Rupak Ghose is the chief operating officer of Galytix, former head of corporate strategy at ICAP/NEX and former financial research analyst at Credit Suisse.
Industry watchers have been predicting the death of the Bloomberg terminal since the financial crisis. New technologies. New competitors. Old competitors are reinventing themselves. But Bloomberg lives. He thrives. Why?
This may just be a bull market, where Bloomberg users receive astronomical salaries from their employers. Who cares about another 9% increase in Bloomberg fees to satisfy a trader, when they can cost a company a hundred times or more in salary and benefits.
There are five main reasons why Bloomberg defies gravity: to know the preferences of its customers; replacement cost; superior brand and network effects; a disciplined pricing strategy; and a long-term vision around product expansion.
Let’s start with customer preferences. There’s a lot of talk about how Bloomberg’s user interface is increasingly dated, resembling something out of an episode of Dallas. The reality is that most Bloomberg users are used to it and don’t like it. Knowing what your important customers and not the whole world want is crucial. (Just ask Instagram as they face backlash from the Kardashian sisters for trying to copy TikTok.) Look under the hood and you can see Bloomberg is seamlessly collating data, analytics and more. services. All backed by world-class customer service.
Second, the cost of substitution. In front-office sales and trading, particularly in fixed income, how many market participants do you know who have ever used an alternative? When these revenue generators are generating millions of dollars in revenue and trading massive amounts of venture capital, is it worth their bosses changing their daily workflow? For portfolio managers and research analysts, the change would entail significant frictional costs. Bloomberg is connected to all of their models in one way or another. Prices, interest rates, curves and much more.
Interconnected to this is a third important factor, brand and network effects. Like driving a Ferrari – or maybe a Tesla today – there’s an ambitious quality here. Just as most iPhone users wouldn’t upgrade to an Android device until it was affordable, Bloomberg users are the same. Even for back-office staff, having a terminal is a status symbol.
Since the financial crisis, many industry observers have described Bloomberg’s messaging system as its flagship application – a financial industry social network of immense value. Many sellers have to shell out for a terminal just to reach potential customers. But that’s far from the only selling point, as various attempts to loosen the grip of Bloomberg’s messaging system have shown. If device data and functionality were low, messaging alone would not be enough.
And the network effects go far beyond simple messaging. The early growth of single banking platforms began with single banking pages on Bloomberg. Barclays BARX was one of the most famous. Banking trading firms are still battling to get the best positioning on their crucial piece of office real estate that all of their major clients own.
Fourth, a disciplined pricing strategy. The natural state for businesses is to offer a menu of pricing options. I have personally experienced this by seeing the inner workings of the world’s largest inter-dealer brokerage for almost a decade. Try looking at the fees charged by any major financial services provider and you’ll get thousands of different rate cards with a plethora of bespoke price offers. All of this leads to a constant scramble for position.
But Bloomberg is at its core a one-product, one-time fee business. Sure, they discount on the second terminal, but they understand the value of the network and the need not to discount too much. Instead of trying to tempt customers with a confusing menu of different tiers, services, and prices, Bloomberg’s army of salespeople is focused solely on selling the terminal’s bundled perks (even though hardly anyone uses them all).
Finally, long-term vision and consistency cannot be underestimated. As a private company, competitors have very limited granular business intelligence about Bloomberg’s operations. Dealing with them is therefore difficult. Being private has also allowed it to make costly long-term investments, such as building a massive news business, an indexing powerhouse, and a huge electronic trading platform that dwarfs many groups. of exchange – despite some commentators bemoaning their supposed lack of innovation.
The world has fragmented and shifted to APIs over the past decade, but Bloomberg survives. In fact, she is thriving, with her income continuing to hit record highs. The reality is that many companies listed as competitors in an M&A banker’s pitchbook — from S&P Global to FactSet — rarely compete directly with Bloomberg for their primary customer base. Can you imagine a hedge fund or bank rate trader replacing their Bloomberg with one of these?
There is also no LeBron James on the Bloomberg team. The founder is great, but there is no star dressing room to be replaced all the time. Bloomberg rarely loses a top executive who might try to build a Bloomberg killer. Those who have tried have mostly failed to replicate the magic.
So can anything topple Bloomberg? Perhaps the greatest danger is Mr. Market himself.
The company has operated in a remarkable four-decade financial bull market. So far, shrinking sell-side front office staffing has been offset by growth in the less price-sensitive fund management business. But a severe and long-lasting market downturn would seriously harm the investment community.
This, in turn, would affect Bloomberg’s revenue and reduce its ability to invest in new areas like e-commerce or the news they broadcast largely for free through their terminals.
Why Bloomberg lives on and on and on and on and on and on