So when I heard his voice on the phone last week my first emotion was relief – that he had not simply given up and retired to Florida – and then agreement. Yes, we were 15 years too early. And many of the people we thought were primary customers, like the Yellow Page companies and the phone books and the industrial directories – are now either dead or dying, or in the trauma of complete technological makeover. Ross’s company, WAND Inc (www.wandinc.com) is now very widely acknowledged as a market leading player in horizontal and multi-lingual taxonomy and classification development. They are the player you go to if you have to classify content, if you are in a cross-over area between disciplines (he has a great case study around taxonomies for medical image libraries), and if you have real language problems (“make this search work just as effectively in Japanese and Spanish”). What they do is really simple.

Your taxonomy requirement is going to start with broad terms that define your content and its area of activity. These can then be narrowed and specified to give additional granularity in any specific field. These classifications can be incorporated into the WAND Preferred Term Code, given a number, and used in a programmatic, automated way to classify and mark up your content (www.datafacet.com). Preferred terms can be matched to synonyms, and the codes can be used to extend the process to very many different languages. So someone whose company, for example, was created in Spanish can be found in the same list as someone who has a Japanese outfit, as the result of a search made by a Chinese user working in Chinese.

And from synonyms we can extend the process  to extended terms themselves, and then map the WAND system to third party maps – think of UNSPSC, Harmonized Codes or NAICS, as well as those superficial and now dwindling Yellow Page classifications. WAND can isolate and list attributes for a term, and can then add brand information. All of these activities add value to commoditized data, and one would think that the newspaper industry at least would have been deep into this for 15 years. Yet few examples – Factiva is an honourable example – exist which demonstrate this.

Not the least interesting part of Ross’s account of the past few years was the interest now shown by major enterprize software and systems players in this field of activity. Reports from a variety of sources (IDC, Gartner) have high-lighted the time being wasted in  internal corporate search. Both Oracle and Microsoft have metadata initiatives relevant to this, and it still seems to me more likely that Big Software will see the point before the content industry itself. With major players like Thomson Reuters (Open Calais) deeply concerned about mark-up, there are signs that an awareness of the role of taxonomy is almost in place, but as the major enterprize systems players bump and grunt competitively with the major, but much smaller, information services and solutions players, I think this is going to be one of the competitive areas.

And there is a danger here. As we talk more and more about Big Data and analytics, we tend to forget that we cannot discard all sense of the component added value of our own information. We know that our content is becoming commoditized, but that is not improved by ignoring now conventional ways of adding value to it. We also know that the lower and more generalized species of metadata are becoming commoditized; look for instance at the recent Thomson Reuters agreement with the European Commission to widen the ability of its competitors to utilize its RICs equity listings codes. This type of thing means that, as with content, we shall be forced to increase the value we add through metadata in order to maintain our hold on the metadata – and content – which we own.

And, one day, the only thing worth owning – because it is the only thing people search and it produces most of the answers that people want – will be the metadata itself. When that sort of sophisticated metadata becomes plugged into commercial workflow and most discovery is machine to machine and not person to machine we shall have entered a new information age. Just let us not forget what people like Ross Leher did to get us there.

Lawrence wrote “The Seven Pillars of Wisdom”, one of the world’s unread classics (and almost unreadable in parts: he lost the only copy of the full manuscript on Reading train station and had to recreate 200,000 words, during which he clearly became bored.) In 800 words I can communicate seven thoughts – not so much Pillars  as pillows, and not predictions but observations of this unknowable industry. Here goes:

1.  Some think its about content and others that it is about platforms and technology. For me it is still about communications, and the greatest challenge is still holding people’s attention, having gained their recognition. Even Facebook hits a plateau. The gods remain Reputation, Identity, and Attention.

2. You are either a communication company or you are not. News Corp is a format company. It does newspapers, film and television and has little corporate bandwidth for non-format communications. This cannot be changed by executive whim, and the collapse of Beyond Oblivion, its music initiative, before the holidays (http://www.guardian.co.uk/technology/2012/jan/04/music-service-beyond-oblivion-folds), as well as the veil of silence around the performance of The Daily on the iPad, following on as they do the oblivion that was My Space, demonstrates all of this very well. Yet Mr Murdoch has signed on to Twitter. There is no evidence yet that the world can be saved with a single Tweet. There is no evidence yet that traditional media and information businesses can recreate themselves in new marketplaces without either starting afresh somewhere else  or by buying a new business and moving into it. Boinc.

