Small alt data providers feel pressure to specialize

When GTCOM-US, the American subsidiary of Beijing-based data and research company Global Tone Communication Technology, arrived on the alternative data scene in 2018, it was one of many bespoke shops. That meant hedge funds and asset managers would come to the firm with their data requests and inquiries, and GTCOM-US would provide them with tailor-made solutions. Since late last year, however, it has narrowed its offering significantly, and rebranded itself as the “gateway to China alternative data.”

Thomas Nigro, head of North America at GTCOM-US, says some of the large alternative data providers have cornered the market when it comes to multi-sector, multi-geography, and multi-topical datasets—to the point where they can largely act as substitutes for sell-side research shops in light of Mifid II over the past couple of years. Increasingly, Nigro has noticed that many of the data requests he fields from clients have become more specific, and ultimately ticker-based.

“The buy sides kind of push this industry into ‘What are you good at?’” Nigro says. “So, we said we’re going to be good at China A-shares—which we have our Data Lab working on now creating a new suite—and then focus on those very popular consumer discretionary technology names that are known to do well in China.”

It wasn’t until the vendor partnered with Bloomberg in September of last year that it cemented its China-centric core business, when GTCOM-US became the first Asia-Pacific-focused alt data provider on Bloomberg Enterprise Access Point. Nigro retains access to research and development resources within the parent company’s Beijing headquarters, but its Data Lab is located in the US, which he says helped with efforts to partner with both Chinese and American companies.

GTCOM-US covers multinational corporations such as Tesla, Nike, and Under Armour, but its niche includes companies like Nio, a Chinese manufacturer of electric vehicles that is listed on the New York Stock Exchange but sells its products only in China.

Most of GTCOM-US’s retail transaction data comes directly from a network of merchants it works with across mainland China, the intent of which is to avoid PII issues that arise with other forms of data procurement, such as scraping. Despite setting up shop in the US with what Nigro describes as “really good” Chinese natural language processing technology, the company took the view that online sentiment-based alt data was already too commoditized, and instead concentrated on datasets such as in-person points of sale, geolocation data, government data, and—accelerated by the Covid-19 pandemic—people flow and urban congestion, all with a Chinese focus.

Tickerized and dumbed down

The global alt data market was valued at $1.64 billion in 2020 and is projected to reach $17.35 billion by 2027, making it a lucrative business with a vast growth potential, according to a report by US-based consulting firm Grandview Research. And although search for alpha in the alt data realm has been discussed and debated ad nauseum, it remains a persistent challenge due to the abundance of noise and time sensitivities in the data, some of which has led investors to turn increasingly to the relatively untapped yet fragmented Asian markets.

Brad Bailey, a research director at Celent’s capital markets group, says data providers face pressures to differentiate themselves and add value to their clients’ portfolios in an ecosystem that he believes will continue to boom. Due to its inherent challenges, however, some investors have steered clear of using alt data in their strategies and decisions, but he says that has more to do with a misunderstanding of how best to incorporate the data for their needs, rather than any faults with providers’ offerings.

Still, is it better to be a jack of all trades or a master of one? It depends, Bailey says.

“There’s no end to the clever things people are doing, especially as they look at different data sources [and] as they combine them in different ways to create very important snapshots on certain types of behavior or things that are happening,” he says. “[But] I think that you do have to pick a spot. If you were a source of data and you discovered black gold in your data—discovered oil, so to speak—you need to think about: What am I going to do with this? Am I going to sell it directly? Or am I going to go through someone who can help me sell this?”

It’s this pursuit of something holistic that appeals to a wide range of firms that has led to what GTCOM-US’s Nigro calls the “tickerization,” or commoditization, of alt datasets and providers.

“You see everyone go after the same thing, and real estate always becomes an issue. Literally, how big is your screen to fit this GUI? It’s the same thing with data—how many providers can these data teams talk to? It all starts to look the same,” he says. “And this kind of dumbed it down a little, because I don’t think [firms] are asking the right questions anymore.”