There has always been a discussion deep inside financial circles wondering if Bloomberg and its vaunted terminal could ever be displaced. Could the seeds of that displacement be in the works as Reuters is reporting that Goldman Sachs Group Inc (NYSE:GS) is interested in purchasing messaging technology to do the unthinkable?
According to the Reuters article, Goldman Sachs is engaged in talks, and preliminary paperwork has been signed, to purchase Palo Alto, California-based Perzo Inc, an instant messaging startup. Instant messaging between bank traders and hedge funds is a key component of the Bloomberg terminal.
Goldman Sachs “Project Babel”
The purchase of Perzo would bring “Project Babel,” the code name given the year old plan inside Goldman to displace Bloomberg’s messaging application, to an important milestone. A major impetus of the project, one that is driving interest of other banks and hedge funds, was the discovery that Bloomberg reporters had access to Bloomberg terminal user data and were reported to be “spying” on their users. The incident, reported in May of 2013, led to an apology from Bloomberg.
The information Bloomberg possesses on its users can be highly confidential and reveal clues to trading plans or deals in the works. While the disclosure at the time was Bloomberg reporters could see when user’s logged in to the terminal, talk among hedge fund traders was that tracking of messages between traders and even knowledge of research being reviewed could lead to clues as to the trading intentions of large banks. This is particularly worrisome to traders in illiquid markets such as over the counter derivatives.
This concern was said to have driven banks to have interest in developing an alternative messaging application. Reuters, citing unnamed sources, is reporting several banks and asset managers are considering an investment in Perzo, including Morgan Stanley, JPMorgan Chase, Bank of America, Deutsche Bank, HSBC and BlackRock. The companies are reported to have received deal term sheets and signed non-disclosure agreements and did not comment publically on the matter.
Goldman Sachs: Bloomberg Terminal fees
As bank trading revenues fall, the approximate $20,000 yearly fee for a Bloomberg terminal that sits on thousands of desks inside each facility could be reduced if the application was properly developed and integrated, but the report did not say a reduction was eminent. Bloomberg currently has 320,000 users on its terminal.
In March of this year, ValueWalk published an article titled “Can Bloomberg’s Terminal Be Toppled.” The article quoted venture capital investors who said the key component to Bloomberg’s success was creating significant user adoption. “It’s not ‘just’ a technology play,” one venture capital investor was quoted as saying about the Bloomberg terminal. “At this stage at least, there is a whole web of human processes, relationships and contracts with underlying data providers that has been put on place over many years.” The conclusion was that the Bloomberg terminal was too ingrained and that the most difficult challenge in creating a competing service was to gain mass adoption of this difficult to reach professional trading community.
Goldman Sachs is a major force in the industry and has apparently put together the critical mass needed to get such an application off the ground. Can the Bloomberg terminal counter the threat by providing enhanced security and privacy – a diminishing but increasingly valuable feature in today’s NSA driven world? Or is it too late to stave off this threat?