Although this week’s edition of New Money won’t be a game show, we are going to assess a billion dollar business opportunity. And lucky for you, there is only one question between us and that billion dollar prize. However, unlike the popular 90’s TV show, a “final answer” will not be enough for victory, and the odds of success are going to be considerably lower than that of their multiple choice format. So without further ado, let’s take a look at our billion dollar question:
How do you disrupt the Bloomberg Terminal?
Alright, let’s talk about how we got here.
A few weeks back, my wonderful girlfriend was kind enough to indulge me in a conversation about something finance related. The specifics escape me, but I found myself referring to a Bloomberg Terminal rather nonchalantly before realizing that she had no idea what I was talking about. Then she asked the obvious question (“what is a Bloomberg Terminal?”) and I found myself at a (sometimes uncharacteristic) loss for words.
Despite having spent a number of my formative career years huddled over one, I was stumped. I didn’t even know where to start. And as a few select words came to mind (“ancient” and “amazing” among them), I realized that as a matter of financial technology, it was worth assessing what exactly the product is, and how it has been able to stand the test of time for four decades.
And now let’s meet the Bloombergs
Long story short, in 1981, Bloomberg (person) founded Bloomberg (company) to sell Bloombergs (the product in question).
To summarize the product in question in brief, a “Bloomberg Terminal” is any computer (usually a Windows PC) that has the Bloomberg application installed. The “terminal,” by way of the application, grants the user access to a myriad of financial market data in real-time, along with a whole host of tools, news, and information.
If I was trying to put Bloomberg L.P. on a rudimentary fintech market map, I’d say it belongs at the intersection “B2B Software” and “Corporate Finance.”
Fast forward to today and Michael Bloomberg is the 17th richest person in the world. Bloomberg L.P. makes an estimated ~$10B in annual revenue with more than two-thirds of that coming from the ~325k Bloomberg Terminals that command $20k per year*.
Needless to say, this is a big business. Forty years later there is only one other competitor of note in the space (Thomson Reuters), and their brief occupation of the the throne was short lived, ending abruptly after the financial crisis:
So while it may have seemed bold to claim that a capable disruptor can produce a billion dollar company, I remain confident in that hypothesis given the facts that this duopoly accounts for over $60B in market cap and both companies are, how shall we put it, over the hill.
Of course, this hypothesis hinges on an assumption that I’m much not so confident of: that the terminal is ripe for disruption at all.
So I started racking my brain for clues that might indicate if and/or when a large stodgy incumbent is ready to make way for a new kid on the block and found myself thinking about… Marc Benioff?
“There is no such thing as a new idea.”
The one important thing I recalled about Marc Benioff’s founding story at Salesforce is that he worked at Oracle (a large incumbent) for 13 years before finally breaking off on his own. For those of you unfamiliar with the space, Salesforce is a purveyor of Customer Relationship Management (“CRM”) software, a tool that helps companies track and manage their customer communications and data. When Marc started the company in 1999, this specific software category was in Oracle’s purview (Oracle itself sells many enterprise software solutions), but at a minimum they had not given it enough love and attention to flourish.
My strawman assumption here is that “a new Bloomberg” could follow a similar path. Surely some talented person (or persons) at Bloomberg (of which they have many) could exploit either a fatal product flaw or seismic market shift to start the next great thing. Of course, no two examples are ever the same, but hey, a similar strategy did wonders for Eric Yuan, the founder of Zoom. And the fact that Oracle (founded in 1977) was roughly the same age as Bloomberg L.P. had me particularly curious about whether or not the factors that led to Salesforce’s success still had any relevance 20 years later.
All of which led me down a pretty deep Salesforce / Oracle / Bloomberg research hole whereby I gathered the following information guided by some very basic questions:
How big is the market? The CRM market (at an est. ~$50B TAM) is within the same order of magnitude as the $30B financial data market. This isn’t anything too groundbreaking, but this does give us another valid data point that both of these markets are big enough to support a few multi-billion dollar firms.
