Reuters in Crisis



Authors: Ravi Madapati,
Faculty Member
ICMR (IBS Center for Management Research).

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Reasons behind the Fall Contd...

In fall 2002, Reuters lost out after a bitter contest with Thomson to replace Merrill Lynch's (Merrill) archaic in-house market-data services in a contract valued at $ 1 bn. The terms were not disclosed but industry experts speculated that Thomson had undercut Reuters by as much as $50 mn a year. Reuters alleged that Thomson appeared to be desperate to save its business and hence such heavy undercutting. But many industry specialists felt that the loss of the contract was symbolic of the reversal of fortunes at Reuters. With cost-cutting a priority among its customers, Reuters had been fighting to maintain market share in a highly competitive business. Reuters seemed to be increasingly squeezed between the premium data service operation of Bloomberg LP, which charged customers with multiple terminals $1,350 a month, and the lower-priced services of providers such as Thomson Financial, whose services cost about $500 a month.

Reuters had been seeking to reduce the costs of delivering information and upgrade the analytics3 - so that it could move into less expensive products.

The loss of the Merrill Lynch contract was one more setback for the company. More than 90% of Reuters' revenue came from sales to the financial services industry, either directly or through its stake in Instinet. The rest came from sales of the company's news services to other news organizations. Though Reuters remained relatively strong in the news and equities businesses, Bloomberg had redefined the rules of the game. Reuters' terminals were packed with information but left users to draw their own conclusions from the data. Bloomberg believed users wanted tools for applications such as calculating the return on securities and comparing investment options.

So Bloomberg established a new business to supply terminal concept to his ex-colleagues in Wall Street and abroad. By combining real-time prices with the tools that Reuters lacked, he met an unfulfilled customer need. Like Reuters a century earlier, Bloomberg rolled his core product out to a broad base before adding text-based news whose quality rivaled what Reuters and others offered.

Reuters meanwhile, was feeling the negative impact of size and success. The company had missed market trends like instant messaging, which Bloomberg added to create another industry standard. In trying to become everything to everybody in the information-services game, Reuters had found itself caught between players like Bloomberg focused on the premium segment and Thomson, who used price as its lead weapon.

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3] Analytics are the equations allowing traders to get customized portraits of a given security.