Bloomberg: From Financial Markets to Acquisition Targets
Bloomberg: Get yours now!
Is it a software company or a publishing house? Is it a financial marketplace or a media outlet? Whatever one wishes to call it, Bloomberg LP has become a recognized name for effectively integrating and connecting the financial markets around the world.
Background
Michael Bloomberg founded Bloomberg LP in the early 1980s to create a computerized system that provided real-time market data to firms on Wall Street. The early Bloomberg Terminal allowed finance professionals to connect with one another, and for the first time, they were able to monitor financial trading activity, place their own quotes, interchange messages, retrieve a vast array of news, etc. It is fascinating in the way that Bloomberg Terminal both digitized and interconnected the financial world.
Business
Although Bloomberg LP began as a humble financial software company, it quickly grew to touch every aspect of the financial professional’s life. Throughout its history, it has aggressively acquired companies (e.g. BusinessWeek from McGraw-Hill in 2009) and developed its own products (e.g. Bloomberg News and the magazine Bloomberg Markets) to solidify its leadership as a premier financial services media provider. In 2014, its estimated revenues reached $9 billion and employs more than 15,000 people worldwide.(1)
Currently, one Bloomberg Terminal costs about $20,000 per year, and Bloomberg Terminals account for about 85% of Bloomberg LP’s total revenues (see short video below(2)). Although Bloomberg Terminals make up the bulk of the firm’s revenues, Bloomberg LP is much more than just a financial software company. Bloomberg LP has a fascinating business model where the $20,000 annual terminal subscription fee is essentially a membership fee into the global community of finance professionals. In short, it has become the Facebook of the finance community, both for social and professional purposes. Within the Bloomberg ecosystem, the company retains its clients and builds walls around the community by providing almost any resource that the customers could possibly need. For instance, Bloomberg News, established in 1990, provides arguably the best source of financial news with its 2,300+ editors and reporters in 72 countries. Identifying the importance of government and regulations on business, Bloomberg established a dedicated online news service in 2011 called Bloomberg Government.(3)
Looking Forward
Although the Bloomberg Terminal comes with a high annual subscription fee, Bloomberg has been able to maintain the high price tag and its market dominance since it has established very high barriers to entry. The Bloomberg Terminal is the company’s primary revenue generator and the driver behind its operating model. Its business model, in turn, is to build as large a community of professionals, and to fence them in, as possible.
The network effect that Bloomberg has built over the years is unrivaled by any other company: every day, a large volume of active trading and market-making activities take place on its platform around the world. In order to do business, a finance professional almost had to subscribe to a Bloomberg Terminal. Secondly, even if a competitor entered the space, the switching costs would be way too high, especially when the user is nestled into the existing Bloomberg ecosystem (trading, news, brokerage, etc). Additionally, a competitor such as CapIQ and FactSet could not match the scope of the financial services that Bloomberg provides (e.g. its vast network of news editors and reporters).
Another intriguing feature of the Bloomberg’s business model is the user-feedback aspect of its products and services. By offering superb customer support and allowing end users to provide feedback on how to better integrate and improve its products, Bloomberg has essentially acquired the best employee it could ask for: its customers. Similar to the T-shirt company Threadless, Bloomberg has drawn on customer input in constantly innovating. Therefore, as the world of finance continues to innovate with new products (e.g. CDOs, royalty streams), Bloomberg is poised to continue its growth in the future as it has proved its ability to quickly adopt and effectively integrate new products into its platform.
Sources:
(1) Forbes.com
(2) Youtube.com
(3) Wikipedia.org
Great post, Bing. I find your comment very interesting that Bloomberg “has become the Facebook of the finance community” – one could argue quite the opposite, I think, that Facebook has become the Bloomberg of social media. Regardless, the comparison is thought-provoking: I wonder whether, for instance, Bloomberg has considered alternative revenue models similar to those of Facebook (such as advertisements on the Terminal, sponsored news sources, etc.) instead of the subscription service. I also question whether the Terminal is an outdated form of infrastructure. Granted, of all industries, financial services seems least likely to change from the traditional fixed computer setup, but, continuing with the Facebook analogy, you might expect a more concerted effort to transition to a mobile platform (whereas Bloomberg Anywhere seems like a significantly less powerful application). In short, whereas Facebook is adapting to if not itself advancing technological trends, Bloomberg seems (at least at face value) less future-proof. Do you think it will exist in 20 years (i.e., do you think it has a sustainable edge)?
I want to second Aaron’s point. In the past few years some of the banks have been teaming up to try to build an alternative to Bloomberg Chat. A great deal of traders use the terminal more as a networking tool, than a financial analysis tool. Possible alternatives like Perzo may disrupt this business model for a number of its subscribers. While I would agree with you that Bloomberg terminals have become the biggest and most reliable source of news and data, I wonder if it is not evolving fast enough to continue to appeal to its customer base with such a large price tag.
Cool post. Bloomberg is truly a classic in establishing network effects and using the resulting advantage to drive significant rents (e.g. the bloody terminals… 🙂 ). It’s a great example. Do you think some of the startup buisinesses attempting to replace it have a shot?
@Aaron, great point- I definitely agree that Bloomberg has not been able to innovate at the same pace that Facebook has (e.g. Bloomberg Anywhere not very powerful or user friendly). Perhaps it’s because it is more complacent since it was the first player in the market whereas Facebook had to compete with existing players such as MySpace at the time. But I do think that it will be sustainable though because of the customer feedback element that it brings. For me, Bloomberg’s biggest strength is its ability to continuously improve its platform by regularly soliciting the feedback of traders and financial analysts, who have essentially built up the Bloomberg ecosystem as it exists today.
@Rina and @Marco, this goes to both of your points about other competing start-ups. I think it will be very tough for a new entrant to compete with Bloomberg at every level. Perhaps the startup can first compete with Bloomberg Chat, and once it gains a large enough user base / recurring revenue stream, it can invest in other channels (news, terminal, etc) to compete more head on with Bloomberg. But even this piecemeal strategy would take time since the switching costs from Bloomberg entirely to a new service provider is huge. As the startup company scales and becomes larger, it will most likely also run into issues of innovation similar to those of Bloomberg (having to innovate as both the organization and the client base grow).