The global marketplace has undergone major changes during the last two years. These varied changes have had a range of impacts on firms, depending on the market sector or geographic location in which a given firm operates.

Though it remains difficult to measure the impact of these changes, one thing is certain: Everyone has been affected. At the highest level, we have suffered a serious decline in the global economy. At the level of individual companies and their employees, everyone is still coping with shocks and after-shocks.

Impact on Content Usage and Sourcing

As an international consulting firm working with organizations to manage and negotiate their contracts for information, content and data, BST International has first-hand experiences with the recession's impact on the amount of data being purchased, the source of the money and how the data is used. The short description is this: The marketplace has imploded. As companies have lost revenues, been forced to merge with other companies to survive or closed their doors, they’ve made major changes in how they use and source data.

As we meet with our clients, we’ve had the opportunity to work through important questions with them. What are their senior executives looking at – is it just budgets, cost controls and funding levels, or are their concerns more nuanced? What costs are absolutely required to keep a company solvent, and what expenses can be safely reduced or eliminated? How does an organisation review its information needs and usage in the wake of redundancies?

How an organisation responds to these questions and challenges has enormous material effect on the mix of data being used.

How Bad Has It Been?

Amidst redundancies, cost reductions, mergers and business failures, the bottom line is that there is less money in anyone’s budget available for data.

Some might argue that current economic events should result in the need for additional data, to be used as a tool to regenerate the business model of the company. Although it’s a plausible concept, it runs contrary to the mandate to contain costs.

In this environment, companies look closely at what is essential to sustain their business. They are drawing distinctions between 'must have' and 'nice to have'. Too often, we find that information is at risk for being classified as 'nice to have' thus a candidate for reduction. In most cases, senior executives understand the value of information; however, they are asking more probing questions about the value of information vis-à-vis expenses.

As part of BST’s market data consulting practice, we work with a number of global companies to review both their data usage and expenditures. Over the course of working with a wide range of companies, we’ve been able to identify some common themes:

• Fewer employees (due to redundancies, mergers, business failures or reorganisations) require data
• Remix of information products made available to end users; focus is on critical requirements, so products are removed or minimised
• Increase in oversight by senior managements on data usage and expenditures
• Cost reduction mandates set for data, similar to other major expense items.

In negotiations with vendors, two trends are common:

• Asking vendors to share in the pain through cost concessions
• Actively seeking alternative contracts and pricing models to reflect the new budget realities.

It is important to recognise that these trends are quite different to what we’ve seen in the past. In recent years, as the level of expenditure on data has risen, we have been drawn in to a number of projects to work on cost measurement and containment. Some of these projects had clear cost reduction targets; others were meant to review potential opportunities. In general, the final decision came down to a choice decision between business requirements and cost saving goals. And at the end of the day, many of these projects resulted in no material changes in data usage and sourcing.

Today’s projects proceed and end very differently. Case in point: One of our clients, a global professional services firm facing board-level mandates for cost reduction, had to decide between reducing people and reducing current data sources. After intense analysis, the client ended up with a mix of cuts for staff and data sources, including remixing and reducing data sources.

In prior years, user loyalty for specific products and perceptions a given product is required for job performance have been obstacles to cost reduction efforts. This too has changed: When the tough decisions are on the table, and the choice is between jobs or data, some preferred products turn out to be less than critical.

In today’s environment, 'good enough' is an acceptable measure – not just in small and mid-sized businesses but in major global firms. Companies are reducing or eliminating products that were previously delivered to employee desktops with little question, and employees are accepting this as part of the new reality.

Who Is In Charge?

Another significant change in information usage and sourcing has to do with who is in charge of data choices. A growing trend of the past five to seven years has to move the management of data away from traditional information and research groups to central sourcing departments. Typically central sourcing is successful in reducing costs for items such as office supplies, travel and furniture, all of which can be purchased solely on volume and best price models. However, central sourcing professionals may be less successful with effective cost reductions in data acquisition, unless they really understand the role that data plays in company business processes.

Various points of view and arguments support both sides of this trend. But the overall trend toward more oversight by senior management, based on keener awareness of the expenditures on data, supports the trend toward central purchasing for data. Many firms have made this into a speciality: Data sourcing professionals offer innovative approaches to sourcing, including consolidation of suppliers, remixing of products and services and new contract and pricing models. Clearly, this trend is here to stay and will only increase in coming years.