3. Apple, according to MacRumors (http://www.macrumors.com/2012/01/03/apples-january-media-event-to-involve-digital-textbooks-and-education/), is about to enter the textbook market, maybe with Pearson and certainly via the iPad. This was apparently a dearly held dream of Steve Jobs, at least according to Walter Isaacson, who is shaping up to be not just the biographer but also the Delphic oracle. I have some doubts – not about the iPad as a display device, but about whether markets want textbooks re-invented. Learners would like learning re-invented, and made easier and more compelling. Textbooks are an extinct format. And learning should operate equally well on whatever platform you have available. What a waste of all this energy around eLearning if we abolish the old formats like textbooks and replace them with rigid device platforms. And yet I am sure that the analysts are right – there are only a few global growth markets and education is the largest.

4. Then I had a great comment from Brad Patterson at EduLang (www.edulang.com). He points out that 500 million people are trying to learn English and only 50 million can afford textbooks, online or otherwise. So his business model for his interesting TOEFL and TOIEC Simulators is “pay what you can”, with half going to a reading charity. In many ways this is very neat – it reaches out to 450 million people with a trust relationship, and could be a really interesting business model to watch. Above all, how encouraging it is to see someone moving the goalposts – we did not score many goals in regular business model configurations so lets applaud the courage of someone doing something different.

5. Semantic Web technology and deployment in mass markets is getting closer and closer. I took part in the beta of Garlik (www.garlik.com) some 3 years ago, partly because of an interest in technology around identity, and partly out of interest in technologies derived from the University of Southampton Computer Science department, and blessed by such eminences as Wendy Hall, Nigel Shadbolt – and Sir Tim Berners Lee himself. Two days before Christmas Garlik was sold to Experian, in a move that I think was as significant as Reuters buying ClearForest all those years ago. Garlik protects personal identity through web search, was founded by the men who built the UK online banks Egg and First Direct, and backed by Doughty Hanson. This is a straw in a wind which will go galeforce.

6. But if the Semantic Web is going to be so clever, and linked data will recreate so many service environments, where is it now? Well, look at the obvious places. In most of our economies building and construction is the largest sector in terms of activity and players, large and small, and has great companies serving it with supplier and materials information. Thus, in a US market replete with Reed Construction, Hanley Wood and McGraw-Hill. But what if a semantic web-based environment were able to search all online catalogues and directories to produce a sweeping coverage of suppliers and products that was at once more detailed and more comprehensive than any directory-style database, and could include more metadata from suppliers and users to create a continually developing industry specification site, deliverable and self-formatting to every platform and device? That is what interests me about MaterialSource, (http://www.materialsource.com/about) as well as its use of SPARQL, Semantic Web Pages for faceted and graph-based browsing, smartphone and tablet Apps using HTML5, ontologies etc, etc. If they do it, someone will have to buy them!

7. I keep on thinking about the neglect of audio, so I was delighted to see SoundCloud (http://soundcloud.com/). There has to be room for an audio portal, and a community for sharing sound and cross-referencing its sources and users. I anticipate that they know things about users that Beyond Oblivion didn’t.

Last words of a predictive nature before I get back to real work. A correspondent asks “what technology are you following in 2012!” Since I say every week that I am not following technologies but users, I take mild offense at this, but I do admit to a penchant for 3D printing. Now that really could have an impact. Especially in medical workflow. I have also been asked by a venture capitalist who should know better what is likely “to be certain” to succeed this year. He is a serious man so I owe him a serious answer: anything that saves more time and money than it costs. The prime example this year in the UK has been Shutl, a delivery logistics service that gets your online purchases to you physically (average delivery time in London was 90 minutes, with a cost of £5). Is that all the queries? I am beginning to feel like an Agony Aunt!

Certainly it is always alleged that his predecessor, Dick Harrington, did not know that a discreet negotiation continued behind the scenes bringing Thomson and Reuters together with no place in it for him. That, if true, must have been a surprise. Did Tom Glocer come by a similar “confronts reality” shock, as the FT termed it? And what was the reality that was being confronted? I can think of at least three realities that must needs be in the minds of Thomson Reuters CEOs, and none of them relate to the decline in market value which is widely blamed for triggering these changes. The first, and most important, is the nature of the company’s ownership. Wherever a big player is really 55% controlled by the family of its original founders, confidence issues will come into play. This is real control, not the artificial dominance of voting shares practised by Murdochs or Harmsworths in defiance of market views of good practice. And this real control means that, as in the eighteenth century, once the incumbent first minister loses the confidence of the King and his closest advisor, it is impossible to continue in office. That rule applied to the reign of Ken Thomson and John Tory, as it does in the Woodbridge Trust of David Thomson and Geoffrey Beattie. It is simple and natural; you go when the owners no longer believe you can deliver.

And since Thomson Reuters are the largest professional player in the marketplace, it is worth asking what these men need to have confidence about. As far as the press commentary is concerned, one would think that the only issue is the Eikon terminal and its slow start. Well, the history of Reuters is littered with slow starts, one of which let Bloomberg into the marketplace to begin with, and several of which cumulated to create this peculiar position where the smartest and most modern application is also the cheapest and has lost market share in the recession to Bloomberg’s older and more expensive option. In each of these cycles the market for trading systems has returned to rough parity. Over at the professional side of Thomson they know about these cycles, having sometimes been up and sometimes down, but in that market they are currently in the Bloomberg position and Lexis are in the Reuters position. So did Tom Glocer’s acceleration towards the swing doors relate to all this?

