The Strength to Survive the E-Content Whirlwind

As she sat at her desk overlooking the Pacific in Santa Monica, Calif., Barbara Quint, a onetime librarian and now an e-content guru, tried to foresee the future of the digital content industry. “One thing is for sure – the need for content has never been bigger and the marketplace that sells it has never been more unstable,” she said. Content is what publishers publish. In the print world, it is the stuff that magazines and newspapers fill the space between the ads with. In the electronic world, it includes stories and information retrieved from databases as well as audio and video feeds. Another way of describing content is that it is the water that flows through the plumbing system of terminals, modems, servers, and the entire information technology apparatus of the modern corporation. It is frequently a synonym for information. “We’ve gotten to the point where publishers and other content providers have become like salami kings; they will print it and slice and dice it in as many ways as they can market it,” says Quint, who is the editor of Searcher magazine, a publication for database professionals. Further up the California coast in the San Francisco suburb of Burlingame, Outsell Inc., an information industry consulting firm, tracks trends in the e-content industry. “As the market slows and dot-com mania comes to an end, we are seeing two major trends emerging in the information market,” says Outsell president Anthea Stratigos. “The Fortune 1000s will take the place of the dot-coms and there will be a convergence of software and content companies.” Acquisitions and other external developments figure to be prominent engines for playing on the trends that are unfolding with great speed. The first part of Stratigos’ prediction means that the Web-based activities of the Fortune 1000 will take the place of the many failed dot-coms. In some cases, these companies’ Web offerings will be oriented externally to suppliers and customers, and in other instances, they will supply information to employees as internal Web sites, or Intranets. Stratigos’ second trend forecast, a convergence between software and content providers, already has spawned a number of m&a transactions, alliances, and joint ventures in the overall e-content industry, which Outsell estimates to be a $148 billion business. Another perspective on the e-content industry and one that is central to the subsection of the industry that Mergers & Acquisitions magazine focuses on in this article – namely e-content in the financial services industry – comes from Carol Ginsburg, managing director and head of global business information services at Deutsche Bank in New York. “Increasingly, our professional staff is doing the in-depth research, while we are allowing more people to do simpler kinds of content retrieval and manipulation,” she says. The role of information professionals within the financial services industry was described by Don Thibeau, vice president of business development at LexisNexis, as having changed from being French horn players, that is, those who search for and retrieve data themselves, to being the conductor of the orchestra who must blend and organize data streams. “We can automate the information retrieval needed when our investment bankers pull together a pitch book so they can do it themselves on their desktops,” Ginsburg says. Ownership of the desktop is an important asset for companies that provide e-content to the financial services industry. If a corporate bond broker needs to look up maturity dates, he may tell you that he found the information on his “Bloomberg.” Bloomberg LP, Reuters Group PLC, Bridge Information Systems Inc., and ILX, a Thomson Financial product, are the desktop brands that financial services professionals use and recognize. (Mergers & Acquisitions is a Thomson Financial publication.) The information supplied by these owners of the desktop can be divided into four sectors: equities, fixed income, foreign exchange, and commodities. Most analysts agree that there is no global leader in all of the sectors. Reuters is the dominant player in foreign exchange, Bloomberg in fixed income, and ILX in equities. Commodities coverage lacks a dominant player. Reuters Information Systems president Devin Wenig says that there are about a million and a quarter users of financial information on the trading floors of banks and other business institutions. “Increasingly, we’re seeing tools and content being pushed off the trading floor both to middle- and back-office functions as well as corporate functions,” he says. One Reuters project is a joint venture with Microsoft Corp. Reuters says it is working with the software giant and 25 financial institutions to develop a secure instant-messaging program for business. Reuters net messaging will use Microsoft’s communications technology and will be interoperable with MSN Instant Messenger. Reuters says that the first product of the union would be its Reuters Digital Dashboard, described as a personal Web portal that distributes customized information. The Reuters/Microsoft alliance is an example of Stratigos’ point about Outsell’s expectation that content and software companies will form closer bonds. One tier below these desktop brands are the aggregators of financial and other information. An aggregator purchases original content, bundles it together in one standard format, and then redistributes it. The bond maturity information retrieved by a broker may be supplied by a third-party aggregator and pumped out through a Bloomberg- or Reuters-branded desktop. The three largest aggregators are Factiva, a joint venture between Dow Jones & Co. and Reuters, LexisNexis Group, a division of Reed Elsevier Inc., and Dialog Corp., a Thomson Corp. company. (Thomson Corp. is the parent company of Thomson Financial.) One additional definition that will help the generalist reader wade through the thickets of the e-content industry is the difference between real-time and archival information. Real-time information is primarily news while archival information is made of up everything that isn’t breaking news. The distribution of real-time content for the financial services industry is the