Authors: Ravi Madapati,
ICMR (IBS Center for Management Research).
“We are pleased with the progress we made this quarter in what continues to be a tough market. Revenues were in line with our expectations and we saw some good sales wins. Fast Forward is gaining momentum, and I personally am focused on creating a fast, accountable, service-oriented team at Reuters.”
- Tom Glocer, Chief Executive, Reuter Group1
In early 2003, Thomas Glocer (Glocer), wondered why the optimism generated by the completion of 150 years of Reuters had died in little less than a year. Reuters, the financial-information firm headed by Glocer, seemed to be in serious trouble, with a loss of $740 mn in 2002, 3200 jobs had been cut during the period 2001 and 2002 and another 3000 planned in 2003. The company's fall had been sudden. Until 1997, Reuters had been the undisputed leader in its market. With 40% of the world market2 it dwarfed Bloomberg, its upstart American competitor. But since then, Bloomberg had doubled its market share at the expense of Reuters. Reuters' electronic share-trading operation, Instinet had accumulated substantial losses. Reuters' core business, the terminals it served, had fallen by 18%. Reuters' average revenue from each terminal was down to a quarter of Bloomberg's.
Reasons behind the Fall
For a long time, Reuters' grip on news and financial information had been ironclad. But by the end of 2002, its market capitalization plunged by almost 90% from its peak of € 34.4 bn.
In July 2002, Reuters posted its first loss since becoming a public company about 18 years back. Reuters not only made a loss but it almost lost its place in the FTSE-100 index. It lost a billion-dollar contract with Merrill Lynch to Thomson Financial. The precipitous fall of this famous information provider had no simple explanation with analysts citing many reasons. Gloomy equities markets had reduced the subscription to the firm's brokerage services. A weak economy had reduced the demand for investment banking services. Institutional investors had reduced their exposure, which resulted in weak demand for its asset management services. Even before the post-bubble downturn hit financial firms, bank mergers had led to a consolidation of trading rooms and cancelled Reuters' contracts. Since then, lay-offs had hastened the trend. Reuters' news service, which earned 10% of revenues, was hurt by the slump in the media business.
But some analysts believed that Reuters' cyclical troubles were only hiding more serious structural problems. At the higher end of the market, Bloomberg had snatched business from Reuters, offering one product, sold at one price compared to Reuters' many offerings. Bloomberg's service was also perceived to be superior to Reuter's and its colorful terminals were also trendier compared to the conservative look and feel of Reuters. During boom times most banks had let their traders keep both the terminals; but when crunch time came, most stuck with Bloomberg. At the same time, the bottom end of the market had been commoditized by a combination of Internet start-ups and newer operators such as Thomson Financial (Thomson), Moneyline, Telerate and Proquote. Such companies sold cheaper, more basic packages to clients who did not need sophisticated packages. Proquote charged about $200 a month for its most basic service. Even Reuters' news service was no longer indispensable. A trader could get the news from a much cheaper source such as Dow Jones Newswire. With 2,500 journalists in 198 bureaus, this was proving to be a costly business for Reuters.