Vendor Reaction

How these suppliers have reacted to all of these changes and pressures? There is no unified response covering the majority of suppliers. Suppliers have to run profitable businesses and have the objective to maintain and increase their revenue. But their customers are pushing to rethink and even renegotiate contracts and rate cards.

A vendor’s willingness to adjust depends on a number of factors. One key factor is how essential the data source is to the customer. If the product is vital for their clients’ business processes, or, if the vendor is the only source for the data, the vendor can and will be firm on pricing and usage models. If, however, the data is not mandatory (and remember that the definition of ‘must have’ is under scrutiny), or the vendor is an aggregator and the data is thus available elsewhere, then there may be no choice but to renegotiate.

Most senior sales executives we work with tell us that 2009 has been a difficult year. They are being asked to break contracts mid-term to reflect decreases in usage or fundamental decreases in their clients’ actual budgets. It often comes down to doing what is required for the short term to maintain the long term relationship. Most suppliers have accepted this and have adjusted their pricing models to reflect current market conditions. A minority, particularly those who are essential to their clients, have held firm on their pricing models (some have even increased costs). Of these, several are losing some revenue based on reduced usage levels.

Global Trends

Someone recently asked me if I thought the impact and changes in usage and sourcing data was global: Has everyone been impacted across industry sectors and regions? The answer is yes, with some caveats.

Everyone, in all regions and sectors, has been impacted at some level. Almost every company has lost revenue, resulting in efforts to contain and reduce costs any way possible. Some industries have suffered more than others. Experiencing somewhat less impact are legal firms, which continue to use the same level of data, and consulting firms, which generally have a knowledge-sharing culture reliant on providing employees with data as a part of the cost of doing business.

On the other hand, the financial services sectors have had to take a cut and slash approach, reducing both the number of users and the quantity of services.

Similarly, we see some variations based on geographic regions. Our experience over the past eighteen months has been that US companies, in general, have taken a tougher stand on cost containment. That is not to say that companies in the UK, Europe and Asia have not been as serious about cost containment; in our experience, though, they have been less adamant about forcing changes and reducing product offerings.

A senior executive in a UK-based bank told me that while reducing information tools to their employees would result in cost reductions, such a move would also diminish the quality of their marketplace offering. Thus, for this bank, the short-term benefit of cost reduction was less important than the long-term value of being perceived as an industry leader with premium products. In our experience with similar firms in other regions, his US counterpart would probably not make the same choice.

Is the End In Sight?

If you watch Sunday morning news and talk shows, you know there are mixed opinions on when the recession will end. There is a growing belief that we have hit bottom and that economic indicators point to a recovery sometime in 2010. But will the investment in data return to the same levels before the recession or will there be an ongoing focus on data usage cutbacks and cost reduction?

Unsurprisingly, there is no fixed answer. Most companies are well into the process of setting 2010 budgets. Some of our clients, who have already reduced data costs by as much as 25 percent during 2009, have set further cost-reduction goals for 2010. Others tell us that their objective is to keep the 2010 data cost levels flat compared with 2009.  No one has told us that they plan to repurchase the products and services that were reduced or eliminated during 2009.

Increase of sales levels and rehiring of staff will result in a rise in usage levels which, in turn, will create a boost in the spend level with suppliers. We expect to see this increase in 2010 and 2011 contracts.

However, we think it likely that data spends will never be the same again. A majority of our clients have taken a serious look at how they use and source data. Most have reduced their spend on information in the range of 10 percent to 20 percent. Some have further reduction goals for 2010.

Beyond the numbers, though, users have learned to work with less; they have accepted the 'good enough' concept. There has been a shift in how data sourcing is managed; it has become more professional with staff specialising in demand management and cost optimisation, specifically for data.

In the past decade, we have learned to live with a number of changes in how we conduct business, including outsourcing to offshore locations and assuming a wider range of responsibilities due to staff reductions. Changes in information, data and content usage and sourcing are very much the same; we will all learn to live with it.

Our conclusion, based on engagements we have performed for global clients, is that a good number of the changes are here to stay. The mould has been broken, and even a revived economy will not remake it.

by Bill Noorlander

Global Changes in Content Usage and Sourcing.pdf