Monday, June 23, 2008

In the Battle Between Thomson Reuters and Bloomberg, the Winner May Be the Cloud

A day that highlights world financial giant Citigroup's layoff of about ten percent of its workforce is a somewhat odd time to be running a profile of Thomson Reuters, but The New York Times has done just that. The article is entitled "The New Fight for Financial News," but of course the battle between Bloomberg and its perennial rivals now combined into a single company is fought on may levels well beyond the news front. Thomson Reuters CEO Tom Glocer likens Bloomberg in the article to the equivalent of Richard Branson's Virgin Atlantic airline shaking up the marketplace for transatlantic flights in the 1990s, an apt analogy on at least two levels. It's apt in the sense that Bloomberg forced its competition into many radical and painful changes to keep up with its growing market share - the new combined Thomson Reuters entity is just about toe-to-toe with Bloomberg for its piece of the financial information marketplace - but also apt in the sense that there's a new generation of competition that's putting both the financial information marketplace and the airlines on alert.

That new generation is not necessarily of the same type and heritage as either Thomson Reuters or Bloomberg. What impressed me most at the recent SIFMA conference and expo in New York was how the traditional financial information vendors are receding into the background as the technologists are coming to the fore. The exhibition floors were chockablock with networking technologies this year, both for low-latency automated trading services and for more general information and trade execution network services from vendors such as BT Radianz. Cloud computing was also on display at the SIFMA show from Salesforce.com, with a more aggressive and extensive display of its capabilities to support brokerage marketing operations. Also noteworthy was SDS Financial Technologies' moves to support more automated crossing networks for commodities and futures trading, helping to reduce execution costs and liquidity problems for a marketplace still tied to many face-to-face trading pits.

So while companies like Thomson Reuters and Bloomberg are going to continue to try to dominate on the desktops of investment bankers and portfolio managers for the foreseeable future, a lot of the action in financial information is taking place well away from the desktop and in the bowels of computer networks that support securities trading and sales. Not all of these stories are about the dominance of the Web as the cloud of choice - the financial marketplace has many specialized networks that support its sophisticated information-driven marketplaces - but certainly the concept of cloud computing popularized by the Web in which desktop technology is just an interface to sophisticated services from potentially any network providing information and execution services. Certainly the robust trading floor technologies developed in the past few decades will continue to be a part of this mix but with today's cutbacks by Citigroup serves as a reminder that we may be nearing the end of the era of big investment bank trading floors as the driver for measuring the success of financial information services.

With more and more workflows in securities trading having become fully automated in recent years it's not clear that the desktop-oriented services of companies like Thomson Reuters and Bloomberg are going to work out in the long run for high-growth information services. Instead, it's far more likely that more and more network-oriented "cloud computing" services are going to subsume more and more profitable parts of securities transaction support while information suppliers find an increasingly narrow range of clientele ready to spend handsomely on major desktop integration services. While the hedge fund trading of recent years hit speed bumps in recent months much as programmed trading caused hiccups in the 1987 crash, the ability of a small team of hedge fund managers to build dominant positions in a marketplace by mining information aggressively from alternative information sources not provided by traditional vendors should be a wakeup call to Thomson Reuters and Bloomberg that anyone can extract useful content from any cloud very quickly and effectively.

Major financial information vendors have had similar challenges in the past and have responded with valuable services to rebuild their position in the marketplace, but it's not clear to me that we're on another full-blown cycle towards that goal right now. I think that we're more likely to see cloud computing services gaining more and more power as they provide well-integrated information services to ever more concentrated and sophistated trading operations. I don't think that this means that Lehman Brothers will be moving back to its old South William Street HQ any time soon (now a cozy inn) but I think that we will be seeing the financial information industry looking more like it did in the 1950s than it did in the 1990s over the next ten years - with fewer and fewer direct product presences on trading floors and more and more integration into cloud computing services. There are opportunities there for Thomson Reuters and Bloomberg as well, of course, but perhaps not the types of opportunities that are driving their organizations today. In the meantime, congratulations to Tom for a great profile article.
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