In the eye of some entrepreneurs and venture capitalists, the Bloomberg terminal is a bit of an anomaly, perhaps even an anachronism. 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. You’ll hear the occasional jab at its interface as reminiscent of the 1980s. And 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.If you think that this sounds like a perfect opportunity for disruption or “unbundling” at the hand of nimble, aggressive startups, you’re not alone. I spent four years at Bloomberg Ventures, and this was a topic that I heard debated countless times before, during and after my tenure there. Most recent example: a well written article in Institutional Investor a few weeks ago declared the start of “The Race to Topple Bloomberg“, with a separate article highlighting my friends at Estimize and Kensho as startups that “Take Aim at Bloomberg“.Yet, over the years, the terminal has seen its fair share of would be disruptors come and go. Every now and then, a new wave of financial data startups seems to be appearing, attempting to build businesses that, overtly or not, compete with some parts of the Bloomberg terminal. Soon enough, however, those companies seem to disappear, through failure, pivot or acquisition.What gives? And where are the opportunities for financial data startups?Frontal assault: good luckTo start, Bloomberg is not exactly your run-of-the-mill, lazy incumbent. Perhaps I drank too much of the Kool-Aid while I was there, but I left the company very impressed. Bloomberg, which was itself a startup not that long ago, 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.
But great incumbents have been disrupted before. So there is perhaps another set of less immediately apparent reasons why the terminal has so far been very resilient to disruption by startups:1. It is protected by strong network effects. One surprisingly misunderstood reason to the long term success of the Bloomberg terminal is that, beyond the data and analytics, it is fundamentally a network. In fact, it was probably the first ever social network, long before the term was coined. Although some believe that its cachet as a status symbol is starting to erode, “the Bloomberg” (as it is often called) has been for decades the way you communicate with other finance professionals (for legitimate or not so legitimate reasons). In its relevant target market, everyone is on it and uses it all day to communicate with colleagues, clients and partners. Web based services (Facebook, Dropbox, Gmail), often banned in financial services companies, haven’t made much of a dent in that, at least for desktop communication....MORE