Will financial information become the next “commodity” data?

Bernard Lunn of SemanticWeb, wrote a great post on XBRL and the impact it can have on the different layers of the stack using financial information. His article is greatly detailed  so if you haven’t done it yet: read it!

As quoted in this other article on XBRL Financial Information :

“Anyone can get the information [from the online SEC XBRL filings] and read it, but how to make good use of it is another thing,” Rong says. Today a lot of money is spent on services from companies like Bloomberg and Thomson Reuters to help them summarize and understand the data. “What we do as a business is to make the consumption of the XBRL based digital financial information easier, faster and automatic. That’s the fundamental idea or value

1 .The basis of financial analysis was a time and resource consuming job of data gathering, input in Excel models and analysis. With the introduction of open financial data format, this work will disappear and automated models will be able to run high level comparative analysis. The commoditization of financial data will make it possible for small companies and small shops to efficiently provide financial analysis. (For parallel, the same process happened when ETF commoditized the base of Fund Management by automating strategies and reducing the role of the Fund Manager).

From my understanding, Trefis is a perfect example of this evolution. Built by MIT students and finance specialists, it provides detailed financial analysis for several companies within a small startup structure, which would not have been possible before. It also allows users to modify the values of key hypothesis to verify how models would evolve under different circumstances and propose their own numbers. The commoditization of financial data has clearly made possible the emergence of new services providing financial analysis for free or a fraction of the price it would have cost before.

Another company aiming at the financial analysis market is ValueCruncher, which provides a platform for interactive analysts reports.

2. On the other hand, other players could benefit from this evolution: Yahoo and Google mainly. Yahoo and Google Finance have made the basic access to stock market information free (ad sponsored) and could continue to attack the markets of companies such as Bloomberg, Reuters.  ValueCruncher has a great post on what opportunities this disruption in Financial Information provides to Yahoo. Even if I believe it might not be the most fitting candidate for disruption, I agree with the overall run toward complex information due to the commoditization of Financial Information:

“The traditional financial information providers are worried that on-line finance sites could do to them what Craigslist did to newspaper classifieds. Take a multi-billion dollar industry and make it a multi-hundred million dollar industry – with the benefits flowing to consumers of financial information. Financial information market disruption.

The consequence is a push toward value added information for companies like Bloomberg and Reuters. However as seen in the first part of this post, other competitors  are willing to change this market too. What do you think will the traditional financial information players do to address this new competition? (Reuters free platform and move towards blogging show they are willing to challenge these competitors directly)

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  • I am the founder/CEO of Valuecruncher – I wrote the post you link to. It is an interesting space.

    Yahoo deserves big credit for showing that there was a market beyond finance professionals for good enough financial information. But their business is all about advertising – not financial data. So they have not taken Yahoo Finance the next step some of us (finance-types) would like to see. That is even more of a case for Google Finance – where financial information is just more information to organize.

    I do think the incumbents – Reuters, Bloomberg, etc – are worried about the potential for disruption. Credit to them as well – they appear to be responding pretty well. So far. It is their core business – and if I had to pick a winner it would be the incumbents (today anyway).

    I agree that XBRL is a game-changer – and the data that XBRL provides could re-shape the whole landscape. That will be fascinating to watch.

    We are here in the space and have expected that things would move faster – but it is, maybe, bottom of the first in on-line financial innovation.

  • I am the founder/CEO of Valuecruncher – I wrote the post you link to. It is an interesting space.

    Yahoo deserves big credit for showing that there was a market beyond finance professionals for good enough financial information. But their business is all about advertising – not financial data. So they have not taken Yahoo Finance the next step some of us (finance-types) would like to see. That is even more of a case for Google Finance – where financial information is just more information to organize.

    I do think the incumbents – Reuters, Bloomberg, etc – are worried about the potential for disruption. Credit to them as well – they appear to be responding pretty well. So far. It is their core business – and if I had to pick a winner it would be the incumbents (today anyway).

    I agree that XBRL is a game-changer – and the data that XBRL provides could re-shape the whole landscape. That will be fascinating to watch.

    We are here in the space and have expected that things would move faster – but it is, maybe, bottom of the first in on-line financial innovation.

  • yranchere

    Bottom of the first ? I tend to believe it is.
    Another opportunity for Financial Data startups could be to integrate trading capacities through APIs ; as the one launched by E*Trade described in my previous post. The integration of Zecco Zap trade in Stocktwits is setting a precedent.

    However the question remains open as to which platform will be the one that will benefit from the trading activity. Is it while researching data (ValueCruncher, Stocktwits,…), while managing money (in the PFM itself,Mint, Blueleaf,…) or still on a trading platform (online brokers). Other strategies involve reducing complexity on investment option (Betterment, etc..). An interesting bottom of the first for sure.

  • newrulesofinvesting

    Interesting article.

    So many 1.0 firms (particularly ones that follow insider trading and professional holdings) are still focused just on reporting the data. The 2.0 firms, as you say, are helping investors interpret that data and make sense of it. The good ones, like AlphaClone, for example, are helping investors craft strategies around the data. That's truly helpful.

    And agree, totally — 1st inning.

  • yranchere

    Thanks. I agree it seems that the field is somewhat slightly getting leveled between investors and professionals.

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