Market Efficiency and Wire Services

Posted: September 12th, 2007 | Author: saldarji | Filed under: business, technology | No Comments »

One key ingredient of market efficiency is the availability of information. The degree of efficiency is based on the availability and dissemination of public information. If public information carries a price and takes time to be disseminated, then this detracts from overall market efficiency.

Two recent developments on the Internet may have a significant impact on market efficiency. The first is the rise of PRWeb.com. The company provides a lower-cost PR service that will rival the incumbants.

PR Newswire and BusinessWire are the Big Two of press release land, and together they still control roughly 70% of the market in the U.S. It’s this quasi-monopoly position position that no doubt attracted Warren Buffett to the market: his Berkshire Hathaway (Charts) acquired Business Wire in March of 2006.

The second development was the release of earnings data directly onto the web by Sun Microsystems. Forgoing the traditional wire services, Sun released its data to the public immediately and without cost.

“If it’s a non-password-protected Web site where any person off the street can find it, what’s more public than that?” said Keir Gumbs, a securities lawyer with Covington & Burling LLP.

Clearly, the Internet will improve the distribution of financial information and that a radical shift is beginning to take hold. I believe that this is a wide-open market opportunity and that it is possible that rapid innovation and evolution will take place in that market. The wire services and Reuters/Bloomberg will maintain control of the sources for now. However, the method of distribution has become (nearly) free, but the open question is who will be able to find a way to organize and capture the sources.

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