“There’s a great future in data. Think about it. Will you think about it?”
Nasdaq OMX Group Inc said on Monday it has begun selling real-time share data to the websites of Google Inc’s Google Finance, cable television network CNBC and News Corp’s Wall Street Journal.
now NYSE Euronext…
NYSE plans to launch the new product, called NYSE Realtime Reference Prices, on July 1 for a four-month pilot, contingent on SEC approval of the trial project.
NYSE will charge a flat fee of $100,000 per month for data derived from NYSE trades of NYSE-listed stocks. It hasn’t announced a fee schedule for trades on NYSE-listed stocks on other exchanges.
Exchanges need regulatory approval to sell market data to websites, and in January 2007, Nasdaq OMX and NYSE submitted separate requests to the SEC for the right to do so. The use of pilot projects allows the exchanges to go ahead while they wait for definitive approval.
(I must admit I didn’t know that (US?) exchanges needed regulatory approval to sell data…anyone know why this regulation exists?)
If the exchanges are to prove me wrong, they need to get this right. One of the most important and fundamental pillars of our investment thesis is that in (commoditized/liquid) traded markets, value will inexorably and inevitably migrate from transactions to data and fulfillment. The marginal cost of transaction matching in a digital age will come to equilibrium at the marginal cost of providing this service. Which ultimately will become zero. (I wonder if Chris Anderson will include this example in his book…)
But the good news is that data will become an ever more valuable asset. But not just any old data. I mean in the age of abundance – abundant data – surely this too will become free? Well yes most data, certainly most raw data, will be free. But as the amount and availability increases exponentially (to mind-boggling numbers – googols, ultimately googolplexes?) a small percentage (but large absolute amount) of that data will be very valuable. And even more importantly, the packaging will matter. More and more. Data floating in the ether is of no value to the vast majority of people: they need it packaged, delivered, enhanced (meta-data), contextually situated… and lead can be turned into gold.
If you don’t believe me, just ask the very smart guys that created Markit. This is a company that didn’t exist 5 years ago and yet is well on it’s way to being worth more than the LSE in my opinion (ie several billion dollars.) (Disclosure: I don’t own any shares – I sure wish I did – but was one of the original non-executive directors.) Or Riskmetrics. (Disclosure: I bought a small amount of shares a couple months ago for my pension plan.) Or for that matter…Google. Data drives algorithmic business models. And tomorrow a lot of businesses – not just financial services and trading – will be built on algorithmic substrates:
A few years ago data-driven opportunities were cost prohibitive — and too early for the customer to understand. That was because many businesses were just worried about not getting Amazoned. Today they are all on the Web, thinking about how to drive better results. Which is why we ended up talking about a massive data warehousing project his company was working on, which will take all of that data across his huge customer base, and help them better monetize their sites.
What I love about these kinds of opportunities: Algorithms scale, have high gross margins, and are proprietary and defensible. The next generation Web is not about what you click and see — it’s about what’s happens behind the scenes when you click.
The exchanges can come out of this smelling like roses IF they embrace this and fundamentally remake their business model over the next 5 years. If they don’t however their profits will fall almost as fast as their volumes continue to grow.
“Enough said. That’s a deal.”