Certainly this may have been the symptom, but perhaps it was not the underlying problem. The mandate that Tom Glocer accepted was to build an integrated company and it is possible, as the company became wracked by the issue of combining the parts to create new growth as a whole, that the Woodbridge owners began to doubt whether this aim was ever going to be achieved through these policies. Certainly the sacrificial slaughter of a layer of Reuters management and the balkanization of the company into an unmanageable number of operating units did not lull any misgivings in Toronto, though they may have given rise to rejoicing in old Thomson management circles, where the attitudes of their new Reuters colleagues had been met with all of the enthusiasm that the Anglo-Saxons showed to their new Norman rulers. In the new dispensation we are back down to five divisions, with former Reuters strategy chief (latterly running GRC) David Craig taking the old Market divisions, Legal going to Mike Suchsland, Tax and Accounting to Brian Peccarelli, and Global Growth to Shanker Ramamurthy. Jon Robson gets the Business Development role. What factor is common to all of these? None of them comes from a very long term Reuters and/or Thomson background. A generation has effectively passed.

And what of Jim Smith, the new CEO. Some commentators have him as a caretaker, awaiting the new strategic leader to be found and installed. Others, and I incline to this view, see him as chairman and arbiter of resource and manpower development and deployment to support and drive the integration of these two companies. So not a traditional Thomson CEO, any more than Erik Enstrom is a traditional Reed Elsevier CEO. In the latter case one has a feeling of a profoundly numerate portfolio owner looking to encourage the growth points with acquisition investment, dispose of underperformers and reward successful managers who reliably produce results. It is almost as if Reed Elsevier does not see a need anymore for an informing central strategy about its market positioning, other that “we will invest in anything that works and avoid the bits that don’t”. By contrast, Thomson Reuters is built around a distinctive market positioning, a “big niche” strategy and definite ideas about what it needed to buy, sell or grow to make the aspiration work. And yet… once you have the strategy in place, here too market strategic thinking devolves to the operating unit quite quickly. Hopefully that means that in both of these market leading players, the doors will soon stop revolving at the speed of light and we can get back  the real problems of addressing the needs of global information markets in times of scarcity.

PS. One of the items on Jim Smith’s agenda must surely be the finalization of the sale of Healthcare, whose projected disposal was an early agenda item for his predecessor. It is hard to remember but this move has now been projected for almost four years!

“Duedil is a new business information company that offers free financial information sourced from UK’s Companies House (Public Sector Information). It is so confident in the quality of its data, that it offers a £5 payment if one finds any discrepancies in its financials, no questions asked. The company was launched in April 2011 by Damian Kimmelman, owner of “We Are VI Ltd” and co-founder of Mackin Gaming. Duedil claims in its website to have the largest database of free company financials in the world! That is a tall order for an upstart that is only several months in operation. Duedil aggregates data from all over the web and bring this to users along-side information which it pays for. It says the information will correspond directly with the information found at Companies House delivering company financial statements, going back 10 years, with company histories, name changes, litigations, director lists, family graphs & more. According to Duedil, it is funded by Passion Capital, who is predominantly funded by the UK government. Other investors are some of the people behind Skype, LastFM, Yahoo!, AOL & QXL/Tradus, and was chosen as a Microsoft Bizspark company.”

This service is well worth a look. For one thing, the data presentation is good enough to seriously challenge the sector players, and for another the information collection is also hugely competitive. But the irony comes in the thought that a freemium model could be used to take a Trojan Horse right into the middle of the commercial credit rating encampment. Industry professionals rightly point out that Duedil would have to support a great deal of advertising to support such a service long term. But what if that is not the point at all. Instead, a cogent strategy here would concentrate on getting very high free usage levels, and all the time stretch those staid competitors by adding more and more Open Web derived content into the mix, so that the comparison was not with publicly available “official” content, but with the Duedil selection above and beyond that. Then, when you have the attention of the audience, you can begin to charge subscriptions for higher level activities: in-greater-depth analysis, time-elapsed reporting on watch lists, custom service applications for automated purchasing systems, social media-style buying clubs based on shared content with user groups etc. And when you get that second level market locked in, then you will be able to sell plenty of service advertising on the still-free core site.

