On Sept. 14, 2010, at a glamorous bash held inside the Grand Central Terminal in New York, Thomson Reuters (TR) proclaimed the dawn of a new era. Under massive lit arches and amid a curated exhibit of Thomson and Reuters financial terminals from decades past, the company unveiled Eikon: a new system representing the culmination and fruition of the 2008 merger between Canada’s Thomson Corp. and British information giant Reuters. In the largest ad campaign in either company’s history, Eikon was touted as a revolution for the financial services industry.
The Eikon platform, which cost a billion dollars and took more than two years to build, gave users access to the two companies’ combined intelligence on one desktop—hundreds of news sources, research reports and analytical and trading tools that brokers, bankers and analysts rely on to weigh investments, assess risk and conduct transactions. The word “terminal” is a misnomer today: Such news feeds used to come on their own proprietary hardware; now, the term simply refers to per-user pricing for the service. But that service is the bloodstream of the markets. Just think of the Wall Street sequel or the recent financial-crisis flick Margin Call: all those charts and numbers arrayed across multiple screens that Shia LaBeouf or Kevin Spacey gape at in horror as the markets tumble? They’re supplied—in almost real time and at hefty subscription prices—by TR, Bloomberg or one of their competitors.
While the Bloomberg name is practically synonymous with Wall Street, TR has been the industry leader. Until recently, it controlled near 40% of the market, compared with a quarter held by its American competitor. Eikon was to turn that lead into domination by revolutionizing how a data terminal looks and functions. Financial professionals are accustomed to screens that “look like airport check-in systems from 30 years ago,” as one analyst puts it. With Eikon, they can join the web age. Incorporating social media, intuitive search and smartphone apps, the system is sexy in an arena as dry and arcane as futures spreads.
For its parent, Eikon embodies the rationale for the $17-billion merger (all figures in U.S. dollars). Over the years, Thomson and Reuters had each acquired a huge hodgepodge of brands and tools, all supported by their own development and sales teams. In building Eikon, the company aimed to cut out overlaps and bring the many product lines onto one seamless platform that users could access from a single screen. “In essence, we’re simplifying the company,” Devin Wenig, head of TR’s Markets division, responsible for Eikon and other services for the financial industry, said at the time.
More than a year after the launch, Eikon isn’t changing the game so much as losing it. At year-end, only about 8,000 desktops around the world were running the system. The market data division, which accounts for more than half of TR’s revenue, eked out 1% growth in the second and third quarters, and its dwindling fortunes forced the company to take a $3-billion charge in the fourth quarter, pushing it into a steep loss. Most damningly, Bloomberg LP, founded by New York Mayor Michael Bloomberg, has been gaining ground on its arch-rival. In 2010, while the financial analytics market grew by 4.3%, Bloomberg sales jumped 10%—often at the expense of TR. Industry research firm Burton-Taylor International Consulting projects that last year, Bloomberg caught up to TR in market share, with both holding just under a third. According to Douglas B. Taylor, managing partner at Burton-Taylor, not only are new prospects choosing Bloomberg over TR, but TR clients are leaving for Bloomberg. All this is a big blow for Canada’s richest family, the Thomsons, which owns 55% of TR’s stock through its Toronto-based holding company, Woodbridge. The Thomsons and Woodbridge president Geoff Beattie spearheaded the merger with Reuters, envisioning massive efficiencies and a broadening of both companies’ business. “Eikon has been a big deal for the company for years,” says a person close to TR. “This was Geoff Beattie’s deal.” With Eikon underperforming and TR stock ending the year down 36% from its 2011 peak, the Thomson brass are deeply unhappy. “These guys are tough: you’ve got a job to do, don’t screw it up,” says the close associate.
They made their displeasure clear over the past six months by progressively ousting almost every senior executive linked with Eikon, most of them former Reuters people. A new CEO, Jim Smith, took over last month—a 25-year Thomson lieutenant, backed by Thomson loyalists. It’s serious now: people are questioning the merger’s wisdom, Canada’s business royalty is losing money—and face—to a Yankee upstart, all while the industry faces a deep slump. Smith’s job No. 1: fix the nifty new tool that’s dragging the company down.
