Information explosion or junk?

First Published in the Economic Times 01 June, 2003

Not so long ago, finding information on Indian companies or industries was an extremely laborious and time-consuming task. In the early nineties, analysts were expected to trudge down to the (few) libraries that maintained paper clippings or libraries of annual reports, prospectuses and such like. Getting complete data on a single company often took days. Naturally, few individual investors had the time or inclination to do the same.

Today, thanks to the much-maligned Internet, life has changed considerably. There are numerous web sites offering a vast amount of basic information on Indian business and the capital markets, most of which provide free access. In fact, many believe that Indian investors now face a situation of information overload.

Apart from the creation of a more level-playing field between the individual and institutional investor, this data explosion has had a profound impact on information providers and research companies. With Indian users already reluctant to pay a premium for information, the advent of the "free" Internet has made life tough for those who peddle information for a living. After all, when everything (almost) can be found by searching Google, who would want to pay?

However, I don't believe that good information is really free (or will remain that way). Though there is a lot of info, it is typically of poor quality - usually little more than a mere compilation of data, with very little real analysis. Secondly, there is very little difference in the offerings from different sources, which reinforces the impression of information overload.

In the past, when data was hard to get, very basic data like the compilation of quarterly results, annual reports and press clippings was very valuable. Now this is the bare minimum expected, and few will pay a premium for this. However, the real problem is that the quality of analysis or methods of aggregation have not really increased in sophistication. Most research reports are distressingly similar in their treatment of data and its analysis, which reinforces users' perceptions of low value.

Vendors on the other hand, complain that since buyers are not willing to pay a premium for higher quality analysis or data organization, information providers have little incentive to improve. A common refrain from the research community concerns the relative "information immaturity" or the inability of many users to discern between poor and good quality stuff.

So we have a self-fulfilling cycle where on the supply side, vendors are unwilling to invest in improving quality as there are few buyers; while on the demand side, users do not see much value in what is available.

This is true not only in the domain of equity or financial research, but applies equally to market or consumer research. Hence we have a miniscule business research industry (compared to global standards), and users across the board actually believe that research can provide little (or no) value add.

Compare this with the US or Europe. Their information markets are segregated, segmented and classified into a bewildering array of products and services. There are niches, more niches and niches within niches. Companies specialize in business intelligence, searches, industrial and consumer market research, economic research, competitive intelligence, syndicated or custom research and many more such variations.

Vertical specializations in terms of industry or sector abound. Every industry has a large number of companies that specialize in tracking them. Within this there are numerous vertical or horizontal sub-specializations. Some publish reports, others aggregate data, while many provide quality analysis and advice. Then there are segments based on type of customers - corporate users, brokers, analysts, academics, students and so on. Prices for reports on the same topic range from tens of dollars to tens of thousands of dollars. But what is amazing is that all of them find a market, whether low-end commodity data or high-end analysis.

In India, the market is miniscule. Even big brands like CRISIL (CRIS-INFAC) have revenues of only a few million dollars from syndicated research. CMIE, the largest and most respected Indian database provider would be comparable in size to a small, niche company in the US. And the entire Indian market research industry in India generates less than $100 million in revenues - less than a medium sized global company.

It is easy to dismiss this by saying that the US is a developed economy, while ours is under-developed. However, that conclusion is self-defeating and might well be a case of confusing cause and effect. In today's global economy, information is power and quality information provides the competitive edge. American corporations excel because they value information, and not the other way around.

We tend to say very glibly that we are now in an information society, without really understanding the implications of this statement. The IT revolution only provides better tools to manage info. Media and telecom merely allow for easier and more efficient distribution. But ultimately, competitiveness depends on the quality of info disseminated or processed, not on the vehicle used for distribution or access.

I would not like to comment on the offerings of private players, but despite some major efforts by institutional providers like BSE and SEBI, their web sites still fall below international standards. While both of them are to be commended on the wealth of data they now make available, the problem has more to do with the organization and usability of information.

A cursory look at the EDGAR and EDIFAR databases of SEC and SEBI respectively, will bring home the difference vividly. On EDGAR, you can search by header information, type of filing, company or date. On EDIFAR, even a rudimentary search is unavailable. The user has to wade through lists of links to find what he is looking for. There are no archives. Even on the main SEBI site, old prospectuses are not provided and a company search will throw up numerous records without describing their contents, forcing users to click through all of them. On EDGAR one can pull out historic archives and use FTP access to download large numbers of documents

I don't mean to be overly critical of SEBI's efforts. But considering that EDIFAR is not even a year old, one would have thought they could have learnt from best practices elsewhere.

If we have to benefit from the advantages of the information economy, we have to find ways to make quality information vending viable. Clearly, the onus is on research and database providers to improve quality, and educate customers. Till then we will be condemned to an overload of junk.

jetu@valuenotes.com