The Bloomberg Terminal's success in the 1980s
birthed an empire. Today, that empire is under siege from competitors,
government regulations, and the changing nature of finance itself.
More than 320,000 people around the world — mainly traders, analysts, and brokers — pay about $24,000 a year each to use the Bloomberg Terminal to access real-time market data, communicate with other users, get the latest news, pull company data, and more.
Assuming minimal discounting, that would make the terminal a more than $7B business alone.
Today, the Bloomberg empire spans everything from financial data to television. It has a venture capital arm, a research arm, and a whole suite of products for trading in the capital markets.
The revenue Bloomberg drives from these other lines of business, however, is negligible when compared to the terminal. Reporting on the news, doing research, and other unprofitable lines of business are tolerable for Bloomberg if they can deliver value to terminal users.
During 2017, general spending on financial market data and analysis rose 3.6% to a record $28.5 billion. At the same time, Bloomberg’s share of that market shrank.Bloomberg’s weaknesses have become increasingly more apparent.
In 2016, sales of the Bloomberg Terminal dropped for the second time ever. The following year, general spending on financial market data and analysis rose to a record $28.5B, while Bloomberg lost market share, according to the Financial Times.
Very few Bloomberg Terminal users use more than a “small percentage” of the thousands of functions available through it, according to Fortune.
A handful of the several thousand analysis functions available for use through the Bloomberg Terminal.
Specialized alternatives are cropping up for a fraction of the cost, while the financial industry as a whole moves away from the traders reliant on the terminal and towards high frequency trading & automation. Banks like J.P. Morgan have started looking more seriously at ways to chip away at their annual Bloomberg bills.
The world is changing around Bloomberg, but Bloomberg has been resistant to changes that might cannibalize the value of the terminal. By doing so, it has made itself increasingly vulnerable to disruption.
- The disruption of the terminal, function by function
- Data: Why the information long tail doomed Bloomberg’s data moat
- Chat: How the world’s first social network could lose its stickiness
- News: When owning a news bureau ceases to be a competitive advantage
- Research: Why “Bloomberg’s Vietnam” failed to capture the right market
- Platform: How Bloomberg’s walled garden might be breached
- The financial terminal and the future
The disruption of the terminal, function by function
When it first arrived in 1982, the Bloomberg Terminal transformed Wall Street.
Rather than, say, draw a yield curve for a security from scratch — a process requiring expertise and time — a junior banker could use a Bloomberg Terminal to automatically get the live chart. It then could be updated constantly throughout the trading day with a simple keyboard command.
It was the perfect instrument for a Wall Street that was about to enter its boom years.
The 1980’s saw new types of financial instruments like derivatives and more complex markets — Bloomberg helped simplify and make sense of it all.
The Bloomberg Terminal increased the efficiency and working intelligence of Wall Street, and this helped contribute to the financial industry growth throughout the decades to come.
Then in 2008, the global financial system began to collapse.During and after the economic downturn that followed the crisis, banks began cutting costs. The New York Post reported that J.P. Morgan and Bank of America were planning to cut up to 7,000 Bloomberg Terminals — the equivalent of about $168,000,000 a year.
The Bloomberg Terminal still generates billions in revenue, but it faces significant headwinds that are having an impact on the business across each major function of the terminal:
- Regulations: The Bloomberg Terminal was born at the turn of the reckless 1980’s on Wall Street. After 2008, however, new regulations and compliance requirements emerged that require banks and other financial institutions to keep more capital on hand, spend less on new tooling, and cut costs wherever possible.
- Artificial Intelligence: Trading decisions are increasingly left to software designed to find marginal advantages and a competitive edge at speeds no human can replicate. As AI trading tools get better at finding that edge, they can nudge out humans and the Bloomberg Terminals that they use.
- Unbundling: As mentioned earlier, most terminal users only use a handful of the thousands of functions. Firms are finding that in many cases, it makes more sense to go to a specialist provider for their data or analytics — in some of those cases, they can get more accurate and insightful information for less money than they would with their entire terminal package.
These three forces are threatening all of the primary functions of the Bloomberg Terminal: data, chat, news, and research — and the company’s overall value as a walled garden.
In Sweden, Nordea Bank CEO Casper von Koskull announced he would cut 6,000 jobs and replace them with robots. As a result, they were the only big bank in Sweden to report a drop in costs last quarter — they also reported the biggest growth in profits....MUCH (and I mean MUCH) MORE
It only takes a few big banks eschewing the terminals for a competitor (or eliminating full-service data aggregators entirely) to interrupt the network effects that maintain Bloomberg’s virtual monopoly.
And across every main function of the Bloomberg Terminal, the winds are already beginning to turn in this direction.
Data: Why the information long tail doomed Bloomberg’s data moat
One of Bloomberg’s most valuable properties that has kept it dominant in the financial world is its data. Bloomberg has built the world’s largest repository of data useful to brokers, traders, analysts, and researchers that is all available in one place.
The average Bloomberg user, however, only ever uses a few of the Bloomberg’s actual functions. Actual usage of Bloomberg’s data, therefore, leans toward the long tail.The discrepancy between the amount of information available through the terminal and the amount that the majority of users ever access has led to two avenues through which upstarts have attempted to challenge and disrupt Bloomberg:
Today, equities and bonds investing is the main use case for which the Bloomberg Terminal is most steadily recommended as the best option.
- Basic users: As financial institutions seek to cut costs, other providers are offering basic to intermediate level financial information at a lower cost.
- Specialized users: Bloomberg’s data is not always perfect across every domain. For complex specializations, some Bloomberg users already supplement their use of the terminal with more precise third-party sources that focus on a single industry, like natural gas or benchmark interest rates.
