Mar
16
Data is a Commodity, Analytics is not a Solution
Filed Under B2B, Big Data, Blog, data analytics, Financial services, Industry Analysis, internet, Publishing, Search, Thomson, Uncategorized, Workflow | 1 Comment
This will only get worse. The latest announcement from the Thomson Reuters GFMS service, the premier data analytics environment around gold and silver, indicates that their Copper commodity service on Eikon now moves from mining company to mine by mine performance. “It all adds another data-rich layer of fundamental research to our customers’ copper market analyses” says their head of research. And there, in that line, we have a “fundamental” issue that lies behind the torrent of announcements we see in the B2B sector at the moment. Think only of Verisk buying Wood Mackenzie last week at a price which went well beyond the expectations (17X ebitda) of counter bidders like McGraw Hill, and which shocked private equity players who relish the data sector but find it hard to imagine 12X as an exceedable multiple. The question is this: Risk management and due diligence are vital market drivers, but they are data-insatiable; any and all data that casts a light on risk must be included in the process; it is the analysis, especially predictive analytics, which adds the value; so who will own the analytics – the data companies, the market intermediaries (Thomson Reuters, Bloomberg etc), or the end user customers?
Those of us who come from the content-driven world – they were out in force at Briefing Media’s splendid Digital Media Strategies event last week in London – find this understandably hard to argue, but our biggest single threat is commoditization. Even more than technology disruption, to which it is closely related, data commoditization expresses the antithesis of those things upon which the content world’s values were built. When I first began developing information services, in pre-internet dial-up Britain, we spoke lovingly of “proprietary data”, and value was expressed in intellectual property that we owned and which no one else had. For five years I fought alongside colleagues to obtain an EU directive on the “Legal Protection of Databases”, so it is in a sense discouraging to see the ways things have gone. But it is now becoming very clear, to me at least, that the value does not lie in the accumulation of the data, it lies in the analytics derived from it, and even more in the application of those analytics within the workflow of a user company as a solution. Thus if I have the largest database of cowhide availability and quality on the planet I now face clear and present danger. However near comprehensive my data may be, and whatever price I can get now in the leather industry, I am going to be under attack in value terms from two directions: very small suppliers of marginal data on things like the effect of insect pests on animal hides, whose data is capable of rocking prices in markets that rely on my data as their base commodity; and the analytics players who buy my data under licence but who resell the meaning of my data to third parties, my former end users, at a price level that I can only dream about. And those data analytics players, be they Bloomberg (who in some ways kicked off this acquisition frenzy five years ago when they bought Michael Liebrich’s New Energy Finance company) or others, must look over their shoulders in fear of the day when the analytics solutions become an end user App.
So can the data holding company fight back? Yes, of course, the market is littered with examples. In some ways the entire game of indexation, whereby the data company creates an indicative index as a benchmark for pricing or other data movement (and as a brand statement) was an attempt to do just that. Some data companies have invested heavily in their own sophisticated analytics, though there are real difficulties here: moving from that type of indicative analytics to predictive analysis which is shaped as a solution to a specific trader’s needs has been very hard. Much easier was the game of supplying analysed data back to the markets from which it originated. Thus the data created by Platts or Argus Media and the indexation applied to it has wonderful value to Aramco when pricing or assessing competitive risk. But in the oil trading markets themselves, where the risk is missing something that someone else noted, analysts have to look at everything, and tune it to their own dealing positions. Solutions are changing all the time and rapid customization is the order of the day.
Back out on the blasted heath which once was B2B magazine publishing, I kept meeting publishers at DMS who said “Well, we are data publishers now”. I wonder if they really understand quite what has happened. Most of their “data” can be collected in half an hour on the Open Web. There is more data in their domains free on DBpedia or Open Data sources than they have collected in a lifetime of magazine production. And even if they come up with a “must have” file that everyone needs, that market is now closing into a licensing opportunity, with prices effectively controlled, for the moment, by those people who control the analytics engines and the solution vending. Which brings me back to Verisk and the huge mystery of that extravagant pricing. Verisk obviously felt that its analytics would be improved in market appearance by the highly respectable Wood Mackenzie brand. Yet if a data corner shop, let alone Platts or Argus Media, were to produce reporting and data that contradicted Wood Mackenzie, anyone doing due diligence on their due diligence would surely demand that Verisk acquire the dissenting data and add that to the mix? If data really is a commodity business, far better to be a user than an owner.
Mar
9
“RELX, not Relicts!”
