Is it a software company or a publishing house? Is it a financial marketplace or a media outlet? Whatever one wishes to call it, Bloomberg LP has become a recognized name for effectively integrating and connecting the financial markets around the world.
Michael Bloomberg founded Bloomberg LP in the early 1980s to create a computerized system that provided real-time market data to firms on Wall Street. The early Bloomberg Terminal allowed finance professionals to connect with one another, and for the first time, they were able to monitor financial trading activity, place their own quotes, interchange messages, retrieve a vast array of news, etc. It is fascinating in the way that Bloomberg Terminal both digitized and interconnected the financial world.
Although Bloomberg LP began as a humble financial software company, it quickly grew to touch every aspect of the financial professional’s life. Throughout its history, it has aggressively acquired companies (e.g. BusinessWeek from McGraw-Hill in 2009) and developed its own products (e.g. Bloomberg News and the magazine Bloomberg Markets) to solidify its leadership as a premier financial services media provider. In 2014, its estimated revenues reached $9 billion and employs more than 15,000 people worldwide.(1)
Currently, one Bloomberg Terminal costs about $20,000 per year, and Bloomberg Terminals account for about 85% of Bloomberg LP’s total revenues (see short video below(2)). Although Bloomberg Terminals make up the bulk of the firm’s revenues, Bloomberg LP is much more than just a financial software company. Bloomberg LP has a fascinating business model where the $20,000 annual terminal subscription fee is essentially a membership fee into the global community of finance professionals. In short, it has become the Facebook of the finance community, both for social and professional purposes. Within the Bloomberg ecosystem, the company retains its clients and builds walls around the community by providing almost any resource that the customers could possibly need. For instance, Bloomberg News, established in 1990, provides arguably the best source of financial news with its 2,300+ editors and reporters in 72 countries. Identifying the importance of government and regulations on business, Bloomberg established a dedicated online news service in 2011 called Bloomberg Government.(3)
Although the Bloomberg Terminal comes with a high annual subscription fee, Bloomberg has been able to maintain the high price tag and its market dominance since it has established very high barriers to entry. The Bloomberg Terminal is the company’s primary revenue generator and the driver behind its operating model. Its business model, in turn, is to build as large a community of professionals, and to fence them in, as possible.
The network effect that Bloomberg has built over the years is unrivaled by any other company: every day, a large volume of active trading and market-making activities take place on its platform around the world. In order to do business, a finance professional almost had to subscribe to a Bloomberg Terminal. Secondly, even if a competitor entered the space, the switching costs would be way too high, especially when the user is nestled into the existing Bloomberg ecosystem (trading, news, brokerage, etc). Additionally, a competitor such as CapIQ and FactSet could not match the scope of the financial services that Bloomberg provides (e.g. its vast network of news editors and reporters).
Another intriguing feature of the Bloomberg’s business model is the user-feedback aspect of its products and services. By offering superb customer support and allowing end users to provide feedback on how to better integrate and improve its products, Bloomberg has essentially acquired the best employee it could ask for: its customers. Similar to the T-shirt company Threadless, Bloomberg has drawn on customer input in constantly innovating. Therefore, as the world of finance continues to innovate with new products (e.g. CDOs, royalty streams), Bloomberg is poised to continue its growth in the future as it has proved its ability to quickly adopt and effectively integrate new products into its platform.