Thomson Jilts Reuters

Last week, Thomson Financial, a division of Canada's information-provider heavyweight, Thomson Corp. (NYSE:TOC), announced it is teaming up with tiny MarketWatch.com (NASDAQ:MKTW), which powers the popular financial websites CBS MarketWatch.com and BigCharts.com. The companies are forming a newswire service that will provide financial news from North America, Asia, and Europe to customers of Thomson ONE information service.

While the press release did not divulge the news, according to a Wall Street Journal blurb on the deal, Thomson will also dump its partner of 10 years, Reuters Group (NASDAQ:RTRSY). Thomson will replace Reuters content with MarketWatch content when the new service is rolled out later this year.

The deal should be the biggest for MarketWatch, which will gain its first entry into the institutional market for financial information. The company plans to increase its payroll by about 50%, as it hires more journalists to meet Thomson's clients' demand for real-time financial information. Individual investors -- the primary audience on MarketWatch's websites -- also stand to benefit, as MarketWatch will be allowed to publish some of Thomson's own content, such as conference-call transcripts.

For Thomson, the deal illustrates the company's continuing efforts to leverage its expertise in publishing an array of information, to the detriment of its competitors. Thomson is the biggest legal publisher in the U.S., a leading financial publisher (quoted hundreds of times every business day with the refrain "FirstCall estimates..."), and also a considerable presence in the educational, government, and scientific research spheres.

As for Reuters, Thomson's move supports the point made in a February 2003 article by Kay Larsen from fellow financial news competitor Dow Jones (NYSE:DJ). Larsen discussed the possibility that both Reuters and Bloomberg were "heading the same way as the now-defunct telex machine" by providing financial data to clients via expensive (and proprietary) terminals that each customer had to keep in its own office.

Reading the article, one gets the clear impression that even a year ago, these bulky server-and-terminal operations were already technological dinosaurs. They require customers to install servers and terminals on-site, and charge as much as six times the cost of Internet-based data providers such as MarketWatch. At the time, Reuters was quoted as saying it saw no "major threat" from its small competitors. But you have to wonder whether Reuters still feels that way today.

Tom Gardner hunts down the best small-cap investment ideas monthly in Motley Fool Hidden Gems . Take a free, 30-day trial to see for yourself.

Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.