The Art of Buying the Market

R. Pritchard

Summary Bullets:

• Partnership positioned as a digital transformation of the London Stock Exchange Group’s (LSEG) technology infrastructure and data analytics using the Microsoft cloud and supporting over 40,000 Refinitiv financial institutions.

• Co-creation of such ‘foundational platforms’ by super-sized tech companies also have the advantage of ‘locking in’ customers for future revenues – if the regulators don’t intervene.

Co-creation is a growing trend across the technology market: It is the process of forming a close partnership or even joint venture to enhance customer solutions using technology in a digitizing world. The theory is that both large enterprises and their technology partners benefit from inventing new products and services, combining technology with deep industry knowledge.

Microsoft and the LSEG, including its Refinitiv data services unit, are looking to work together to address the financial services market with “next-generation data, analytics, and workspace solutions.” The agreement will focus on Microsoft’s cloud and AI capabilities to help finance sector customers transform their evolving digital operating environments. Refinitiv supports over 40,000 financial institutions in 190 countries, so this is a very substantial and potentially lucrative market for the new strategic partners.

The new co-created “open and centralized financial data platform” is positioned as an enabler of data democratization, collaboration, and monetization opportunities across the financial services ecosystem. It will see the creation of LSEG Workspace on Microsoft Teams, with an initial focus on interoperability between LSEG Workspace and Teams, Excel, and PowerPoint and with a new version of LSEG’s Workspace to be added within Microsoft 365 in the future. Microsoft estimates the partnership could generate an additional $5 billion in revenues over the next 10 years.

As part of the strategic partnership, Microsoft will buy an equity stake of approximately 4% in LSEG for about $1.8 billion. This is not the first deal of this nature (Google and AWS have signed similar agreements in the finance sector). In the broader market, service providers are increasingly looking to co-creation (with or without equity) for the development of new services.

There are multiple angles to such strategies: Close partnerships can help tech companies develop propositions with their larger customers – which makes sense because everything is digital these days and there is a shortage of key IT skills around the world, making the partnership approach a logical choice. But on the other hand, it could be argued that the dominant tech companies are ‘stitching up’ markets to capture future revenues and control significant groups of customers, albeit indirectly. Governments face a dilemma as they compete to encourage national tech leadership but simultaneously rely on (mainly US) tech platforms. They are also hyper-sensitive to issues like tax avoidance and encouraging market competition – the problem is it’s impossible to compete without viable home-grown players. With current scrutiny of big tech growing, it will be interesting to see if the regulators will choose at least to investigate, if not to intervene.

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