How it crumbled

BOOKMARK

How did Reuters, the former global news and information giant that celebrated its 150th anniversary in July 2001 lose £ 20 billion of its market value in a little over three years?

How come that after three decades of uninterrupted growth with "a leading edge in networking, delivering data and connectivity to the global trading room, combined with the world's biggest news organisation "" with some 20,000 staff running 230 multimedia news and financial services in 150 countries around the globe," did it turn turtle so fast?

Given its infrastructure with a powerful brand that meant trust, impartiality and reliability, it was much better poised than its rivals, Associated Press (the American news agency) and Agence France Presse (the French state-owned news agency), to exploit the golden opportunities of the Internet age.

Yet the cookie crumbled and how! To tell us about the downslide are Brian Mooney and Barry Simpson, both ex-Reuters, in their blow-by-blow account in Breaking News: How the Wheels Came Off at Reuters (Capstone, £ 12.99)

Begin with a little history. Reuters was founded by a German Jew in 1849 in central Germany. Instead of exploiting the telegraph that was spreading across Europe along with the Industrial Revolution by the mid 19th century, Reuter devised a clever way of closing the gap in the telegraph system between Brussels and Aachen in Germany. He invested in carrier pigeons that carried news in little slips of paper tied to their legs in less than half the time than the trains.

"The premium for speed was a principle that would underline the news and information empire that made his name known around the world." All that mattered is who landed the copy first, not grammar and style, like the news of Stalin's death: "Stalin dead: official."

But the gaps in the telegraph system were closed by 1851, barely a year after the birds had taken wing. Convinced by the potential of the telegraph, Reuter moved base to London just as the Dover-Calais submarine link was laid. With the spread of the Empire, London became the financial capital of the world and Reuter set up services to provide the opening and closing prices of the London and Paris stock exchanges to clients in both countries.

By the 1860s, Reuters was reporting from all over the world. Two scoops established its reputation as the leader on the 'newsbeat': the assassination of Abraham Lincoln in 1865 and the relief of British troops besieged at Mafeking in South Africa during the Boer War.

But despite Reuters' spread of newsgathering, it made virtually no money for the first 120 years! The boom came in the second half of last century and it did not come from landing hard political news first; it came from selling prices and the ability to trade them on the screen to merchant banks.

Reuters really profited from growth in foreign exchange and money-market trading with a new software utility called Monitor that is an alternate name for VDU or Visual Display Unit. Bankers didn't have to go to the Floor; they could conduct their speculation sitting in their offices.

If everything was in clover what went wrong? As often happens when empires collapse, the basic weakness is always internal: the top brass are out of sync with the emerging forces (in this case communications technology) or if they were tech-savvy, they overlooked the financial aspects which are equally important in any sustained business operation.

In Reuter's case, both were out: the brass simply did not know and it seems, they really didn't sense that something was going hopelessly wrong. And sitting on the wings was Michael Bloomberg, founder of Reuter's competitor, who came from Salomon Brothers and understood what traders wanted better than journalists: he got software that was easier to use and pushed Reuters out of the scene.

To gum up the pitch further, a FBI inquiry was instituted against Reuters. Nothing came of it but the image of the impregnable communications giant took another beating. Hence the question: Could Reuters bounce back to its old glory? It doesn't look likely because the axe has already fallen on the top editorial staff and the global news desk. It is always difficult to resuscitate the past that has disappeared.

If there is a lesson to be learnt from the Reuter's story it is that there is no place for complacency in any business, big or small.