IEX Cloud closure forces fintech clients to seek data alternatives

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

IEX Cloud is a cloud-based marketplace for IEX’s proprietary equities data from its IEX exchange, along with third-party datasets. Its aim is to allow clients to spin up instances in the cloud where they can develop 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 larger-value institutional clients. The business—which accounted for less than 2% of IEX Group revenue—had run at a loss since its inception. As a result, on May 31, IEX gave clients three months’ notice that it would shut down IEX Cloud after “a thorough review of this business and comparable data alternatives,” and would “retire all IEX Cloud products on August 31, 2024.”

Every vendor has large expenses every month—storage, the cost of data—so it’s a constant challenge of how you price your services: what model you employ, and how you structure support for a large number of low-value customers

Christina Qi, Databento

Industry sources agree on the “admirable” intent of IEX Cloud to promote democratization of market data, but note that the business faced several challenges: starting off with an uncompetitive agreement to source third-party data from a major vendor, followed by the impact of the Covid-19 pandemic and strategic pivots, as well as its lack of a dedicated sales force, relying instead on inbound customer interest.

“They rarely sold to the front office, but prioritized ‘prosumer’ clients, such as startups and developers. The disadvantage of that is that some of them get funding, and some don’t,” says one industry source familiar with the situation, adding that IEX’s original usage-based pricing model may have deterred institutional adoption. “That 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 affordable data and access models, has experienced similar market forces firsthand, and notes the gap between expectations of institutional data consumers and the “prosumer” or more retail end of the market, which expect data to be easily accessible for free or almost free.

“Any business needs to break even at some point, and it’s hard to break even if customers expect data for free. Every vendor has large expenses every month—storage, the cost of data—so it’s a constant challenge of how you price your services: what model you employ, and how you structure support for a large number of low-value customers,” she says.

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

Personnel and client impact

Several staff employed by IEX Cloud have been transitioned to other business areas within the IEX Group, while others were offered a severance package and outplacement assistance. However, “in other areas of IEX Group, we continue to hire, and this reflects the overall strategy as we invest more into 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 well-versed in establishing and positioning new electronic trading markets and connectivity to institutional clients.

The exchange declines to give examples or numbers of clients but says that a mix of individuals and fintech firms use IEX Cloud’s financial data products to feed their applications with data. Though IEX says it will work with these clients to ensure a transition before the August 31 cutoff date, it also says that all support for client accounts and financial products operated by IEX Cloud will end on that date.

We had a client get acquired by Oracle, and so now Oracle is a client. That’s why it’s worth it to sell to the innovators and dreamers

Rachel Carpenter, Intrinio

So far, Intrinio, a St. Petersburg, Fla.-based provider of datafeeds and APIs, is the only vendor to have struck a referral agreement with IEX Cloud to provide continued support for those clients affected. Under the terms of their deal, Intrinio “will endeavor to match current pricing levels for IEX Cloud Customers when purchasing like-for-like 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 close IEX Cloud and asked her if Intrinio would provide a safe harbor for its clients who needed data.

“What’s important to IEX is making sure that their clients could continue doing business,” with as similar datasets as possible to what they were already using, Carpenter says. In practical terms, “like-for-like” really means “closest match” because—aside from the market data from IEX, which remains exactly the same—Intrinio has built some of its datasets itself, particularly its fundamental data, which allows users to conduct deep 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 large majority of customers, we can match the pricing [from IEX],” she says. “IEX had struck some third-party deals at good rates that we don’t have, so for third-party datasets, that might be different.”

Some IEX Cloud clients have already noted on Reddit that Intrinio’s prices are higher in general than IEX Cloud’s, but Carpenter says potential clients who sign up using the Intrinio referral link on IEX’s website with the promo code IEXCLOUD2024 will be able to set up a free trial of their products immediately, and the vendor will endeavor to match their current rates.

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

For those that choose to migrate to Intrinio—and indeed, almost 1,000 IEX Cloud users signed up for a free trial of Intrinio’s services during the first week of the transition period, she says—the process will only take one or two days.

“Almost everyone in our company was once a developer, so we have great development experience, and we’re getting people transitioned within a day,” Carpenter says. While declining to name clients, she says IEX Cloud did have institutional clients as well as retail and fintechs, and these clients require “more of a personalized handoff.”

Intrinio already has a segment of its client base similar to that of IEX Cloud, comprising application developers and portfolio management firms using its data and tools to power their data needs, either directly feeding applications or to create visualizations and data displays.

However, Intrinio’s interest is not merely in swelling its client base, but in acquiring as clients companies on a growth trajectory with which Intrinio can grow its business over time.

“A lot of great future institutional clients start very small ... and so you need to have optimal pricing. We have some individuals and small fintechs, and to sell a smaller package to small customers, you need scale. Our business is stable, so we can afford to sell to those,” Carpenter says. “Often, we see an individual investor in a garage building an app that goes viral, or gets acquired. For example, we had a client get acquired by Oracle, and so now Oracle is a client. That’s why it’s worth it to sell to the innovators and dreamers.”

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

Justin Van Til, head of strategy at Quodd, declined to comment specifically about 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 following its acquisition of Xignite last year) is “excellent,” and that the vendor is seeing some clients looking at QX Marketplace as a replacement strategy for other data providers.

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

“If you’re an IEX Cloud user looking for an alternative, Databento provides real-time and historical data from over 40 trading venues—including IEX—alongside corporate actions data and a familiar suite of features to ease your transition,” she says.

“While IEX Cloud primarily targeted prosumer and retail users, Databento's APIs are designed for institutional and commercial use cases, but available to all,” she adds, adding that the vendor offers feeds of Level 3 and market-by-order data. “[That’s] the highest granularity available, sourced directly from exchanges—at the fastest-known latencies over the public cloud. We’re the only normalized market data vendor to provide up to four nanosecond-resolution, precision time protocol (PTP)-synchronized timestamps per order book event, and we offer raw packet capture files (PCAPs) as well.”