So it looks like Microsoft officially has its horse in the race, completing the trio of titans. 

I wrote back in November 2021 that Wall Street is shifting to the cloud. Let’s look at where we are today:

• Google has officially backed CME (10 year partnership)
• AWS has officially partnered with NASDAQ (multi-year partnership)

And the final one of the big three to enter the arena:

• Microsoft has officially invested in and partnered with LSEG (10 year partnership)

You might not have seen it last week, but Microsoft partnering with LSEG rounds out the three titans of cloud computing. While Microsoft may have been the last to the party, their deal is very interesting for several reasons, and feels much more sophisticated/strategic than the others to me. A few highlights that jumped out at me:

• Microsoft is buying a 4% equity stake in LSEG – but it’s not actually from the open market or LSEG treasury, it’s from the Blackstone/TR consortium. The transaction also locks up Blackstone/TR longer (although they get more liquidity upfront)
• Microsoft is making this a comprehensive partnership. Whereas the other providers (Google, Amazon AWS) are focusing much more around core infrastructure, Microsoft is leaning in with its full suite of tools: Office 365, Teams, etc. That is what makes it feel much more strategic to me: they are focused not only on winning the infrastructure war, but also leveraging one of their other massive advantages in capital markets: Microsoft Excel.
• For that 4% share purchase, LSEG is committing to roughly $2.8 billion in revenue for just “cloud-related spend” with Microsoft over the next 10 years. LSEG’s market cap is just shy of $50B, so a 4% purchase is ~$2B in cost base. Thus they are trading a $2B equity investment for a $2.8B revenue stream and strategic partner in the space. Put a 10x multiple on that recurring revenue, and you’re creating $28B in share value at MSFT for a $4B investment. That feels like a pretty fantastic deal to me.
• Microsoft is going to be much more involved at LSEG than the others are at their partners (Google/AWS). It looks as though the MSFT EVP of Cloud and AI will be a non-executive director of LSEG in the near future.

This transaction solidifies what I’ve been saying for years: the cloud wars have officially arrived in the capital markets, and we now have all three players making big strategic plays. I know, you’re likely saying “this has been going on for a while now”, but I can tell you: as a vendor in the industry, we were being grilled on ‘the cloud’ as little as 3-5 years ago by some of the biggest financial institutions in the world who thought it would never take. The question of whether or not the industry moves to the cloud is now resolved and moot, and now it’s just a matter of who comes out of the fray in the lead position. 

I’ve always been a fan of Microsoft – they have been strategic, long-term focused, and always have a plan. They seem to be taking the most strategic approach to winning the cloud wars in capital markets, and appear ready to leverage the full weight of the strategic arsenal: Office 365, Microsoft Excel, Teams, and everything else at their disposal. As is the Microsoft way, I would expect to see them start bundling, cross-selling, and otherwise leveraging their existing relationships to secure a significant position in the industry.

Couple the acceleration of cloud adoption with the overall software adoption coming out of COVID, plus the macro slowdown in the industry, and the desire for scale/technical augmentation, and the industry is in for another year of big changes ahead (I’m looking forward to sharing my 2023 predictions!).

It’s worth pondering these changes on a Sunday afternoon before the holidays. Some of the world’s largest and most sophisticated software companies see the winds of change blowing in the capital markets and financial services, see those changes creating massive opportunities, and are leaning in to win the upcoming shift. How are you, your team, and your firm preparing to face those same winds?

Food for thought over the holidays.

Blair
CEO
Street Context

Other posts you may find interesting:

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People are getting fired for using Whatsapp, but no one gets fired for using Email

Wall Street shifts to the Cloud

Who will own identity in Capital Markets?