In 2011 the cloud finally went from an unproven curiosity to an accepted mainstream technology solution. In 2012 we will witness the deepening penetration of the cloud into the consciousness of multiple industries. Â The market data industry is an interesting case in point because the major industry trends are all pointing to the rapid adoption of an on-demand cloud-based market data solution.
Let's review each of these trends individually to understand how important the cloud will be for the market data industry in 2012:
1. Market Data Supplier Economics
The suppliers of market data are in a state of flux. On one hand, the cost of business is soaring with the new technology resources required to support sky-rocketing message rates, microsecond execution, and new regulation. On the other hand, the exchanges are experiencing sluggish revenue growth. Traditionally exchanges had four distinct sources of revenue: 1.) execution; 2.) listings; 3.) clearing; and 4.) market data. Of these, only market data is growing, while the others have either completely dried up or are not likely to be a significant source of revenue in the future. Â The exchanges have responded to these unfavorable economics with a wave of consolidation in an attempt to reduce costs but the health of the industry depends on growing the revenue side of the equation. The exchanges understand that their best revenue strategy is to distribute their most valuable asset, market data, direct to consumers. This strategy has already seen success with the exchanges offering direct feeds, co-location, and other services to their low-latency clients.
In 2012 we will see more exchanges begin to focus on the largely untapped segment of consumers who need market data, such as historical trade and quote data, but are not latency sensitive. This is potentially a huge revenue source for the exchanges and is ideally suited to the on-demand market data cloud. Forward-thinking exchanges such as CME DataCloud, Direct Edge EdgeBook Cloud, and NASDAQ Data-On-Demand, have already moved in this direction, but 2012 will be the year that many more exchanges embrace the market data cloud to sell directly to consumers.
(Read more about how the exchanges are embracing the cloud in our recent blog post - Cloud Strategy for Exchanges and Financial Markets.)
2. Market Data Consumer Economics
As with the suppliers of market data, consumers are also facing an uncertain future. For many consumers, particularly in the financial services industry, the whole process of data management has become overwhelming. The old model of bringing all market data in-house, so that it can be accessed quickly, is under considerable pressure. There is now simply too much data to do this cost-effectively. Another related issue is time to implementation. With intense competition, many investment firms require immediate access to global and multi-asset class market data. Unfortunately, the traditional method of having a vendor add a feed can be a very slow process. Investment firms require a much more nimble solution that allows them to quickly access discrete data sets.
In 2012 we'll see more firms conclude that not all data should be brought in-house. This change in mindset will lead firms to become much more discerning about what data should be stored locally, and what data should be retrieved on an ad-hoc basis from a market data cloud.
3. Proliferation of Mobile Devices
It is clear that we are in the midst of a technological sea change as the world moves from an Internet that is tethered to desktop PCs, to one that can be accessed from anywhere, through a wide array of always-on smartphones and tablets. Many experts predict that by 2014 mobile Internet usage will overtake desktop Internet usage. Already in late 2011 we saw mobile-based local search overtake PC-based search. The mobile Internet revolution will affect the market data industry greatly as apps and websites designed specifically for these devices demand more and more market data. An on-demand market data cloud is ideally suited for this mobile revolution because mobile apps typically require only discrete on-demand data sets and app developers are not inclined to build their own data management infrastructures. In 2012 the market data industry will experience a huge uptick in demand from theses mobile devices.
(Read more about the proliferation of mobile devices as it relates to the buy-side The 3 Phase Evolution of Buys-Side Mobile Apps.)
Regulation is always a factor in any discussion on trends in the market data industry. 2012 will be no exception, particularly because many of the regulations that were proposed in direct response to the financial crisis of 2008, will either be implemented, or will be at a point in the approval process where we will have a better sense of their likely impact. The main thrust of new regulations such as Dodd-Frank, the Volcker Rule, and Basel III, is to manage systemic risk and to force transparency across the financial services industry. All of the important industry playersÂ will be significantly impacted including the exchanges, the buy-side and the sell-side.Â Complying with these new regulations will involve onerous and costly reporting requirements. These regulatory requests for data will serve to accelerate the adoption of on-demand cloud-based market data solutions because many of the players simply do not have the resources necessary to comply with these and future regulations. It is also likely that regulators themselves will favor cloud-based market data because it will promote industry best practices and transparency.
2012 will certainly be a year to watch for the market data industry and the adoption of the on-demand market data cloud model.Â We can expect to see the 4 major trends outlined above to all converge to make this the year of the market data cloud.