Can somebody explain to me why this guy is still a billionaire? I used to read many years ago about his business of renting computer terminals for the same price for which you could buy equivalent generic hardware outright. The big selling point (or renting point) of this 1970s-sounding business model was that was the only way you could get Bloomberg's proprietary content. I figured his business might last a couple of years longer than all the comparable ones out there before being wiped out by open standards approaches because his market was Wall Street traders, who have more money than God, so they weren't in a hurry to give up a system they were familiar with just to save their employers $10,000 each per year or so. But, I gather, he's not only still in business, he's still raking in the billions. What's the deal?
My published articles are archived at iSteve.com -- Steve Sailer
I'd like to know too. Bloomberg was a trader at Salomon Brothers, and as he is smart, fit perfectly into the Wall Street culture, and is aggressive, I can completely understand how he became wealthy at that job.
ReplyDeleteI am completely mystified by the Bloomberg business model. I can understand how the terminals are useful for traders -as a former trader, Bloomberg would know what he is doing in that area- but they've been sold to alot of other people in finance who really have no use for them.
He could just be a really, really successful salesman, a skill set that it is always difficult for nerds to understand. As mayor, his public relations have been beyond belief -he has crafted an image as being a supercompetent technocrat, when its hard to draw the conclusion that he is inept as an administrator when you look at the city government up close during his tenure.
In about 1996 I worked at a large mutual fund company where our department had a Bloomberg Machine. I think I figured out how to check stocks on it, but I remember it being pretty complicated. You could look up all kinds of stuff on it, if you know how -- some guys would look up sports scores and such. Once we got Internet access, in '97, I looked up my (personal) stock info on my desktop.
ReplyDeleteI don't know what the utility of Bloomberg machines is today, but I do know that Bloomberg, L.P. has branched out into TV and radio with financial news -- sort of like a more serious version of CNBC. There are also international stations.
the terminals are actually in the neighborhood of $15-18k per year.
ReplyDeletehonestly, it is a luxury for many customers, a status symbol, that you deserve to have something that expensive on your desk. especially if you're just looking up SEC filings (already free on the web), valuation ratios, stock graphs and looking at news headlines.
the internet will continue to break down the barriers to high price information, but it will take a while and it will never go away.
there's just no point to giving away information that people have an incentive to pay for (ie, to make more money).
but, bloomberg is not about hardware, it's the software. most people run bloomberg on their company PCs.
the reason for bloomberg's success is that the company has been remarkably diligent about adapting to customers.
there is a ton of information on bloomberg about every conceivable financial instrument and it can all be accessed using a consistent command set.
there are a variety of analytical tools baked into the software, and while they may not be as precise as those used by practitioners, they cover even the more esoteric financial instruments (CMO/CDS/CDO etc).
if you are a fixed income trader, there are about 4 million different bonds available to be traded in the world and bloomberg has the details on virtually all of them.
not only can you do your research, but bloomberg has its own trading software (tradebook) built in, so customers can do their research on it and trade through it as well.
while tradebook might not be "best in class" as a trading tool, it still offers global, multi-asset class trading.
the company has global 24-hour support ("follow-the-sun"). if you are working at 10pm EST you can email or call bloomberg and get a response within about 5-10 minutes.
somebody in the phillipines speaking decent english will answer your question generally to whatever depth you require.
one of the most pathetic reasons that bloomberg has a such a grip is the embedded email system, which is like AIM for rich people. you can email any bloomberg terminal from any email address in the world, but it is handy to be able to use bloomberg.
All the information on bloomberg and all of the functions can be done using combinations of other applications. but, it's not easy to bring it all together, and it's not all supported that well, etc, etc.
it took 30 years to make bloomberg what it was. if someone does something diligently for 30 years, it's hard to just walk along and displace them overnight. and most new entrants to the market don't have the desire to build the business for the long haul.
thomson-reuters could do it but the companies were always a messy agglomeration of financial information products, and i'm sure mixing two unfocused companies with a hodge-podge of disconnected products will make all their problems worse.
"I used to read many years ago about his business of renting computer terminals for the same price for which you could buy equivalent generic hardware outright. The big selling point (or renting point) of this 1970s-sounding business model was that was the only way you could get Bloomberg's proprietary content."
ReplyDeleteThis is like saying, "Why should I buy The American Conservative Magazine when I can buy blank paper for cheaper?" Well, as you go on to say, it's the content you are paying for. Information provided by Bloomberg can be integrated into pricing models and manipulated in other ways that are useful to traders. Just like any other business, once you have a customer base, it is easier to retain it than it is for another business to steal it away. Also, many smaller trading firms don't have a Bloomberg terminal for every employee. There may only be one in the entire office. It's all for the content.
