As Bloomberg announced its new media direction recently, it comes amidst increasing questions regarding the long-term viability of the firm’s crown jewel and its business model: The Bloomberg terminal.
In the Internet age when much of the functionality and information on the Bloomberg terminal is available for free or at lower cost, can Bloomberg hold its grip on the market?
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“Here’s a business that makes billions every year charging its users to access data that it generally obtains from third parties”
Matt Turck, managing director at FirstMark, a venture capital firm that invests in big data firms, asks the question: “In the era of free information on the Internet and open source Big Data tools, here’s a business that makes billions every year charging its users to access data that it generally obtains from third parties, as well as the tools to analyze it,” the former managing director at Bloomberg Ventures writes on his blog. “At a time of accelerating ‘unbundling’ across many industries, including financial services, the Bloomberg terminal is the ultimate ‘bundling’ play: one product, one price, which means that that the average user uses only a small percentage of the terminal’s 30,000+ functions. Yet, 320,000 people around the world pay about $20,000 a year to use it.”
The obituary of the Bloomberg terminal has been written before
Turck notes the recent media articles and startups such as Estimize and Kensho aiming at Bloomberg, then considers why others have failed in the past.
Overall Turck notes the “startup mentality” that “comes armed with a powerful brand, deep pockets, a fiercely competitive culture, a product that results from billions of dollars of R&D investment over the years, and a technology platform that basically never goes down or even slows down, supported by generally excellent customer service.”
Turck takes apart the service by considering several critical points: depth of coverage, technology, networking, the mission critical nature of the business and trust.
Truck notes that, due to its vertical depth of coverage, it would take a significant investment to provide the depth of information and service the Bloomberg terminal provides. “Disrupting the Bloomberg model is not as “easy” as coming up with a great one-size-fits-all product,” he notes. “It would take immense amounts of venture capital money to build a direct competitor across all those niches.”
Again speaking to the difficulty of replicating the service, Turck notes “It’s not ‘just’ a technology play. 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 two most important points center on Bloomberg’s role as a network and the trust the company has built in its brand.
The chicken or egg: which comes first?
The terminal’s use as a private social network, Turck points out, cannot be underestimated. It is not uncommon for fund managers or Wall Street players to first meet and exchange their Bloomberg terminal vitals rather than e-mail address. Terminal access, particularly among discretionary traders, has become a calling card to legitimacy to a degree. But even more. Bloomberg also provides opportunities for users to meet and exchange ideas through the terminal. Although this became an issue during the spring of 2013, when Bloomberg reporters were accused of peaking at the private messages of its users, the application is nonetheless a de-facto communication standard. Such a benefit is hard to replicate because it requires mass. A competitor must be successful in order to offer this benefit, bringing about a chicken and egg scenario for would be start ups. Offering a competing Bloomberg product in this regard requires having a mass of highly influential customers actively using the product.
But perhaps most significant is Turck’s final point: trust. He notes that the Bloomberg terminal is used for mission critical projects. “In the financial world, data is used to make gigantic bets, so total accuracy and reliability is an absolute must – which makes people cautious when experimenting with new products, particularly built by a startup,” he writes. The Bloomberg terminal business may face macro headwinds, Turck notes, such as a dwindling of the number of relevant jobs on Wall Street and a global shift from desktop data to data feeds (subject of the Institutional Investor article).
“I don’t see the Bloomberg terminal being entirely “toppled” by any one given startup anytime soon, and I think even competing directly with any of its key functionalities (unbundling) is a tall order for startups, even with access to large amount of VC money,” he observes. “Not that it can’t be done – I just think there are lower hanging fruits out there and some real benefit to position away from the Bloomberg.”