Filed Under B2B, Big Data, Blog, healthcare, Industry Analysis, internet, Publishing, Reed Elsevier, STM, Thomson, Uncategorized | Leave a Comment
It was a simple enough mistake to make. As I read my screen and saw the announcement two weeks ago I passed on the news to an American friend on the other side of the room. The response prompted the correction from me at the top of this page: Reed Elsevier have renamed themselves after their new stock exchange identity, and are not actually inviting us to call them also-rans. Everyone will appreciate the logic of removing the dual identity and the double quote and the difficult accounting exercise to keep these two trading identities in the market together. But I am left wondering if there is not another, almost subliminal, market message being left here, one to which perhaps even the senior management of RELX are oblivious. Coming a month after the death of Ian Irvine, one of the architects of the deal that brought Reed and Elsevier together, it made me wonder whether the real meaning here is a totally different orientation for the new group, one which would have invited the snarling displeasure of Dr Pierre Vinken, at whose insistence the Dual Monarchy was originally created and launched in January 1993.
Whatever else it is, an “Elsevier” is a book, and indeed in the nineteenth century became the term of use for a pocket book, the contemporary version of a paperback. Reed was a nineteenth century paper company. In some ways therefore these resonances should definitely go, especially since underlying brands like LexisNexis or Elsevier Science remain in place. Perhaps then we are being told that RELX is a bundle of brands invested by a quoted umbrella organization. That would be consistent enough with practice in recent years, and one can imagine that the new structure, the single quote, and the name are designed purely as a play to investors, and have been sold to employees on that basis. After all, one of the lamentations of successive generations of Reed Elsevier management over the years since 1993 has been that the European markets have consistently under-rated the company. After a couple of years of share buy backs and consistent dividend policy, now is the time, one can almost hear them saying, to move away from Reed Elsevier as the sluggish market benchmark in Europe, and re-align RELX as a more dynamic growth vehicle with a much improved rating. And all those with bonus scheme equity holdings not yet vested should cheer that relaunch!
And yet… there are some real risks. The views of investors are always short term and their analysts are as often wrong as right. Does Claudio Aspesi* know more than the professional management of Elsevier Science about what happens next in Open Access? I doubt it, but his views, from his influential desk at Sanford Bernstein, have certainly driven the share price of old Reed Elsevier more than many management announcements in recent years. Further, if you are a bundle of brands represented by a stock market ticker symbol, it is open to everyone in the market to rate you on that brand composition for short term interests. Thus it is now possible to read RELX critics who find the stock “unbuyable” until Lexis Law is divested, or who think Elsevier Health Science is too small in market share terms and should be merged with WK Health and then “IPO-ed”. I wonder who would profit most immediately from that, if not the market-makers themselves? I am not here concerned with whether either of these moves is feasible or desirable: just with the idea that if your focus is unbalanced in the direction of the market, you tend to be driven to appease market sentiment. And market sentiment is a quicksand.
Will it matter to lawyers or scientists that they now buy, ultimately, from RELX? Probably not at all. So what then is the issue? Really one of short versus long term. RELX has a history in science and law and some key business sectors that gives them two advantages. They have experienced management who have shown themselves close enough to ultimate users of information to allow them to judge likely outcomes. Timing is everything. When to press the button is just as important as all the other decisions in new product development. And new product development is going faster in these sectors than ever before. Is that a good time to swap areas of expertise within the portfolio, bringing in areas to which senior management have not been previously exposed and forsaking areas of traditional strength? Or is it a time for long term investment, active acquisition and development programmes, such as the ones that built Elsevier Science, which reposition the brand in the forefront of the marketplace but which take correspondingly long periods to pay back? Whatever choices are made, they surely begin in the market place and end by being packaged for potential investors. It is hard to believe that successful schemes can be created that begin with assessing what investors will swallow, and end with creating market interventions that fit that paradigm.
Fortunately I can end with a suggestion which will please all parties. In 1997-8 RELX attempted to merge with Wolters Kluwer. Why not bring it on again? WK is said to be selling its transport B2B division at the moment, just another of the long list of market exits since the European Commission made its competition opposition clear in 1998. There are now no education or STM assets at WK to get in the way. In the US there would be Health sector competition issues (though there are now other very large content players), but with Bloomberg BNA swarming into the tax market alongside Thomson, combining WK and Lexis on the tax side would make sense. In Europe, Lexis-WK would be powerful in France, though Lexis left Germany to WK, so no competition issues there. Long term bets on the Eurozone would not make the analysts happy, but lawyers in France and Germany are likely to be busy whichever direction the currency takes. And above all, for all of those investors who have boosted the WK share price for 17 years in the hopes of just such a denouement – a payoff!
RELX is not the only player to feel these tensions. Every quoted company is subject to them in one way or another. It is what management do to make these tensions creative and not negative that makes the difference. RELX? RELaX, not RELICTS!
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