Reuters hopes new products will help recapture past glory

The financial information giant must halt rival Bloomberg's successful assault on the premium end of the market

Reuters showed off its new products to the City yesterday which it hopes will "cut through the spaghetti" of its product range and give the group a chance of reversing a damaging slide that has knocked confidence, cost thousands of jobs and threatened the group's very independence.

The 150-year-old financial information giant has stood by, seemingly helpless, for the past decade as Bloomberg has stolen the premium end of its market.

Reuters' products have been cumbersome, with a bewildering range of options – it had 1,000 offerings. The products looked outdated, while its customer service and marketing record has also let it down.

For instance, the company offered a special product for the Bulgarian equities market, and hundreds of other similar niche services. Part of the problem was structural – it was strong in the foreign exchange area, but this has been in steady decline, while Bloomberg's strength has been in bonds, which have done well.

Reuters recently admitted that Bloomberg had overtaken it in terms of revenue share and, with demand from its client base still in free-fall, an awful lot depends on the next generation of Reuters products.

These are to be delivered under the "Fast Forward" strategy unveiled by Tom Glocer, its chief executive, in February. It succeeded the plan from Peter Job, the previous chief executive, who launched "Project Gazelle", the first real attempt to shake up the product range, as part of the "Business Transformation Programme", in February 2000.

These latest products attack new markets and replace its existing products, such as the Reuters 2000 and 3000 machines.

The backdrop to the series of new product launches that we will see over the next few months is bleak. The last financial year saw Reuters' first-ever loss.

Since July 2001, the company has announced plans to cut 5,500 jobs in total, incurring massive costs that will wipe out profits for a couple more years yet.

The product strategy is to drastically cut the number of services available while maintaining a segmented product line-up, offering a range of price points and functionality to clients.

While that sounds sensible enough, it should be remembered that its big competitor, Bloomberg, does not bother with segmentation, offering just one product aimed at the top end of the market. And, this is not Reuters' first attempt in recent years at rationalising and improving its products. The previous attempts do not seem to have made much of a difference to the company's fortunes.

Philip Green, Reuters' chief operating officer, said: "There's no question that the strategy is right. The challenge is execution."

Mr Green compares his company to BMW, with its range of cars, while Bloomberg has just one product serving premium customers. "An airline which is only selling first-class tickets in the current market will find things difficult," Mr Green said.

He argues that, in a downturn, clients are looking to reduce costs, and, as not all employees need the same level of functionality, Reuters gives customers the option of some cheaper products. The danger here is giving customers an easy opportunity to cut costs by trading down.

Jeff Meys, an analyst at UBS Warburg, said: "The key is to make sure these segments are not too close together.... Reuters has no choice about what it is doing. The question is whether it comes too late."

Clients are also looking to reduce the number of suppliers they use, to give them greater buying leverage. Reuters must make sure its products are great.

"For our clients, cost is important but value is still the most important," Mr Green said.

For the first time, Reuters products now look like the windows-style environment familiar to most computer users, rather than some complex specialist system.

There are three new products aimed at the mid-tier market, costing some $700 (£440) a month – Trader (for traders, obviously), Knowledge (for analysts working in a mergers and acquisitions team) and Intelligent Advisor (for private client bankers serving high net worth individuals). The functions on these products is a big improvement on what was previously available, such as comprehensive historical information on companies, and they seemed easy to use, with a "point and click" approach.

At the top end, with a price tag of between $800 and $1,200 a month, Reuters has 3000 Xtra, with 93,000 users providing annual revenues of some £650m. This is the product that goes head-to-head with Bloomberg (which charges its 170,000 users some $1,350 a month, before any discounts). A new version of Xtra was launched in October, with a messaging service, and in March this year a good trading capability was added for the first time – to match the functions of a Bloomberg machine.

Next month a "thin client" version of 3000 Xtra is coming out – aimed at smaller clients, such as hedge funds, who do not want to install all the hardware required for the regular 3000 Xtra.

The top end of the market is where the juiciest profits are, but this is also where Reuters will have its biggest challenge. Bloomberg remains a formidable competitor, which claims to continue to add customers.

Andrew Gordon-Brown, an analyst at JP Morgan, said: "The premium tier market is mature, there is not much growth there. It is all about market share."

Reuters must successfully migrate the 90,000 users on its 2000 and 3000 legacy products (bringing in revenues of £550m a year) onto either one of its new mid-tier products or up to the 3000 Xtra. Reuters' declared target is to add £100m in revenues in the mid-tier, pushing out smaller specialist financial information suppliers.

The company can do little about the still falling level of overall demand from its clients in the financial services industry. It can improve its products and customer service. Even if it gets those right, however, it is likely to be 2006 before the company sees top-line growth again. It's a very long haul.