Bloomberg terminals face challenge from start-ups

NATHANIEL POPPER

For nearly three decades, the flickering orange-on-black screens of the Bloomberg terminal have been omnipresent on Wall Street trading floors and executive suite desks, maintaining a vital lifeline of data and communication.

In knitting together the world of finance, those $21,000-a-year terminals have generated billions of dollars for Bloomberg, almost single-handedly paying for the company’s journalistic ambitions, as well as the fortune, political career and philanthropic largess of its founder, Michael R. Bloomberg.

Now that golden egg — and all that it pays for — is a target for new competitors looking to knock it from its dominant position. Bloomberg has fended off competition before, but the latest upstarts are gunning for the company at a time when Wall Street is already aggressively looking to cut its spending on Bloomberg terminals.

Later this month, a start-up called Symphony, created by Goldman Sachs and backed by the large banks, is introducing software that provides an alternative to what many traders say is the most valuable part of the Bloomberg terminal — the chat program used by traders and investors.

At Goldman, more than half of the people who have Bloomberg terminals use them primarily for chat and other simple functions, according to people briefed on the subject .

At the same time, Money.Net, a startup that has been built by a former top Bloomberg executive, is looking to challenge Bloomberg head on and is gaining momentum and stealing away customers.

David G. Bullock, a former Lehman Brothers executive who now runs his own financial advisory firm, says that since signing up for Money.Net last year and canceling his Bloomberg terminal, he has found interest when he mentions the service to his banker friends, particularly when he explains that it costs 1/20th as much as a Bloomberg terminal.

“Everybody that I talk to says, ‘Hey, I’ve got to try this thing because I don’t like paying $25,000 for a Bloomberg,’” said Bullock, who owns Arque Advisors.

A spokesman for Bloomberg said the company had no comment on its competitors.

Bloomberg job cuts

After more than a decade as New York’s mayor, Bloomberg has been retaking the reins of the company and pushing to refine its focus. Last week, dozens of Bloomberg journalists were laid off as part of a broader effort to reconfigure how journalism fits into the broader company.

Bloomberg’s news offerings — including BusinessWeek and the company’s website — generate less than 4 percent of the company’s revenue and cost more than they earn, according to Burton-Taylor Consulting. The terminals generate 75 percent of Bloomberg’s revenue.

All service providers for Wall Street, not just Bloomberg, are unusually vulnerable at the moment. The financial industry is in the middle of an aggressive run of cost-cutting as it grapples with new regulations and changes in the markets. A Bloomberg contract, which can be upward of $100 million at larger institutions, is a tempting target to whittle down.

The number of Bloomberg terminals grew only 1.9 per cent, to 325,000, last year. In the 10 years before the financial crisis, the number of terminals grew at an average rate of 12 per cent each year, with most companies signing on for multi-year contracts.

Irish boss of Money.Net

Morgan Downey, the former Bloomberg executive who is building Money.Net, said he decided to leave Bloomberg in late 2013 and create a low-cost challenger after seeing how slowly Bloomberg was changing and how many of the company's clients wanted a cheaper alternative.

“When they go visit the banks, they are being told, ‘We are trying actively, not passively, to get away from being your customers,’” Downey said. “They’ve gotten very lazy and fat.”

A 43-year-old Irishman, Downey is largely paying Money.Net’s costs with the proceeds from his lucrative first career as a commodities trader. He is reluctant to reveal his client numbers, but so far he counts them in the thousands, not yet enough to scare Bloomberg. Downey, though, has big ambitions, and at least some of his new customers have been impressed enough that they have essentially served as volunteer boosters for the company.

Hamza Khan, 28, the head of commodities strategy at ING Bank in Amsterdam, said that since his company signed up last year, Money.Net has not been able to do everything that a Bloomberg can. But it has all the essentials and offers a more modern and intuitive interface and user experience than the Bloomberg system, he said.

“When I talk to people about it, they say, ‘You must have some stake in it,’” Khan said. “I say, ‘No, I’m just so sick of the current programs.’”

Khan has persuaded ING to sign up for dozens of Money.Net subscriptions in a number of divisions of the investment bank, which will be used to replace existing data providers like Bloomberg and Thomson Reuters.

Until now, Bloomberg has been a difficult target for challengers because of the incredibly wide array of offerings it has drawn together. Its terminals give access not just to market data from exchanges all over the world, but also to documents on nearly every security in existence, trading platforms that allow customers to buy and sell securities, messaging programs and news. And that’s just a partial list.

Terminal fondness

Many traders view their Bloomberg terminal as their most powerful and important tool, and speak of the terminals with an almost emotional fondness. That helps explain why many previous challengers to Bloomberg have gone after clients who use a more narrow subset of Bloomberg’s services, and especially those using the chat function, which would seem like the easiest service to replicate.

The latest such challenger, Symphony, will be introduced on September 15th. Being backed by 14 financial firms gives Symphony an advantage that previous such efforts did not have. The thinking in the industry is that if Symphony catches on, it could allow firms to cancel many Bloomberg subscriptions. Bloomberg has never been willing to sell its chat program separately from the rest of the terminal.

Downey is integrating Symphony and other chat systems into Money.Net. But he said that people looking to move away from Bloomberg would want more than just chat, so he built an entire data platform.

He began by striking agreements with hundreds of different exchanges and financial companies for real-time data. He knew how to do this — and then how to integrate it into a desktop interface — because he previously ran the commodities division at Bloomberg. He said that it was easier to take on Bloomberg now than it was in the past because of the increasing popularity of open-source software and inexpensive cloud computing.

“The market has Stockholm syndrome in thinking this should cost $25,000 a year,” Downey said. “Bloomberg has big profits and a lot of waste.”

Downey said he already had multiple subscribers at 500 financial firms, including most of the largest banks.

© 2015 New York Times News Service