It is also important to note that both markets are growing fast (CRM in the mid-teens and financial data in the high single digits, year over year). This is perhaps even more important. As it is often said, a rising tide raises all boats, and starting a disruptive company in a shrinking market, to stick with the nautical metaphors, is like knowingly sailing into an iceberg field.So does this help us disrupt Bloomberg? Well yes, it gives us an indication that trying is certainly worthwhile, but next we will need to look at the market participants, which brings us to our next question.
Who is your customer and how do you price your product?
The story for Salesforce here is quite different from that of Bloomberg.
CRM software, as a category, is best defined as a subset of the complex world of “enterprise software solutions.” As mentioned above, when Marc Benioff started Salesforce in 1999, CRM software was not a new idea, Oracle had in fact been building such products for a few years. But at the time, with Oracle juggling many other products, it is safe to say that they ran into a classic “innovator’s dilemma.” That is to say that, among other things, CRM software was too niche, not core to their overall offering, and not a big enough market to care about. For many years, they were right, until it was too late, and Salesforce started accelerating into the behemoth it is today. Here is a comparison of topline revenue for both firms going back to 1990:Both companies are obviously now very large. But Oracle leveled off a decade ago while Salesforce growth has been nothing short of stratospheric (or at least exponential) and has shown no signs of slowing as of their most recent earnings report. Salesforce growth is even more astounding in terms of market cap: despite having less than half of Oracle’s topline sales for 2020, Salesforce’s valuation exceeds Oracles by more than $50B.
And they’ve done that, in part, by making a reliable CRM (or perhaps, their reliable CRM) a necessity for most companies in existence today. There are some important design changes they made compared to Oracle (we’ll get there) but the end result is that, just like Bloomberg, Salesforce went from category defining to category dominating over the course of two decades. But very unlike Bloomberg they’ve done it by making any company, in any vertical, of any size, a potential customer at a tailored price point. Those looking to go deeper on this strategy can look to this Salesforce deck from Dreamforce 2019, but for a quick point of reference, Salesforce has customers ranging in price from $300 per year (a small single user firm) to massive nine figure contracts that support tens of thousands of users.
This highlights an important distinction between customers and users. Salesforce proudly boasts that they have 150k customers on their website, but on the largest end of that spectrum, that one customer is bringing thousands of users to the software and the price scales with that number.
So while Bloomberg may have a much larger customer base (325k) at the steep price point of ~$20k per year, we can reasonably assume that the majority of terminals only have one user (with limited exceptions for shared terminals).
Which means that while Salesforce has defined a category that appeals to a broad variety of customers, Bloomberg has done the opposite, having cornered a specific and captive audience of price insensitive investment bankers and investors. And this very important distinction has big implications on Bloomberg’s defensibility.
So does this help us disrupt Bloomberg? In my view, quite the opposite. I assure that in many corners of the software world there are companies building “the perfect CRM for [financial advisors, low-budget small companies, etc.]” exactly because they recognize that Salesforce isn’t a perfect solution for everyone and that creates opportunities to differentiate in terms of both functionality (features, integrations, etc.) and price. On the other hand Bloomberg’s ability to signal quality with price to an audience that has relatively deep pockets and high resistance to change makes it considerably harder to carve off meaningful market share from the fintech behemoth. Which brings us to our last question.What makes your product different from the competition?
When I started looking to Salesforce for clues about Bloomberg, I knew it would be extremely important to focus on some of the key product decisions that Salesforce made at its inception and most notably their decision to deliver their “software-as-a-service” on a subscription basis via “cloud computing.”
For some of the younger readers, or perhaps those less familiar with the technology business, it is hard to overstate how transformative this was. Today, the practice of downloading applications via the cloud, often in just a few seconds, has become so ubiquitous that we most certainly take it for granted. We don’t even think about it. And the same can be said of a subscription service. I mean, 82% of US households (and I would guess 100% of readers here) have an Amazon Prime membership.
