December 13, 2010

Inside Market Data - Special Report

Burton-Taylor: Annual Data Growth to Beat Expectations

Spend on market data products and services is set to rebound for 2010 overall, signaling the start of strategic spending on new initiatives, which had previously been curbed by the economic downturn, according to research from Burton-Taylor International Consulting LLC.

Compared to a survey earlier this year that predicted spend would be grow by 1.5 percent at most during 2010 (IMD, May 10), the firm now estimates that growth for the year will be in the region of 4.23 percent, for a total market value of $23.73 billion, says Douglas B Taylor, managing partner at Burton-Taylor.

"We saw momentum as the year developed, and some of the negative expectations about the economy weren't realized. I think information providers and customers reacted so swiftly in cutting jobs, budgets and tightening their information spend... that what we saw was a year of contraction and inactivity with a drop-off in terminals in 2009, then users of financial data began actively pursuing new strategies, which started driving demand again," Taylor says.

Asia continued to deliver strong growth through the downturn, with Bloomberg's revenue from market data overtaking Thomson Reuters in the region, and with all the major vendors showing growth (in some cases, substantial) in Asia - though the latest estimates show the US also returning to growth this year. "It seems like this rising tide is beginning to float all boats, not just Asian boats," Taylor adds.

In addition, spend increased across every market segment except foreign exchange - though bigger transaction volumes still made the segment profitable for vendors - with commodities and energy and investment banking showing the highest growth, at 11 percent and 8 percent, respectively, driven by demand from heavy consumers of commodities such as China and Brazil, and by growing deal volumes and assets under management prompting investment bankers and wealth managers to invest in more sophisticated tools in the search for alpha.

Vendors Mind the Gap
However, the research - which precedes a larger report that will be available in January and will provide more detailed data on revenues by different types of consumer firms and end-users - highlights the stark gap between the top two vendors and their closest rivals: Interactive Data in the US, SIX Telekurs in Europe, and Quick in Asia.

And despite some vendors achieving double-digit five-year compound annual growth rates-Taylor highlights FactSet Research Systems at 14.3 percent, Morningstar at 14.9 percent and Australian vendor IRESS with 18.6 percent five-year CAGR-none look set to mount a credible challenge to Thomson Reuters or Bloomberg without significant organic investment or acquisitions.

"Between them, Thomson Reuters and Bloomberg command 63 percent of the market globally, with another nine players with between 1.5 percent and
3.5 percent each, ranging from $300 million to $800 million in size," Taylor says. "So we will probably see more consolidation. But if anyone is going to step up and engage as a third competitor, they may have to hit that $1 billion to $1.5 billion mark... and it would take a long time for even the next-closest - Interactive Data - to grow to that size organically."
by Max Bowie