The creators of DueDil have grasped a key point that the established market has long since conveniently forgotten. The market is all about the collection of commoditized data from the web, and there really is no defensible barrier to entry in that business. Insofar as credit scoring and the development of formulae for rating credit worthiness are concerned, the established industry is on safer ground, but as we used to say on the farm in my youth, if you try to sell potatoes with the dirt on them, you get rich for a while until people realize that clean potatoes cost no more, and are better value. Attempts to sell on openly available content as if it was an “answer” fits this case, and this is the bluff that DueDil calls. Soon, as in every other sector in every information market that I know, the players here those who seek survival will be heading up the value chain. Analytics, the application of Big Data principles and practice, the widespread integration of workflow modelling with third party strategic alliances – all of these are part of the future of a sector which we still call Credit and Business Information, but which we will increasingly come to see as whole web monitoring for business and personal performance.

And as that happens, so will consolidation become more interesting. Choicepoint and Lexis may have been an early sign. Both in the enterprize software solutions field and in the major B2B holdings there must be potential interest in those of the big sector players who add real value. But lets emphasize “value” again – DueDil have demonstrated that the value from pure data collection is negligible, and consolidators, especially if they are deeply into advanced taxonomic search and linked data, may find that smaller regional players in the existing industry have little to add. In the next play, much of their data will look as insignificant as the large and once much vaunted databases of the directory publishers do now.

In short, DueDil is a mouse that roared, and while the elephant of Big Credit is still in the room, he is trying to stand on the curtain rail!

(Declare an interest – I am currently chairman of BIIA – a powerhouse of industry discussion in Asia Pacific!)

In the big picture we can see the battalions of information services companies, having emerged from the publishing stage of their development, developing strategies around data – either as Big Data, mining and extraction players, or as workflow and process emulation players. These are all businesses driven by understanding how users work in a networked society, and they are all about the way in which content and software interact to create solutions for the bench researcher, the equities trading risk manager, the teacher and the learner, the patent attorney and his office, or the insurance risk assessor. And many others. And then, through longer workflows, solutioning at the job level begins to turn into solutioning at the industry level. Users, through shared APIs, create their own answers, and these become generalized and re-iterated by the information service vendors, and over time smaller competitors are excluded. This becomes a rich man’s game, and duopolies become the norm, as they already are in some verticals, and then duopolies give way to quasi-monopolies and invite regulatory attention (as they already are in some verticals). Competing with these giants is difficult and market entry based on re-originating workflow approaches built on the experience of countless users will be seen as difficult and pointless. So competition authorities will settle for price/margin controls and by restricting the number of verticals that one corporation can dominate.

While all this is going on the information service players of today are playing a three card game of risk. I hear this dialogue every day and it goes like this:

STAGE 1  “We now have good business in selling data into process – but the data is very commoditized and the value is in the software which holds it, searches it and provides the end-user access and workflow. We had that stuff written under contract because it was too risky to think of owning it or developing it in house – we have no experience of software or of managing it! And, looking at the contract we drew up with the supplier, we appear to own very little. So the time has come to invest in software, manage our own solutions and just hope that we can cope with the constant iteration of solutions. We will buy our supplier!”

STAGE 2 “This is more difficult than we thought. The innovation that we want is taking place outside of the range of the outfit we bought. If we are to continue to innovate in the face of rapidly developing user expectations (and that is the problem, not competition from our peers) we need to work with higher level suppliers in areas like semantic web, entity extraction etc. So lets do different deals: not sub-contracts and licensing this time, but Strategic Partnership, with exclusivities in certain areas and revenue and/or margin sharing. We will incentivize these people to greatness – but which one do we choose and what criteria do we use to select them?”

STAGE 3  “Well, the strategic relationships are working fine, but these software guys are eating our margins. And they say that all we have to do is update, while they have to re-invest, and 90% of the value in the package is software. And can they buy us? And their toolkit, honed on our clients to whom we did the selling, is now so valuable that IBM are trying to buy them …and maybe us as well. What do we do now, except grin all the way to the bank?”

There are three critical big picture issues that I take away from all of this:

* If the information services industry succeeds it will one day attract the attention of the major Enterprize software players. If this is so, we need to make our own luck and form relationships now. I see this taking place around Oracle in some sectors, and IBM in others.

* Most relationships between content houses and software houses begin with improvements to the data, content, internal workflow of the content player. But the content players end user/client is also vitally in need of systems for handling his content, and other third party content which he has already licensed, and in making it compatible with the workflow solution he is buying. There should be rich pickings here for both the content and the software players in terms of referrals and commissions. Somehow it isn’t happening, but if it did it would iron out some of the creases in those Strategic Alliances.

* Consultancy and customization are the keys to the solutioning marketplace. Trying to sell one-size fits all never quite does it in terms of repeat business. Yet most of the participants seem to dislike both of those elements, yet they are the best protection so far known to man for the defence of niche positions.

Next week, back to the coalface!

