David Schwimmer, chief executive of London Stock Exchange Group, said the firm has been working for over 12 months to form a 10-year strategic partnership with Microsoft which he described as “transformative” in making its data more flexible, usable and scalable.

.@LSEGplc and @Microsoft launch 10-year strategic partnership for next-generation data & analytics and cloud infrastructure solutions; Microsoft to make equity investment in LSEG through acquisition of shares: https://t.co/4yJ9B5NI7k pic.twitter.com/iccdd3zMhe

— LSEG (London Stock Exchange Group) (@LSEGplc) December 12, 2022

Schwimmer spoke in a briefing on the deal on 12 December. He said: “This is another significant step on our journey towards becoming the leading global financial markets infrastructure and building on the strategy that led to our acquisition of Refinitiv, bringing together our leading datasets, analytics and global customer base with Microsoft’s trusted cloud services to transform workflows and the user experience for our customers across the financial markets value chain.”

LSEG completed its acquisition of Refinitiv in January 2021 with the aim of creating a global leader in financial data and infrastructure.

“We are in very good shape in terms of integration,” Schwimmer added. “We have made great progress and we are building on top of that.”

Under the arrangements with Microsoft, LSEG will use Azure Purview and Azure Synapse to accelerate its cloud migration plans and consolidate its data architecture. The partnership consists of four elements – the migration of the LSEG data platform to the Microsoft Azure cloud;  integrating LSEG Workspace, LSEG’s data and analytics workflow solution so it works seamlessly with Microsoft Teams; the development of new cloud-used analytics and exploring the development of digital markets infrastructure based on cloud technology.

Watch David Schwimmer discuss the benefits of @LSEGplc and @Microsoft’s strategic partnership: bringing together LSEG’s leading data sets, analytics and global customer base with Microsoft’s comprehensive and trusted cloud services and global reach https://t.co/4yJ9B5NI7k pic.twitter.com/OmNNM2LRVW

— LSEG (London Stock Exchange Group) (@LSEGplc) December 12, 2022

Judson Althoff, chief commercial officer at Microsoft, said on the call that the technology firm will be helping  LSEG migrate its infrastructure to the cloud and digitize a global systemic market infrastructure.

“We are excited about the cloud partnership but we are more excited about what we can do with the financial services industry,” he added.

Althoff highlighted the power of combining LSEG Workspace technologies seamlessly with Microsoft Teams to provide instantaneous information to financial advisors and then using artificial intelligence capabilities to provide the next best action or financial advice. He described data as being at the source of every financial decision that is made in the world today. However, most financial institutions have silos of data, both internally and externally, that require a lot of work to bring together and generate insights that are relevant to their customers and institutions.

“By taking datasets to the cloud and running Microsoft Azure Synapse, we enable financial services institutions around the world to mash up these data sources and make decisions more effectively and more efficiently than ever before,” said Althoff. “We are very excited about bringing that foundation of data and integrated capacity to financial services, allowing analytic reasoning to occur instantaneously for all our customers.”

Today, @Microsoft and @LSEGplc announced a 10-year strategic partnership to architect LSEG’s data infrastructure using Microsoft’s @Azure cloud technology. https://t.co/B0vhBrCFdS

— Microsoft Stories and News (@MSFTnews) December 12, 2022

Last year CME Group announced a 10-year strategic partnership with Google Cloud, which included Google making a $1bn equity investment in the derivatives exchange. Nasdaq also announced in 2021 that it would be moving all of its markets to AWS, starting in 2022, and that its primary data center would become the first private AWS Local Zone for capital markets.

Schwimmer argued that LSEG’s partnership with Microsoft is differentiated because the two firms have been working together for many months and have developed detailed product roadmaps. He also highlighted that Microsoft has agreed to purchase an approximately 4% equity stake in LSEG from the Blackstone/Thomson Reuters consortium which formerly owned Refinitiv. Scott Guthrie, who leads Microsoft’s cloud and AI group, is also expected to join the LSEG board as a non-executive, subject to appropriate approvals.

Althoff said: “We can not only revolutionise data in the cloud to provide more effective and efficient access, instantaneous decision making, but also allow users to provide advice back to their clients through any interaction they have with Microsoft Teams. Imagine every data asset within a portfolio being served up instantaneously inside Teams in a desktop or mobile environment.”

He gave the example of being on a video call and having to switching between applications for video, research notes, to share documents or bring other people into the conversation.

“Translate that into the world of trying to provide financial advice in real-time markets instantaneously and we can effectively integrate Workspace with Microsoft Teams on one screen,” Althoff added. “You can get a 360-degree view of your clients’ financial trading data to support the next best action, calls can be recorded and you can even do sentiment analysis.”

Revenue opportunities

LSEG said the partnership is expected to increase revenue growth meaningfully over time as new products come on-stream.

Schwimmer said there is a huge revenue opportunity for both companies from selling new solutions that allow financial institutions to make better, more effective and efficient decisions than they have historically.

On the expense side there is a contractual commitment by LSEG for minimum cloud-related spend with Microsoft of $2.8 billion (£2.3 billion) over the term of the partnership, reflecting minimum cloud consumption expectations and consistent with existing long-term opex and capex plan.

The accelerated cloud migration will enable LSEG to build and run scalable applications to achieve faster speed to market and greater customer reach. It will also allow LSEG to align costs more directly to revenue streams, reduce operational complexity through the consolidation of multiple legacy technologies, and further strengthen resilience and security.

Anna Manz, chief financial officer at LSEG, said on the call that increased revenue from the partnership is not expected to flow through until 2025. This will be delivered by selling more of LSEG’s existing products, accessing white spaces and better pricing for the broadest set of products.

“Having Workspace native within Microsoft 365 will help us accelerate our trading or banking revenue,” she added.

Manz gave some examples of revenue generation from the partnership such as having data analytics in an integrated workspace with the partners that you need to work with through Microsoft Teams. In addition, Microsoft Cloud and its AI capabilities advance LSEG’s strategy of building an efficient and scalable platform for its Data & Analytics business.

“That is a step change in the product offering that we have today,” she added.

For the first time LSEG customers can collaborate inside and outside of their organisations, using Teams to connect, chat, call, and meet with built-in compliance, security, and privacy; create financial models, run data analysis, and design graphs using LSEG content delivered in Excel; and work seamlessly between LSEG Workspace, Teams and Microsoft 365 tools to deliver financial presentations and reports.

LSEG will use Azure Machine Learning and to co-develop advanced analytics and modelling capabilities, focus on model construction, validation, diagnostics, and deployment, helping banking and investment institutions avoid the labour-intensive and expensive process of creating models from the ground up. The solutions will be available on Workspace and developer-friendly APIs.

“This also provides additional global reach to other user groups that want to access our and we can create models and sophisticated analytics that are not in the market today,” said Manz.

The LSE/MSFT deal is notable for a few reasons:

1. LSE disclosed their minimum cloud spend over the next 10 (?) years with MSFT (many billions)

2. The deal is spun as bad for costs but good for revenue at LSE

3. MSFT is getting an LSE board seat

— Hide Not Slide (@HideNotSlide) December 12, 2022

Big cloud revs for Microsoft while they park their excess cash in LSEG shares..

— Rupak (@ghose77) December 13, 2022

Everyone already has their excel models tied into Bloomberg data and trade on Bloomberg…

— Rupak (@ghose77) December 13, 2022