The spend on Enterprise Data Management is real & large (estimated at $4 – 6 billion dollars annually), currently fragmented yet emerging and well suited to a expert solutions portfolio approach.
The total industry spend on Data Management in the market place is estimated by Tower Group to be 4-5 times the spend on content. Based on Tower Group, given an end-of-day content spend of $1.9 billion, the total market spend could approximate $8-10 billion. This analysis does not include an estimate of client/counter-party data spending (which is believed to be a hot topic),real-time data, internal data or a variety of indicative data. Most analysis maintain that clients will be required to keep some minimum base-line operations for data management no matter what vendors may provide, thus, the “addressable” market is thought to be in the range of $4-5 billion. These estmiates have been corroborated by research done by Aite, Gartner, and others. This analysis does not distinguish how the market will be realized (ie software, outsourcing, professional services). It is too early to tell.
Why Now ?
Why is data management gaining strategic momentum among global financial institutions?
- Firms started thinking about the problem as a reference data problem for STP, others were thinking about it as a data problem for market risk management, others viewed it as a compliance issue, others as client/counterparty data problem, some as a security master issue and still others view is as data for analytics and decisions. Data Management is ALL of these things and more. If firms do not approach it at the enterprise level, they will see duplication of costs across various business units, particularly as regulation forces disparate business lines to continually adapt their systems. It is no longer good enough to just have good, clean data. Workflow, business process, and the operational impact need to be addressed. Data initiatives are more and more tied to the business strategy, and with redundancies exposed, a more holistic view of the problem is necessary
Standards & leadership
Is it necessary for the industry to work towards industry wide reference data standards?
- Yes. Like anything in this industry, benchmarks and standards are required. The existence of standards & best practices will allow firms to focus on doing their real work vs thinking about the rules. Currently, the re-invention wheel is in overdrive, as firms are working to establish their own rules, methodologies, workflow processes, and specifications for what are essentially common industry problems. This is great for integration vendors who want to leverage their intellectual property, but it is bad for client firms, since many of these methods and practices are increasingly common across even the most significant of players, and there is little competitive advantage as a result. Also, regulatory agencies will no doubt prefer to audit a firm’s processes with known and accepted standards.
The Next 12 months
What role, will the consolidation of vendors play in this space in the next twelve months?
- For many years, data management has been widely acknowledged as a real problem area. However, in good times, and in the absence of strict regulation, many banks either did nothing, or developed expensive and limited solutions in-house. This was mainly because, while undergoing external research, they found no strong vendor leader with the right long-term commitment, subject matter expertise, and assets necessary to make it work. The consolidation of vendors, and the emergence of strong players committing dollars and expertise, is gradually tipping the scales. The emerging market is ripe for strong players to make a play. It’s similar to what happened in risk management, ERP and trading room software.
Do the challenges firms face with reference data lie more with the vendors or the end users?
- End users. While the vendors are falling over themselves to analyze, define the space, and understand the subject, selling the big picture internally is a full-time job. The ability to navigate through an organization and deal with all the politics can drive the success, or in some cases the failure, of any major data initiative. And the further issue of integration? Getting the data into end user applications is key to the success of the total project, and the challenges are on many levels. Recently, we have seen the emergence of the Data Management Office (DMO) facilitating the education of senior management to understand the issues and benefits of an enterprise approach, addressing such issues as ownership, prioritization, resource allocation, funding, project management, etc.
Are firms utilizing reference data as a source of new revenue or are they still just viewing it as a cost?
- There is a growing belief today among top-tier clients that data is a great source of potential revenue, not only reference data but pricing data, real-time trading data, stock loan data, manufactured data (e.g. indices), etc. All are now for sale from client firms. In addition to driving revenue growth, benefits also include enhancing the firm’s overall service package and branding. The emergence of spin-off’s from banks and even software vendors endorses the view that data content is a valuable bi-product. These firms are looking for distribution channels, and are in effect becoming data vendors in their own right, experiencing the same problems and issues as traditional data vendors. There has been a lot of talk of data “sharing” models or peer-to-peer data “exchanges” for proprietary data.