And this in turn re-introduces us to the battle ground in business solutions software which is the liveliest part of the B2B scene at present. It is the only battle ground where Thomson Reuters, Wolters Kluwer, Bloomberg (more marginally for the moment) and Reed Elsevier do battle. And like Philoctetes and his poisoned arrows, the battle is now intense and those wounded in the last round are back on their feet and summoning fresh acquisition forces into the fray. Thus Thomson Reuters this week clear their decks by selling out of their position in trade risk management to Vista Equity Partners (http://wp.me/p17ayu-3e) in favour of concentrating their investments onto operational risk. Interestingly, the would-be purchasers here seem to have been mostly private equity players, happier with the medium term growth profile of the business Thomson Reuters were exiting and not necessarily needing, as the strategics would, a very immediate contribution today. This then was one of the few transactions of recent months that had a prerecession feel to it.

Which is not something that you could say about today’s news that Reed Elsevier are to buy Accuity (http://www.ft.com/cms/s/0/278a1d66-e80f-11e0-9fc7-00144feab49a.html#axzz1Z5nwd7oT). The deal, which sees Investcorp selling its position for £343 million (around 12 times Ebitda), creates a new global presence in banking solutions, where all the other players have strong interests and where Wolters Kluwer were wont to claim pre-eminence. Accuity Holdings is an interesting property, having been split out by its owner from Source Media, the old American Banker and Bondbuyer business. As one of those who worked on the then Thomson Corporation purchase of American Banker in the 1970s I feel the pull of history here. Later generations sold the business because it was regarded as a mainly print prospect. Now here are Reed buying the regenerative software arm of that once print business. No end then to our circularities!

Or our mysteries. The bit of Reed which bought Accuity was not Lexis Risk Management, where it had seemed that the resistance to Thomson Reuters bid to dominate operational risk management was centred. The actual buyer was RBI, now coming out from under the cloud of the later Crispin Davies years. The plan is to merge Accuity with Bankers Almanac, the venerable directory environment which transitioned into bank transfer coding and then into banking transactions and risk management. The guts to devise new things to sell to bankers at this juncture deserves an industry round of applause, and the risk is probably well – justified. However, Reed seem intent on building a new global business (the geographic fit here is a real value) founded on payment efficiency, risk reduction and regulatory compliance. Accuity is a data software business, with 14000 clients, a 95% renewal rate to its subscription base, and it claims all 25 top US banks as customers. Those banks, of course, are also clients of Thomson Reuters and Bloomberg. So battle is joined on a number of fronts. Reed’s shares went up 10p on the news, though one might have thought that they should have gone down an equal amount in the wake of losing BNA to Bloomberg, given that this acquisition lets Bloomberg into some interesting regulatory compliance areas, around government and also around areas like employment law BNA’s HR Advisor suite). Reading the analysts on Reed’s move, one senses the confusion: this is an immediately accretive buy that makes sense, but was performed by the part of the business that once seemed lost and now becomes the seed of growth.

So what is the strategy here now? The new grouping at RBI looks a bit like the old banking group (http://www.wolterskluwerfs.com/solutions/Market/Banking.html) at Wolters Kluwer (also run out of Chicago – Accuity was a neighbour of CCH in Skokie, Illinois). Are Reed pursuing a parallel train of thought to Thomson Reuters, but in narrow niches like banking (RBI) or insurance (Lexis Risk Management)? For Mark Kelsey and his colleagues at RBI, coming as it does immediately after the purchase of Ascend for their aviation division, this is a huge vote of confidence. For Lexis, coming on top of the loss of BNA, this seems like the opposite. Yet the strategic direction on all fronts is exactly the same: use data and software to create solutions that save the customer from the regulator, from the wrath of his customers and from himself. We are back to all those confidential documents on Googlemail.

Lets go back to the beginning. Here are a couple of top of head examples of life on the planet that give a clue to what is worrying me:

* According to research quoted by the UK’s National Centre for Text Mining “fewer than 7.84% of scientific claims made in a full text article are reported in the abstract for that article”. This, they point out, makes cross-searching of articles using data mining and extraction techniques very important to science research. Fortunately the JISC organization which licences all journal article content from publishers on behalf of UK universities permits researchers to data mine these files, and no doubt this was agreed with the publishers within the license(?). But the question in my mind is this: who owns the product created by the data mining, and is this a new value which can be resold to someone else?

* Lexis Risk Management use many hundreds of public and private US data resources in their Big Data environment to profile people and companies. Both private and public data is researched, and, of course, it will often be the case that unique connections will be thrown up which encourage or discourage users from doing business with the data subject. Clearly Lexis own the result of the custom sweep of the data, and clearly it needs to be updated and amended over time as a result of fresh data becoming available, or more data being licensed into the mine. But do Lexis, or any other data extractor, own the result of the extraction process? They are able to sell a value derived from it, and that value emerges directly from the search activity and the weighting of the answers that they have accomplished. But do they own or need to own the content (which may be different in ten minutes time when another search is done on the same subject)? And can the insurance company who buys that result as part of their risk management model resell the data content itself to a third party?