Thomson, Bloomberg and other purveyors of business data were Information Age companies before the term was coined—and, unlike many other publishers, they never made the mistake of giving their product away for free. In finance, where up-to-the-second data are an especially valuable commodity, Reuters led the field. While it may be best known for its news service, the company pretty much invented the market for real-time financial news and derived 90% of its revenue from it. Then, in the early 1980s, a cocky young trader named Michael Bloomberg used his severance from Salomon Bros. to hire code jockeys to build him a financial news service and trading platform for stock and bond traders—the heart of Wall Street. It was “kind of a virgin terrain, and Reuters people viewed them as a niche player,” says Taylor, who used to work for Reuters. Bloomberg built out the system’s features based on its users’ priorities, fostering customer loyalty. Perhaps most important, Bloomberg offered a proprietary instant-messaging system that made it a pioneer of social networking. “People in equity and fixed-income trading have become highly dependent on Bloomberg’s IM feature as a key tool for daily activity,” says Claudio Aspesi, an analyst with Sanford C. Bernstein in London who tracks the industry. “It’s very unsophisticated technology in many ways, but because it’s a community, it makes Bloomberg extremely sticky.” Bloomberg also created one of the first online portals, augmenting financial data with job listings, sports information, even links to Brooks Brothers.
Thirty years later, “the Bloomy” is a staple of trading floors and research desks, especially in North America. At $20,000 a year per desktop, it’s the priciest player on the market. And the system looks largely the same: orange script on a black screen, and run by typed commands right out of MS-DOS. But mastering Bloomberg shows that you’re serious about making money. “It’s perceived as the Mercedes product,” says Taylor. “If you have a Bloomberg, you have the ultimate terminal.”
Cutting into Bloomberg’s lucrative and prestigious Wall Street franchise was just one reason why Thomson and Reuters decide to wed. The two companies were a snug fit. Thomson’s strength was serving legal, accounting and other professional markets; Reuters focused heavily on broader financial services. There were few overlaps and lots of potential synergies; the two companies envisioned wringing out US$500 million in efficiencies within three years.
They also faced a common challenge in rationalizing numerous acquisitions over the preceding years. Thomson Financial was the result of some 50 deals stitched together through the 1990s after the company decided to shift away from newspapers to professional information. Reuters had also acquired various niche players, each of which had come with its own support infrastructure. The merger at first compounded the problem. TR’s invoices looked like phone books. “Something had to be done anyway,” says Aspesi. “They could justify [developing Eikon] just because of the cost benefit” in simplifying the combined product line.
Many were surprised that it was Tom Glocer, CEO of the smaller Reuters, who became chief executive when the deal closed in April 2008. But the American lawyer had proved his executive chops by putting Reuters back on track after its near-collapse around 2000. He was also tech-savvy (he can write software code), had a high industry profile, and had already started shifting the company toward the kind of open, web-based system that Eikon would become.
The idea behind Eikon was not just to consolidate TR’s financial products but to bring them into the 21st century. “The financial information industry hasn’t changed much in over a decade, which is kind of astonishing for a such a dynamic sector,” says Philip Brittan, a former Bloomberg executive that TR poached from Google six months ago to oversee Eikon. “People coming out of business school have a new way of looking at the world. People in our industry need to be hip to that new set of expectations.” Eikon looks and works like Google, Twitter and a news portal all in one.
It’s been a massive investment. A thousand clients took part in beta testing. Two thousand developers are employed in supporting it. Many early reviewers complimented the intuitive interface. But in rushing to get the system out, TR launched Eikon incomplete, failing to deliver on some key promises. Users have complained about the poor integration of historical data and real-time services. And, in an industry that lives by speed, it’s sluggish—which had been the key knock against Reuters 3000 Extra, Eikon’s most direct predecessor. An internal TR memo revealed that even employees were complaining about the system’s speed and performance.
The rollout also hit snags organizationally. The sales push was fragmented among remnants of earlier product teams. And Eikon’s uptake has been particularly disappointing among institutional investors and asset managers. They’re a more lucrative market than brokers and other sales professionals because they make a lot more money for their employers, and thus have more to spend on services. “The buy side drives so much,” says Taylor. “It has such deep pockets and is not particularly price-sensitive. Capture the buy side and the sell side will follow. And Eikon has not addressed that space well.” In fact, since Eikon’s launch, TR has been losing market share in this vital sector.
If Eikon was intended as a Bloomberg killer, TR underestimated Bloomberg’s strengths and its clients’ loyalty. The phenomenon of “software lock-in”—once you’ve mastered a tool, you’re loath to switch, even to something better—is particularly strong in finance. People fear that learning a new system will cause delays, and a mistake could cost them millions. When the TSX tried to replace the custom keyboards that came with its electronic trading system with QWERTY versions, there were fist fights on the trading floor. Dan Humphrey, head of technology at Codron Capital, a Toronto-based high-frequency trading firm, recalls trying to get a former boss at one of the big banks to adopt new tech and regularly getting rebuffed. “He’d say, ‘Why would I change something when it’s working?’” It doesn’t help that financial firms, whose budgets are being squeezed, would face retraining and integration challenges. “When you learn to make money with something, the first thing you tell [your boss] is, ‘Don’t touch my fucking screen,’” says Doug Steiner, former CEO of ETrade Canada who now consults on technology with Bay Street firms. “The interface on Eikon is far easier. But people make money with Bloomberg.”
