Our strategy is to widen our economic moat, or sustainable competitive advantage, and build shareholder value by focusing on our three key objectives, which we describe in more detail below. Our investment data, research, and ratings are at the heart of our strategy, allowing us to help investors achieve better investment outcomes whether they make their own investment decisions or outsource management of their portfolios.

Our Goal

Widen our economic moat, increase our intrinsic value

Our Objectives

Develop Morningstar Direct as our flagship decision support platform.

In 2015, we began rolling out the next-generation version of Morningstar Direct, our institutional investment research platform. The new software is fully web-based, which eliminates the need for desktop software installations and allows immediate access to new features. It allows to us innovate more rapidly and more easily configure our software solutions to meet client needs. It also addresses the growing need for mobile-optimized capabilities to extend the desktop experience onto mobile devices.

Over time, we expect to migrate many of our core software capabilities to Morningstar Direct, which will serve as our main platform for clients looking for information to support the investment decisions they make on their own or validate investment recommendations from another party. We also plan to expand the user base for Morningstar Direct by enhancing workflow capabilities for our existing clients and adding workflows for new types of clients, such as financial advisors.

Produce the most effective investment data, research, and ratings to help investors reach their financial goals.

We believe our leadership position in independent investment research offers a competitive advantage that would be difficult for competitors to replicate. Our goal is to leverage our proprietary research and intellectual property to help investors with both decision support (via Morningstar Direct) and outsourced investment management (via our investment management business).

Our research focuses on several different areas, including manager research (including mutual funds, ETFs, separate accounts, and other vehicles), equity research, credit research and ratings, and holistic portfolio advice.

Build world-class investment management solutions based on our proprietary research.

We leverage our innovative, proprietary research by building world-class investment management solutions that help investors achieve better outcomes. Our goal is to connect our existing capabilities to create holistic solutions that help financial advisors, asset managers, and individual investors with portfolio construction, monitoring, security selection, and implementation.

We offer a variety of product offerings through Morningstar Investment Management, including Morningstar Managed Portfolios, Institutional Asset Management, Asset Allocation Services, and Manager Selection Services. We’re also expanding investment management solutions we offer through our index business, where we offer more than 300 investment indexes that can be used for both benchmarking and product creation.

Our Customer Groups

Advisor

Financial advisors work with individual investors to help them reach their financial goals. This customer group includes independent advisors at registered investment advisor (RIA) firms, advisors affiliated with independent broker-dealers, dually registered advisors, and “captive” advisors who are employees of a broker-dealer (including wirehouses, regional broker-dealers, and banks).

Our main products for financial advisors are Morningstar Advisor Workstation (including Morningstar Office) and Morningstar Managed Portfolios.

Asset Manager

Asset management firms manage and distribute investment portfolios. We work with a wide variety of asset management firms globally, ranging from large, global firms to firms with small fund lineups and operations in a single market or region. The asset management customer group includes individuals involved in sales, marketing, product development, and distribution, as well as investment management (often referred to as the “buy side”), which includes portfolio management, research, and securities analysis.

The key products we offer for asset management firms include Morningstar Direct, Morningstar Data, and Morningstar Indexes. For the buy side, key products include Morningstar Research, Morningstar Credit Ratings, Morningstar Data, and Morningstar Direct.

Workplace/Retirement

In the workplace (also known as retirement) market, millions of investors are now charged with planning for their own retirement, mainly through self-directed retirement plans such as 401(k) plans in the United States. Financial advisors, employers, and government organizations have all had a growing interest in advice and guidance that helps individuals build assets for retirement and beyond.

Our retirement offerings help retirement plan participants of all ages plan and invest for retirement. We offer these services both through retirement plan providers (typically third-party asset management companies that offer proprietary mutual funds) and directly to plan sponsors (employers that offer retirement plans to their employees).

Our product offerings for the workplace/retirement customer group include retirement advice, managed retirement accounts, plan sponsor advice, custom models, and financial wellness solutions.

Individual

We offer products for individual investors who invest to build wealth and save for other goals, such as retirement or college tuition. Because many individual investors trust Morningstar’s research and tools, our extensive reach with individual investors also helps drive demand in our other customer groups.

Our main product for individual investors is Morningstar.com, which includes both paid Premium Memberships and free content available to registered users and visitors. We also reach individual investors through a series of investment newsletters, iPad and mobile applications, and through licensing our content to other websites.

Private/Institutional

Through PitchBook Data, Inc., which we acquired in December 2016, we reach approximately 2,000 private and institutional investors, including venture capital and private equity firms, corporate development teams, investment banks, limited partners, lenders, law firms, and accounting firms. These clients use PitchBook’s industry-leading platform and best-in-class user interface to access data, discover new connections, and conduct research on potential investment opportunities.

PitchBook covers the full lifecycle of venture capital, private equity, and mergers and acquisitions (M&A), including the limited partners, investment funds, and service providers involved. Our main product for this customer group is the PitchBook Platform, an all-in-one research and analysis workstation for sophisticated investment and business professionals.

Business Model

Licenses and Subscriptions

This category includes products and services sold over a specified contract period (typically one to three years).

We recognize revenue in even amounts over the contract term and carry the balance as deferred revenue on our balance sheet.

Product examples include Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, Morningstar Enterprise Components, and Morningstar Research.

Asset-Based Fees

We often generate asset-based fees through our work on involving investment management or subadvisory work on investment portfolios.

These fees are based on a percentage of assets under management or advisement, with the fee level typically based on average assets for the previous quarter.

Product examples include Morningstar Investment Management (including Managed Portfolios and institutional asset management), managed retirement accounts, and Morningstar Indexes.

Transaction-Based Fees

We earn transaction-based revenue for products that involve one-time, non-recurring revenue.

These fees are mainly from our structured credit business and “impression-based” contracts for Internet advertising, where we charge fees each time we display their ads on our site.

Product examples include new-issue ratings and analysis for structured credits, advertising sales, conferences, and setup fees for investment management.

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