February 16, 200909

Inside Market Data - Special Report

Data Industry Seeks Third Player for New ‘Big Three’

FactSet Research Systems, Interactive Data Corporation and SIX Telekurs saw the fastest growth among major data providers in 2008 as the market seeks a third competitor to break up the duopoly of Thomson Reuters and Bloomberg, which both saw slight growth in market share, according to new research from Burton-Taylor International Consulting LLC.

The merged Thomson Reuters now holds 34 percent of the global market for financial information and other services provided by data vendors, including trading room platforms and trading systems, against Bloomberg’s 24 percent. These figures compare to 23 percent for Reuters, 22 percent for Bloomberg and 9 percent for Thomson Financial in 2007.

Douglas B Taylor, managing partner at Burton-Taylor, says that the slight growth in market share at the big vendors was due in part to stagnation in other parts of the market, as well as the difficulty among the smallest competitors in withstanding the tough economic climate.

However, Taylor says market participants are looking for a third competitor to challenge the pricing power of the top two, similar to the period following the demise of Bridge and before Thomson stepped into the void. Interactive Data, FactSet and Telekurs experienced strong growth in 2008, and now hold global market shares of 3.3 percent, 2.5 percent and 1.2 percent, respectively. In 2007, market share was 2.6 percent for Interactive Data and 1.5 percent for FactSet, while Telekurs’ share was not separated out from other smaller vendors in last year’s report.

While FactSet has maintained its focus on analytics and customer support, Interactive Data has been competing heavily on price to steadily build a global organization, and Telekurs has taken a methodical approach in choosing markets carefully and selling into that market at its own pace before moving on, Taylor says.

To be a legitimate third competitor, a provider would have to provide quality data and customer support, and be able to offer these globally, as well as demonstrate a commitment to be a competitor, which could include investments in infrastructure or new product lines, Taylor says. FactSet, Interactive Data and Telekurs have all exhibited those attributes, which have contributed to their growth, he adds.

Prior to the Thomson Reuters merger, Reuters and Bloomberg competed closely in revenue, with Thomson in third place, bringing in slightly less than half the revenue of the top provider, which created a “healthy triumvirate.” Now, assuming revenues of around $7 billion to $8 billion for Thomson Reuters, and around $6 billion for Bloomberg, Taylor says he would like to see a third player with revenues in the $1.5 billion to $2 billion range to establish a viable alternative.

The race for third place is still fragmented, with no other providers having reached the $1 billion revenue mark. Interactive Data is currently closest, at around $750 million, followed closely by FactSet at about $575 million and Telekurs at about $270 million. The vendor emerging for that third slot must clearly rise above other competitors to reach a “tipping point,” where enough customers perceive it as the clear third choice, Taylor says.

 

Forward-Looking Statement

 

Looking forward, Taylor says Bloomberg may find it harder to identify new sources of revenue, if—particularly in challenging economic times—clients decide that they do not need everything included in Bloomberg terminals and opt instead for products that provide limited data at a lower cost. And though Bloomberg is increasing its focus on datafeeds as a potential source of revenue, balancing a datafeed business with its terminal business is a commercial framework that is still new to the vendor, he says.

In contrast, Thomson Reuters may be better placed to weather the economic challenges because of its diverse product lineup, including terminals, datafeeds and transactional products, which also have varying price points, says Taylor. He sees the vendor’s focus on low-latency feeds and machine-readable news as key growth areas, but says Dow Jones will be a significant competitor in the machine-readable news space.

by Vicki Chan