There’s also a deep cultural element at play. Bloomberg’s very complexity and arcane nature are key parts of its draw. Todd Toler, an interface designer at a U.S. publishing company, compares the Bloomberg screen to NASA’s old mission control. “The black background on terminal-style interfaces is an established idiom in serious ‘engineering’ cultures where real-time, data-centric analysis [has] high stakes,” he writes on his blog. “It is the look of serious people doing serious business.” Mastering Bloomberg codes and macros is like knowing the language of a secret fraternity. Its exclusivity conveys status. Bloomberg brass know well the power of the system’s iconic look. “We have to be religiously consistent,” Lex Fenwick, one of the company’s top executives, has said. “You can see a Bloomberg from a mile away.”
Halfway into 2011, the Thomsons had lost patience with Eikon’s stumbling rollout. Nine months after launch, fewer than 25,000 of the roughly 400,000 end users of TR’s financial products had moved over to Eikon, and only 3,500 new users had signed up. The company’s share price was back to the same level it had been at merger time. In late July, the Markets division underwent an overhaul, losing six top executives, including its leader, Wenig. He had been a close Glocer associate: he was the first person Glocer hired when he took the CEO job at Reuters in 2001 and, prior to the merger with Thomson, Wenig was seen as Glocer’s likely successor. Glocer took direct control of the division, promising to simplify its structure, realign the sales force and, most important, ramp up Eikon’s sales.
But there was no quick turnaround. The fall brought another anemic quarter for Markets, while TR’s other division—which largely runs Thomson’s legacy business serving legal and other professionals—powered ahead at 10%. Glocer pointed out that at a time when financial institutions are besieged by sagging profits and heightened regulatory scrutiny, they’re reluctant to switch to something new. But he didn’t put all the blame there. “I wouldn’t have fired half the team if things were going swimmingly in Markets,” he admitted in November during a conference call with analysts. He predicted that revenue growth would return…in 2013. That wasn’t soon enough for the Thomsons: a month later, Glocer followed his protege out the door.
While TR and Bloomberg dominate the US$24-billion global financial data market, there are more than a dozen other suppliers with various niche strengths. Almost all are being challenged by the financial industry slump, which is causing client firms to cut back on subscriptions and reduce the number of vendors they use. This has led to diversification efforts. Bloomberg is now making a big push for the professionals who are Thomson’s traditional turf, beefing up its Bloomberg Law service, a research tool for lawyers, to compete squarely against TR’s Westlaw service, the market leader. This month, Bloomberg launched another salvo across TR’s bow by unveiling a new tool that will let clients freely access information for which TR charges fees. The private company has said it expects its fiscal 2011 revenue to rise 11%, to $7.6 billion—a much steeper growth curve than the 2% Burton-Taylor projects for the industry. The two companies’ market-share trajectories sum up the momentum: both now have around 31%, but for Bloomberg, that’s up from 25% in 2005; TR is down from 37%.
Last summer, after the management shakeup, Glocer acknowledged his rival’s accomplishments. “Thomson Reuters is dealing with a very powerful competitor. Bloomberg—fortunately for Bloomberg and unfortunately for Thomson Reuters—has not made mistakes.”
Righting TR’s mistakes now falls to Jim Smith, who was running the thriving Professional division until September, when he took on the job of TR chief operating officer and the Professional and Markets divisions were merged under his command. Described as a pragmatic and approachable guy, Smith had been expected to succeed Glocer, but not quite so soon. A Thomson employee since 1987, he was the COO of Thomson Corp. at the time of the merger, and has long been close with both Geoff Beattie and the Thomson family. Now, observers expect him to get tough on cost cutting and product improvement.
TR plans improvements for Eikon in the first half of this year, and observers believe the product will eventually gain acceptance. What’s unclear is how long it will take, and at what cost to TR’s market position. The Thomsons have, in effect, bet the company on Eikon, and there’s no walking away from it. Says Brittan: “Eikon as the focal point for the entire company can’t be overstated: that’s our vision. It’s making real the promise of the value of the synergy.”
But behind closed doors, TR executives may be confronting a disheartening realization: that even a huge investment in state-of-the-art technology, which is in many ways superior to its main competition, may not be enough to reverse its slide and Bloomberg’s gains—“which goes to the core of how entrenched Bloomberg is,” says Aspesi. TR admitted last year, he says, that it doesn’t expect to regain the market share it’s lost any time soon. In what promises to be a very tough year in the financial markets, amid economic weakness and European instability, Thomson Reuters may have to significantly change its game plan. “The merger could not have made more sense,” sums up Taylor. “The strategy is still sound. But the tactical implementation just hasn’t worked.”