And while this shift has made way for many modern luxuries like Netflix, one could argue that it’s impact on the enterprise software business was much bigger. Benioff himself outlined it very clearly in a salient 2013 blog post titled “How to Turn a Simple Idea into a High-Growth Company:”
"Rather than selling multimillion-dollar CD-ROM software packages that took six to eighteen months for companies to install and required hefty investments in hardware and networking, we would sell Software-as-a-Service through a model known as cloud computing. Companies could pay per-user, per-month fees for the services they used, and those services would be delivered to them immediately via the Internet, in the cloud."
Of course, I’m sure his seven bullet points (written in hindsight) paint a much prettier picture than the tough reality of an entrepreneurial journey, but reading them forced me to consider something that I hadn’t before.
Michael Bloomberg knew all of this back in 1981! He didn’t need to coin the term “SaaS” or “cloud computing” to understand the pain points of implementing enterprise software - he had lived it at Salomon Brothers.
For me, I had always thought of the Bloomberg Terminal as an integrated hardware/software device because of signature keyboard, but that is entirely wrong. Sure, most people (myself included) couldn’t get past the home screen without it, but you don’t technically need it. In terms of installation, Wikipedia makes the citationless claim that Bloomberg does install a router for connectivity onsite upon installation, but a number of industry professionals have told me that really isn’t the case anymore, and that the process of getting a Bloomberg terminal installed has always been seamless.
This was likely a result of Bloomberg having so much capital when he started the firm. With at least $10M of his own money (closer to $30M in today’s dollars) and an additional $30M ($90M today) from a strategic investment by Merrill Lynch, he would have had the resources to build the infrastructure in house and then communicate it to the customer without a big build on their side.
All of this is to say that, in a sense, whether knowingly or not, Bloomberg was building out key parts of the SaaS model when Benioff was just 16 years old. Which, without any other historical data points (would love others if you have them), gives Bloomberg some claim to being an OG SaaS company, long before it was cool.
With that in mind, as I peel back more product layers of “the Terminal,” I see a number of additional design elements that minimize the opportunity for disruption.
One aspect is just the sheer number of features that it offers. While many startups may deride “feature overload,” I don’t think that wisdom applies here. Wall Street bankers (and their procurement departments) can take plenty of solace in the fact that Bloomberg will be quick to add the next derivative calculator to their massive toolbox to stay on the cutting edge of financial engineering, without jacking up the price.
And when you look beyond a standalone terminal, you see a multi-sided network effect that further entrenches Bloomberg in its place.
In terms of connectivity with other applications, Bloomberg has made it incredibly easy to use it’s data in Excel (via an add-in) and statistical applications like R (via packages) that expand its influence outside the standard Bloomberg portal and creates additional friction for any customer who is reconsidering their contract. To bring the comparison back to Salesforce, this “platform”strategy” is also well understood by Benioff, who famously gifted the App Store trademark to Apple two years after launching the Salesforce AppExchange. Apple of course, is also no stranger to the strategy, even if it has made more than a couple of bad headlines this summer.
And in terms of connectivity between terminals, although it may sound silly, many die hard Bloomberg users say that one of the most important features is the “chat” function! Sure, it might be mundane, but in a world where everyone is seeking an edge through information, there is plenty of value in being three keystrokes away from the information cascade.
Which would lead me to believe it is nearly impossible to disrupt the Bloomberg Terminal.
… is that your final answer?
While it may seem unsatisfying to walk away from the big question with nothing, I believe that, in this instance, it is the right thing to do. Unfortunately not every billion dollar question has an answer of equal value.
Some of you may point out that there is at least one firm trying. To them, I sincerely say, “good luck.” There is certainly something appealing about bringing financial tools to the everyman (#DDTG), but if nothing else, I doubt they will be this cool anytime soon.
And if you think I’m missing something worth exploring, leave me a comment. I’ll think of it as asking the audience.
*The price of a terminal was incorrectly stated in the first publication as $20k per month.
This is great and so interesting!!! My father and I are CONSTANTLY marveling at the BBG terminal. The amazing idea, how much they cost a piece etc. By the way so impressive that you are writing this!
Great read.