I have put up two examples because I do not wish to polarize the argument into publishers v government. The issue arises in the UK, as the media lawyer’s lawyer, Laurie Kaye has pointed out, because the Hargreaves Review of copyright law recommends the retention of rights with the data miner – so you can make new products by recombining other people’s data. The UK government has adopted this recommendation with its usual emphatic “maybe”. Elsewhere in the world of August which I deserted to take a holiday, the UK government has come out with a storming approval of Open Data, and, as Shane O’Neill has repeatedly pointed out in his blogs, this contrasts sharply with the content retention policies pursued by UK civil servants, even now creating a Public Data Corporation in order to frustrate the political drive of its masters (how easily a licensing authority becomes a restricting body!).

There are two really troubling aspects of this to me. In the first instance we are not going to get the data revolution, the Berners Lee dream of linked data, the creation of hybrid workflow content modelling, or the Big Data promise of new product and service development unless there is a primary assumption in our society that all Open Web content, and all government or taxpayer funded content is available for data cross searching, unless there are national security considerations. And that it is a standard expectation for data leasing that discovery from multiple files creates new services for the person putting the intellectual effort into that discovery, and hopefully new wealth and employment in our society. If we simply continue to debate copyright as if it connotes the transfer of real world rights into the digital network then we shall constrain the major hope of intellectual property development this century.

And the second thing? Well, I am realist enough to know, after 20 years of lobbying this point, that it is unreasonable to expect the UK government to change its attitude to an information society in my lifetime. So maybe we can undermine these guardians of “my information is my power” by saying that we do not want their content – just the right to search it. After all if it is good enough for the universities and the progress of science, it should be good enough for Ordnance Survey and the Land Registry!

References

Making Open Data Real (www.data.gov.uk/opendataconsultation)

The Public Data Corporation (http://discuss.bis.gov.uk/pdc/)

Response to the Hargreaves Report (http://www.bis.gov.uk/assets/biscore/innovation/docs/g/11-1199-government-response-to-hargreaves-review)

National Centre for Text Mining (http://www.bis.gov.uk/assets/biscore/innovation/docs/g/11-1199-government-response-to-hargreaves-review)

Laurence Kaye (http://laurencekaye.typepad.com/)

Shane O’Neill (http://www.shaneoneill.co.uk/)

As a result we have two vessels now heading in opposite directions. McGraw Markets (everything which is not education), including all the B2B and credit rating assets, is in one, and everything education is in the other. But Pat English, a shareholder and CEO of Fiduciary Management Inc, told Reuters that this was only the start: “It doesn’t make sense to have S&P ratings, S&P indices, Capital IQ, Platts, and other companies under one roof”. So what happens in October? Do we see Chairman McGraw skip down the gangplank and set sail in the SS S&P, leaving the waste barge B2B to sink in the Hudson? Anything is possible of course: we are watching one of the largest corporate deconstructions in the sector since D&B sold all of their global subsidiaries to franchise holders.

And why? The answer is a not inconsequential $3 billion. This is the difference between the valuations expected for Markets and Education apart, compared to the current, or pre-announcement, values. Education is seen to be in the slow lane and holding back an advanced valuation of S&P. No one has ever explained cogently to me why companies, however large, cannot have valuations which reflect the intrinsic worth of their parts, and why “true” valuations cannot be exhibited without break out, but clearly I am in the nursery class in these matters. And my eye also caught the Chairman’s statement that $1 billion in overheads would be saved. That I really appreciate. I can see that the corporate office of a chairman, for example, would need less aides, fewer executive jets and less travel in a global $4.5 billion company than in a $6.5 billion global company, but since Chairman Terry is going to Markets, there will have to be another Chairman at Education, also aided and abetted and privately flying around a $2 billion company. So where does the saving come in?

And where does the future come in? The US education market is grossly over-published. Margins are too low to attract investment (hence this deal). The nation hovers on the brink of radical IT solutions to address a national standards deficit, present across the developed world, which can only be tackled through individualized digital learning: everything else has failed. McGraw Education have a decent record of innovation, good assessment assets like the California Bureau, and 20 years of struggle, from Primis onwards, to show in justification. But they sit on the edge of the same decreasingly relevant mountain of textbook assets that also contains Harcourt Houghton Mifflin. They have a junior position in non-US markets, compared with their major competitor. But no one can currently compete with Pearson. Cengage have learnt to go global and diversify. McGraw could go with Harcourt, but the resulting debt pile would be bigger than the Greek economy, so this is unlikely. Maybe the “we now have the message” boys at IBM, or Intel, or Cisco, will buy them. But why? There are some good assets in medical education (Harrisons) but are we looking here at a slow death from asset sales until only the unsaleable are left? Eventually Pearsons’ major competitor in global markets will be a borne digital platform company, but these assets will not help them substantively to reach that position. On the other hand, my telescope, scanning the horizon desperately for a rescue vessel, sees the sleek global liner HP, just refuelling on high octane Autonomy. Vast interests in education there, and the potential to be the platform player to fight Pearson?

