity to ensure their brand presence in these changing times, but it could represent the beginning of a "race to the bottom" for all market data vendors as a new strong player makes itself available for price wars.
Post a Comment