We’ve seen it played out over and over again. The internet has enabled consumers to go directly to the production plant for disintermediated product. Covered in detail in Michael Lewis’ book, Next, the internet has upset age old business models, putting raw materials within reach of the everyman and providing a platform for a thousand new business models to bloom. 2004 was another banner year for online vendors as more go with a source that, because of its virtuality, can offer better inventory and price that a brick & mortar counterpart. Amazon vs. the Mall; it’s like watching mountains crumble into the sea.
Today’s announcement by Yahoo that it will source quotes directly from the stock exchanges is another notch towards the reinvention of the information industry. Reuters, the traditional source of market data, built its business on charging a premium for market data which it sourced from the markets, both in bulk from the exchanges, but also aggregated, from the banks that wanted to list their prices on the Reuters network. It is rare when you have a business model that allows you to charge not only for subscriptions but also for contributions. As any CEO of a public company will tell you, it is hard to fix something until it’s broke.
“This significantly increases our ability to extend our brand outside of our network,” said Craig Forman, vice president of information and finance at Yahoo. “We will have more control of financial information that we can then distribute.”
Depending upon the deal they cut with the exchanges, Yahoo may become the preferred provider of market data on the internet. Superior price and integration options are something that I’m sure they will aspire to and advertising can help offset their costs, an option that’s not part of Reuters’ corporate DNA. Abstracted to our earlier example, is Yahoo going to become the Amazon of Financial Data while Reuters continues to charge a premium for access to a relatively closed network of proprietary information? We certainly do live in interesting times.