Back at Markets there are problems of a different kind. Platts, aviation and construction all have heavy data capable of real impact in workflow orientated networking. Although serious attempts have been made to leverage this, there is no evidence of much stomach for the fight, some critical people left, and the failing magazine/advertising/subscription businesses are, well, still failing. Pity that the “very best thinking” of the management team, which the Chairman quoted as the reason for the split, was not applied here some years ago. Alongside these are really good, but unrelated, businesses like JD Powers. And then this high grade financial services stuff, with high growth Capital IQ and of course the S&P play most valuable of all. I am forced to repeat the question of Mr English in other words: unless these businesses are radically changed in strategic direction, this company looks as much like a portfolio conglomerate as ever its now deceased parent did. Will this management make those changes? Or will they sell the most marginal assets next year and use the cash to buy back more shares? And is this portfolio nature a real poison pill against a purchase by another mega corp? So eventual break-up is eventually inevitable?

More questions than answers, but as we all search for value on the ocean bed of this recession, there can be no doubt that this will become a common path for beleaguered corporates in years to come. Until, in fact markets recover and growth seriously returns.

First, the details. Bloomberg have apparently offered $990m for BNA, which is around 2.25 X the current stock price, 3 X current revenues of $331 m and about 13 X EBITDA. This is a very good price at this time, though a pre-recession valuation might have been a shade higher. BNA was an employee-owned company with an eighty year history of democratic process (to attend an AGM, with its board election involving some 1500 shareholders, was always an impressive demonstration of this). Its founders, New Deal lawyers, all shared a principled view of the importance of participation and the sharing of information. Now it joins another (intensely) private company, younger by 50 years but also founded on the idea that content should and could be shared more effectively.

So what does all of this do to the balance of power? For Thomson Reuters, comparatively little, given that it has moved decisively (through its GRC developments) into that wider view of legal and regulatory relevance stated above. BNA’s two great assets would be its brand, forever associated with the reporting of embryonic law in committee in DC, but actually much wider in content and significance, and its tax services, a market leader in conjunction with CCH (Wolters Kluwer) and Thomson Reuters Tax (RIA). It is notable that Thomson, Reed Elsevier (Lexis), and CCH all license content from BNA for access online. This will presumably end after current contracts expire. Thomson will be hurt least by this. But note how important contextualised news is now to everyone: BNA gives this to Bloomberg in a way which helps to neutralize the Reuters/West advantage.

But both Lexis and CCH will suffer collateral damage. The loss of the tax content will cause real hurt to both, and the wider impact of the loss of the BNA brand and full content set will be hard for Lexis in particular. BNA content was important in that context in particular, since previous attempts to absorb and use highly branded legal content (Matthew Bender) seem to have petered out in terms of user recognition. Given that private equity was unable to enter the contest at these valuations, Lexis would have been the obvious candidate as a counter bidder, and the fact that it felt unable to match a high but not astronomic bid points to possible future environments. It may be that Reed Elsevier see their future with Lexis in risk management rather than in legal as such, and if that were the case then we could well, in the next five years, see a new order of things, with Thomson Reuters and Bloomberg dominating legal and regulatory marketplaces, and CCH and Lexis forming a sort of second division in positions increasingly hard to maintain outside of specialist niches. There is only one shoe left to drop in US legal marketplaces. Analysts will now look closely at whether ALM (owned by Apax) will be the last major play.

Bloomberg appear to be indicating that they will hold BNA as a separate wholly-owned subsidiary in the first instance. This makes sense: they have distinctive cultures and need time to get to know each other. It is however interesting to think where the optimum first linkages will take place. Certainly management in the nascent Bloomberg Government unit will be salivating: they will rightly see the congressional law reporting as a key element in bringing more widespread usage in government at all levels. And everyone involved in the business of proliferating Bloomberg terminals more widely in the tax advisory marketplace will be exultant, since this is a real game changer for them. If the claim that we are all moving to workflow is correct, then BNA is vital to Bloomberg in its wish to move into adjoining, content – related markets like legal and paralegal.

And a final and personal note on culture. As an advisory director to BNA’s international marketing (Bloomberg will transform that with their global coverage) I have, for almost 25 years, worked with quite the most civilized publisher on the Planet. The values of the founders were exemplified by their successors, and while employee ownership sometimes caused problems of its own, those who worked there were embued well beyond the normal with a sense of purpose, and indeed, a lifetime commitment, to what they were doing, and a belief that their purpose was part of the public good. This cannot be bottled, so Bloomberg must be careful to preserve it. Having tried to enter security law in the early years of this century, and made very slow progress, they should know how difficult it is to get very high level editorial intervention and commentary to work properly. The biggest property they have so far bought is BusinessWeek, which was not strictly comparable. BNA is different, and to get the real value they will need to treat it very differently.

