As the new New York-based exchange IEX prepares to close its loss-making data marketplace and IEX Cloud development environment at the end of August, other data providers are trying to lure customers to their products and services.

IEX Cloud is a cloud-based marketplace for IEX’s proprietary equity data from its IEX exchange, along with third-party datasets. Its purpose is to allow customers to launch instances in the cloud where they can build and run their own applications, consuming data via IEX’s APIs.

But while its “prosumer”-focused model attracted retail investors, developers and startups, IEX Cloud struggled to attract higher-value institutional clients. The business, which accounted for less than 2% of IEX Group’s revenues, had been loss-making since its inception. As a result, on May 31, IEX gave customers three months’ notice that it would shut down IEX Cloud after “a thorough review of this business and comparable data alternatives” and would “withdraw all IEX Cloud products on August 31 2024”.

Every vendor has large expenses every month (storage, data costs), so it is a constant challenge to price your services: what model to use and how to structure support for a large number of low-value customers.

Christina Qi, Databento

Industry sources agree that IEX Cloud’s intent to democratize market data is “admirable,” but note that the company has faced several challenges, starting with a non-competitive deal to source third-party data from a major vendor, followed by the impact of the Covid-19 pandemic and strategic changes, as well as a lack of a dedicated sales force, relying instead on inbound customer interest.

“They rarely sold to the front office, but prioritized prosumer clients, like startups and developers. The downside is that some of them get funding and some don’t,” says an industry source familiar with the situation, adding that IEX’s original usage-based pricing model may have discouraged institutional adoption. “It works well with prosumers because they can test options data one week and something else the next week. But institutions want to know what their budget is.”

Christina Qi, founder and CEO of Databento, another startup data provider offering accessible data and access models, has experienced similar market forces firsthand and sees the gap between institutional data consumer expectations and the market segment “prosumer” or more retail, who expects data to be easily accessible for free or almost free.

“Any business has to break even at some point, and it’s hard to do that if customers expect free data. Every provider has big expenses every month, storage, cost of data, so it’s a constant challenge on how to price the data. own services: which model to use and how to structure support for a large number of low-value customers,” he says.

IEX has concluded that third-party data is a highly competitive business and that providing high-quality, affordable market data is only profitable at scale, an IEX spokesperson says. “Ultimately, we determined that the market data business is not the business we want to be in as we execute our growth plans,” they add.

Impact on staff and customers

Several staff employed by IEX Cloud have been transferred to other business areas within the IEX Group, while others have been offered severance packages and redeployment assistance. However, “in other areas of the IEX Group, we continue to recruit, and this reflects the overall strategy as we invest more in our core businesses,” says the IEX spokesperson.

Recent hires include former Cboe executives Bryan Harkins and John Palmer, as president and head of new markets development, respectively, both of whom have expertise in building and positioning new electronic trading markets and connecting with institutional clients.

The exchange declines to provide examples or customer numbers, but says a mix of individuals and fintech companies are using IEX Cloud’s financial data products to power their applications with data. While IEX says it will work with these customers to ensure a transition before the August 31 cutoff date, it also says all support for customer accounts and financial products managed by IEX Cloud will end on that date.

We had a customer that was acquired by Oracle, and now Oracle is a customer. That’s why it’s worth selling to innovators and dreamers

Rachel Carpenter, Intrio

So far, Intrinio, a data feed and API provider based in St. Petersburg, Florida, is the only vendor to have entered into a referral agreement with IEX Cloud to provide ongoing support to affected customers. Under the terms of their agreement, Intrinio “will seek to match current pricing levels for IEX Cloud customers when they purchase similar data products from Intrinio,” according to a notice on IEX’s website.

Rachel Carpenter, CEO of Intrinio, says IEX co-founder and CEO Brad Katsuyama contacted her to inform her of IEX’s decision to shut down IEX Cloud and asked if Intrinio would provide a safe harbor for its customers who had need data.

“What’s important for IEX is to make sure their customers can continue to do business,” with data sets that are as similar as possible to the ones they were already using, Carpenter says. In practical terms, “like-for-like” actually means “closest match” because, aside from IEX’s market data, which remains exactly the same, Intrinio created some of its own data sets itself, particularly the fundamental data, which allows users to conduct an in-depth analysis of a company’s fundamentals.

“It’s not a direct transition to our products, because our products are not exactly the same. But for the vast majority of customers, we can adjust the prices [from IEX],” she says. “IEX had some deals with third parties at favorable rates that we don’t have, so for third-party datasets the situation may be different.”

Some IEX Cloud customers have already noted on Reddit that Intrinio’s prices are generally higher than IEX Cloud’s, but Carpenter says potential customers who sign up using Intrinio reference link on IEX website with the promo code IEXCLOUD2024 you will be able to set up a free trial of their products immediately and the supplier will commit to adjusting its current rates.

“Our list price, yes, is higher. But that’s not the deal we’ve made for IEX customers,” he says.

For those who choose to migrate to Intrinio (and in fact nearly 1,000 IEX Cloud users signed up for a free trial of Intrinio services during the first week of the transition period, he says), the process will only take one or two days.

“Almost everyone in our company was a developer, so we have a lot of development experience and we’re transitioning people in a day,” Carpenter says. While he declined to name clients, he says IEX Cloud has had institutional clients, as well as retail and fintechs, and those clients are asking for “a more personalized handoff.”

Intrinio already has a segment of its customer base similar to IEX Cloud, including application developers and portfolio management firms who use its data and tools to meet their data needs, either directly powering applications or to create data visualizations and visualizations.

However, Intrinio is not interested in simply expanding its customer base, but in acquiring companies on a growth trajectory as customers that Intrinio can then grow its business over time.

“A lot of the future big institutional customers start small…and so you have to have optimal pricing. We have some private individuals and small fintechs, and to sell a smaller package to small customers you have to scale. Our business is stable, so we can afford to sell to those customers,” Carpenter says. “You often see a single investor in a garage building an app that goes viral or gets acquired. For example, Oracle acquired a customer, so now Oracle is a customer. That’s why it pays to sell to innovators and dreamers.”

Other providers that could expect to benefit from a migration of IEX Cloud’s “innovators and dreamers” could include cost-effective alternatives such as Quodd, Databento or Money.Net.

Justin Van Til, Quodd’s chief strategy officer, declined to comment specifically on former IEX Cloud customers, but said the growth of its QX Marketplace platform (formerly Xignite’s web services data platform, combined with Quodd’s APIs later the acquisition of Xignite last year) is “excellent” and that the vendor is noticing that some customers are considering QX Marketplace as a replacement strategy for other data providers.

As an existing authorized distributor of IEX data, Databento is well positioned to support former IEX Cloud customers, Qi says.

“If you are an IEX Cloud user looking for an alternative, Databento provides real-time and historical data from over 40 trading venues, including IEX, along with company equity data and a familiar suite of features to make the transition easy,” he says.

“While IEX Cloud was primarily aimed at prosumer and retail users, Databento’s APIs are designed for institutional and commercial use cases, but available to all,” he says, adding that the vendor offers layer 3 feeds and market data for order. “[That’s] the highest granularity available, sourced directly from exchanges, at the fastest latencies known in the public cloud. We are the only normalized market data provider to provide up to four nanosecond resolution Precision Time Protocol (PTP) synchronized timestamps per order book event, and we also offer raw packet capture (PCAP) files.

Source