province of Reuters, the Dow Jones Newswires, Bloomberg, and other players. Archival information is the main offering of the aggregators, such as Factiva, LexisNexis, and Dialog. However, Stratigos notes, “It’s hard to be a pure aggregator if you don’t offer some value-add other than aggregation itself. LexisNexis is targeting specific functional groups of users with specific content and applications; Factiva is actively building content integration tools to complement its pure content offering.” And Dialog has recently supplied users with a more streamlined billing structure and other enhancements. “Buyers are demanding that large enterprise content providers play a role in the integration of content into their Intranets. The content alone is not enough. The value-add is in the services that bring the content to the point where it can be used,” Stratigos notes. One example of the increasingly close partnership between content providers and end users can be seen in Factiva’s creation of its Factiva Consulting unit. “This business unit was an outgrowth of our Y2K initiatives,” says Claire Hart, Factiva’s CEO. “It gives us the ability to customize our offerings according to what our customers need.” She adds that Factiva Consulting, which is made up of a team of systems developers and editorial experts, will develop and implement company-specific solutions for combining internal information needs with Factiva search methodologies. At one time, aggregators were content to pump out huge streams of raw information and let their customers worry about sorting it out. But now, reflecting an industry-wide consensus that raw information is often little better than useless, content providers are doing more customization for their customers. “Some publishers place too much value on content alone, because we’re seeing that context is also important. We want to get the right readers together and build an application to insert the right content where it is needed,” says Charles Terry, CEO of Comtex News Network, which aggregates and distributes real-time global news and information to Wall Street, corporate markets, and resellers in the Internet. Thomson Financial’s Peter Marney, a vice president in the company’s investment banking/capital markets group, touches on the same point when he notes that Thomson’s SDC Platinum product, a database of m&a, IPO, and other data points, has adopted a strategy of reaching the end user in a more intimate way. “We’re tailoring our products toward our customers’ work flow, rather than just supplying them with raw ingredients.” He says that the distribution of more prepackaged sets of information to customers has resulted in shorter searches. In fact, taking Terry’s and Marney’s point further, the e-content industry’s mantra for 2001 is sometimes defined as “the four Cs.” Content and the context in which it is presented are the first two Cs, while commerce and community make up the second set. Commerce refers to the value-added aspects of the content that can be monetized and community refers to the users of the content. “For the corporate finance community, the key to our content supply activities is adding value to their decisionmaking process. We supply the building blocks our customers use to take actions and give advice. A computer doesn’t map a strategy, but it can enhance its execution,” states Chris O’Hearn, a managing director in charge of research at Reuters Information Systems. The recent deal roster among e-content providers to the financial services industries includes hookups between large content providers and the consolidation of dot-com companies weakened by that sector’s collapse last year. Thomson has been an active acquirer, doing a number of deals that have bulked up its offerings. In May 2000, it closed on its $275 million acquisition of Dialog’s information services division. The sale included the world’s largest commercial online collection of information and the Dialog, DataStar, and Profound products. Later in 2000, Thomson bought financial information vendor Primark Corp. for $842 million in cash and the assumption of $235 million in debt, for a total price of nearly $1.1 billion. The Primark acquisition included such brands as A-T Financial, Baseline, Disclosure, Datastream, Global Access, GlobalTOPIC, I/B/E/S, MarketEye, PIMS, WEFA, Worldscope, and Vestek. At the time of the acquisition, Thomson Financial president Pat Tierney said that the transaction would create synergies between Thomson Financial products such as First Call and Primark’s I/B/E/S. First Call’s strength is in U.S. distribution of research reports, while I/B/E/S is stronger on quantitative data and in the European market. More recently, there has been a lot of action among smaller companies as weakened dot-com e-content providers have been snapped up. Comtex’s Terry says he foresees a period of “bottom-fishing” as shaky dot-com e-content companies are purchased on the cheap. An example, he says, is YellowBrix’s acquisition of some of I-Syndicate’s assets out of bankruptcy. YellowBrix sells syndicated content and content management tools while I-Syndicate offers content feeds from individual content brands. Another transaction saw Dutch mega-publisher Wolters Kluwer NV acquire SilverPlatter Information Inc. in a deal that expanded Wolters Kluwer’s collection of medical and scientific databases and research tools. LexisNexis’ Thibeau says that while he is seeing a “feeding frenzy” around dot-com assets this year, his company is integrating assets from last year’s m&a activity. He notes that LexisNexis spent more than $90 million in 2000 buying a group of five companies, collectively called RiskWise International LLC, which supply risk management services to major corporate clients. Another acquisition for the company was Press Access Inc., a media intelligence source for public relations and investor relations professionals. Another Reed Elsevier/LexisNexis project is the $8 million investment made in July 2001 in iPhrase Technologies Inc., a provider of enterprise information access software. “As the owner of deep value-added information services like LexisNexis and Cahners, Reed Elsevier’s business is dependent on unlocking the value of content