When the activists arrive, they always show an immediate profit: this announcement triggered a sharp rise in McGraw’s share price (http://dealbook.nytimes.com/2011/08/02/mcgraw-hill-shares-rise-after-activist-stake/), and a great deal more interest in what many media market investors have long regarded as an unspectacular mid-market performer. Disincentives in large media players have always included unified Chairman/CEO roles, and divided equity classes with limitations on voting shares. Incentives have always included the thought of break-up in conditions where the sum of the parts may be found to be greater than the value of the whole. McGraw now faces this scenario, and has known for at least a year that it was likely. Hence the strategic portfolio review launched last Fall, and the creation of a McGraw-Hill Financial Services division. But now that the real question has been asked by Teachers and Jana, how can management react without appearing to be running the company on the agenda of a powerful but still small shareholder?

Over the last decade the great principle in developing B2B assets has always been Portfolio. Sir Crispin Davies practised this at Reed, building a four legged table in the sure and certain knowledge that not all markets would go bad at once. Problems only arose when the education leg fell off, and the last recession provided his successors with the assurance that all markets can go wrong at once. Thomson Reuters’ reaction was different; move away from Portfolio into Wide Vertical – a huge construction from law and regulation to financial services and transactions where a broad base of clients can be inter-related and cross sold, and where service and content assets can be optimized. Will it work? Well, its work in progress and good progress is being made. And the not wanted on board assets like Healthcare are on the block.

These are options. But what about the McGraw-Hill asset base? What are its strengths and where does it dominate? The first thing to say is that, in comparative terms, great changes have taken place in the past few years which have surprised observers of this often fiercely conservative company. The sale of BusinessWeek and the acquisition of J D Power are cases in point. But in terms of the wholesale creation of the group asset base in digital first terms? Progress is there, but is seen by outsiders as slow and patchy, part of niche and product strategies rather than the platform and standards driven thinking of some of the market leaders. There is no doubting the pre-eminence of Standard and Poor’s, however, and the activists, by attacking at this point, may be more likely to set up a bidding war for this (Hearst are already in Fitch, Bloomberg and Thomson Reuters lead these markets) than create a successful IPO.

What about the other assets? B2B has huge positions of strength, but they are all under pressure. McGraw have long dominated construction, but now finds that while it did all the right things to get Sweets and FW Dodds into workflow networks, recession (and an ill-judged law suit with Reed Construction) has lost it concentration and time to market. Alongside it, Platts rested on its laurels for too long as the leader in oil price indexation (losing market position with Aramco to the tiny British player Argus Media) and is now rushing to catch up in other asset classes (its latest buy was the Steel Index) and broadening a portfolio which should be doing very well at this time. One hopes that Platts is seen as much as anything as a part of financial services (who bought New Energy Finance and Point Carbon? Bloomberg and Reuters), but probably it is seen as the counterbalance to construction and the aerospace/aviation holdings (who lost out to Reed in bidding for Ascend Worldwide), both of whom continue to require careful nursing to bring their brand strengths into full recognition in the digitally networked marketplaces in which they exist.

But you cannot invest in everything at once. McGraw-Hill Education is a case in point. This side of the company created digital firsts 15 years ago (think of Primis) but then was allowed to graze as a cash cow when other priorities in the portfolio became more important. With Pearson now emerging as the unassailably dominant player in North American education, but the whole market suffering a hangover now that school spending cuts from 2009 are hitting spending with full force, McGraw-Hill has nowhere to go. Its overseas holdings are tiny, and mostly in Higher Education: Pearson is now getting considerable and sustaining returns from non-US markets which have taken a decade to create. Meanwhile McGraw seem at last, after constant strategic re-appraisal and constant changes of CEO (to the point where they are now run by the former veteran group CFO) to be heading in a digital first direction, launching really interesting environments like Campus and ensuring that all of their content is digital and licenced from the very beginning. Is this too late? We can only tell when markets recover, but outsiders might well think that US education was over-published. How things will consolidate (the assets are Harcourt Houghton Mifflin, McGraw and Kaplan) may be one of the outcomes of the Jana move.
McGraw’s latest announcements indicate 11% growth in income in the second quarter but a 5% drop in education revenues. Neither of these is in the least surprising, and may indicate some signs of recovery. But now the question has been asked, every piece of emerging evidence will be used to support a break-up theory. And now two points of caution for those prone to jump to conclusions: Teachers is not the same as the Ontario Municipal workers pension fund which co-owns Cengage with Apax, and the David McGraw who is CFO of Teachers is …no relation. Now that the News of the World is closed and hacking has ceased you will just have to take my word for it!