for its customers,” says Diana Noble, managing director of Reed Elsevier Ventures. “iPhrase has developed breakthrough solutions that will connect users to the information they want in one fast, intuitive, and accurate step.” Another closely watched deal in the financial services industry is the splitting up of the assets of Bridge Information Systems, which is being done under the supervision of a federal bankruptcy court in St. Louis. As the asset sale is currently structured, Reuters will pay $275 million for several of the Bridge businesses. “We have two motivators in the Bridge deal,” says Reuters’ O’Hearn. “It will get us into the U.S. buy side and it will offer connectivity for our buy-side users.” In addition to the information systems business, Reuters also is to acquire EJV, which provides bond pricing, Bridge Trading Technologies, eBridge, and the CRB Index, a widely used composite listing of U.S. commodity prices. Thomson also has an interest in the disposition of the Bridge assets. It put in $10 million to back Moneyline’s efforts to win some pieces of the Bridge empire. Moneyline is an enabler of e-commerce strategies for market makers, intermediaries, content sources, and application providers. “You have a situation where Thomson’s and Moneyline’s interest may dovetail,” says Outsell analyst John Blossom. “Thomson may be backing the Moneyline bid for Telerate, one of the Bridge companies on the auction block, with the thought that it can use it as a platform to market its other products. A Moneyline/Telerate alliance could give Thomson a unifying position on the desktop, increase its depth in fixed income, and allow it to choose to bundle some products and market others separately, the way it does today,” Blossom states. Bridge also has accepted a $165 million cash bid from Wayne, Pa.-based SunGuard Data Systems Inc., which provides information technology software, to buy certain assets from Bridge’s financial information businesses. These include Bridge’s news service for institutional and retail brokerages and the Bridge Trading Co. brokerage business. One tension that complicates the relationships between providers of e-content to the financial services industry and their customers is the possibility that information vendors can end up competing with their best clients. “The Web has turned a lot of these relationships upside-down,” Blossom says. “In a lot of ways, an investment bank can generate the four Cs on its own. It has the transaction components. The dialogue of the markets can take on its own life; it doesn’t have to be owned by a vendor. The service that Bloomberg’s messaging system provides can now be gained on the Web.” Another example of the way some customers of financial e-content providers are developing projects that compete with their data suppliers is the Markets.com project. Several investment banks backed TheMarkets.com, a common Web interface for their institutional portfolio clients to access quotes, news, and research, supported with general financial content, broker research, and with Web infrastructure provided by Multex Inc. Multex describes itself as a provider of investment information and technology solutions to the financial services industry. Deutsche Bank’s Ginsburg adds that the proliferation of her institution’s external Web offerings, or extranets, have created a situation in which the bank often supplies information bought from third parties to its customers. Thomson Financial’s Marney says that he grapples with some of the same concerns. “The big banks are our partners, but in some cases, they are our competitors.” He adds that banks get involved in content distribution to help them reach their end customers. Marney sees Thomson Financial’s function as evolving into a partnership role with its financial services customers rather than being merely a content provider. But just as content providers are finding that they have to provide tools for users to customize their data, the power of the branded owners of the desktop has been threatened by their customers’ growing appetite for a more hands-on relationship with their data. “All the major players in e-content for the financial services industry are having an identity crisis,” Blossom notes. “It used to be that the solutions a vendor sold had a single brand name.” He adds that in the future, the battle for mind share at the desktop level will involve more blending of information from different sources. “Information on its own is relatively useless unless it helps to get something done,” Blossom says. He notes that end users don’t care where they get their information from as long as it’s reliable and is transmitted in a format that they can take advantage of. “It’s not like this is a Reuters piece of data or a Bloomberg piece of data,” he says. “It’s hard for the big monoliths to adjust to their customers’ need to unify disparate data sources.” Blossom says that nobody needs to own the desktop the way that they used to. He sees the immediate future of the industry as trending toward systems that can bring niche-like content sources together in a unique way. He says it remains to be seen whether Reuters can shed its commitment to its legacy systems and adapt to this vision of a decentralized information environment. Bloomberg, Blossom adds, is feeling no pain today in using its proprietary systems. But if the information business does change in ways that will benefit smaller and more nimble competitors, he adds, Bloomberg will feel big pain because it has no backup plan. Attempts to contact Bloomberg regarding its strategic direction resulted only in spokesperson Chris Taylor’s comment that the company has no plans to pursue acquisitions. Comtex’s Terry supports Blossom’s thesis, saying, “End users will increasingly want to control their destiny.” He says that if they can get information in-house or from a single vendor, fine. If they have to go outside of their normal vendor or their company’s Intranet, that’s OK too. “The real scramble is for integration of content, not content alone. People want to know how to integrate content in a more meaningful business context, whether they’re going to use it in-house or give it away to clients,” Blossom remarks.