The business of selling high quality information is one of the best lines of business in the world.
ReplyDeleteInformation provided by Bloomberg can be integrated into pricing models and manipulated in other ways that are useful to traders.
ReplyDeleteCould you explain this to a non-financial guy?
Something like NASDAQ is just a big supercomputer, with a bunch of 0's and 1's in it, and those 0's and 1's are in a constant state of flux.
What a financial analyst wants is the some sense of the "flux" of the 0's and 1's [both in real time, as the changes are occuring, and historically, in a much larger database, for comparison purposes], so he goes to some financial reporting service and purchases a "stream" of data that tells him about the state of the flux.
Now here's the question: Who do folks like Nasdaq license to be their stream "providers"?
Is there a finite set of [primary] stream providers [maybe only two or three, like Dow Jones & Bloomberg], or is there a near-limitless supply of them?
Certainly e.g. Yahoo seems to have access to somebody's stream, and posts it all for free on the internet.
Unless Bloomberg has some monopoly [or near-monopoly] on the stream of 0's and 1's, then, long term, they aren't providing anything that anybody else couldn't provide.
And I can't imagine that their analysis tools would hold a candle to a serious financial analysis package [typically proprietary, written in-house].
A recent trend that could be lucrative for Bloomberg is the move toward quasi-public "rule 144A" stock exchanges -- where smaller companies can avoid regulatory headaches and litigation risks by limiting their shareholders to 499 or fewer qualified investors (so average Americans are kept from investing in another class of potential home run ball investments -- thanks, regulators). I can see how info on these exchanges might be restricted to proprietary services.
ReplyDeleteBloomberg, like Lexis-Nexis and a few others, provides a peerless level of data integration for users. It also is a massive status symbol among the In Crowd.
ReplyDeleteInformation isn't free. GOOD information is expensive. Superb information is priced out of the realm of the amateur and the small time operator.
That said, there is little you can get from Bloomberg you cannot get elsewhere far cheaper-you have to dig.
BTW, keping amateurs out of the market is a Big Win. Amateur speculation in the stock market is the prime engine of our current situation of speculation, cheap false prosperity, and a government whored out to keep it going.
When you hit the Help key on a Bloomberg you get a chat window with a real person. This girl I know works as a help representative for Bloomberg in a timezone exactly opposite New York's (we're in Asia) and has to work a Saturday on occasion (Friday night NYC time). Most of her Saturday help issues are for important things like when the club closes, the quickest way to get to Delancey and Ludlow, and if there are any restaurants around still taking reservations. That's the value of a Bloomberg terminal.
ReplyDeleteOh yeah, there's also that market data/trading platform for a fraction the cost of a full-blown OMS thing. The terminals are expensive but for a smaller company not looking to get into the IT business, they make sense.
This Slate article does a good job of explaining it. Essentially, their market consists of traders who need to be the first to know more or less everything: the amount they'd be willing to pay to get news first is an order of magnitude higher than what they'll pay to get it even a few seconds later.
ReplyDeleteBloomie had one good business idea and he sold it adeptly. Now his system is outdated, but his customers stick with it because of human inertia.
ReplyDeleteSuccessful businessmen men don't always become successful political leaders. For example, Herbert Hoover was a successful businessman.
Steve, Artanis has a good point about amateur stock speculators. All those EZ Trade Internut discount brokers that advertise heavily on CNBC: their frequent-trader customers would make about as much $ and have more fun betting on sports.
He could just be a really, really successful salesman, a skill set that it is always difficult for nerds to understand.
ReplyDeleteWe understand it, we just ain't got it (and more importantly, cannot get it).
Look, there's some hierarchy in the stream of 0's and 1's coming out of the NASDAQ, the NYSE, the Chicago Merc, whatever.
ReplyDeleteThe hierarchy must look something like
NASDAQ -> X -> Y -> Z -> {Dow Jones, Bloomberg, Associated Press, whomever}
My question: Do outfits like DJ & Bloomberg sit at the very head of the hierarchy [at the X position]?
Or is there some weird outfit, like a Pitney-Bowes, or an Akamai, which sits between them and the head of the stream?
And if Bloomberg does sit at the head of the hierarchy, then how many others sit there with them?
I.e do they have a monopoly [or a near monopoly] on the head of the data stream, or are there enough players there that sitting at the head of the stream doesn't in and of itself present some comparative/competitive advantage?
What about his candidacy? What would be the point? Who does he think would vote for him?
ReplyDeleteHe might imagine he could be the nonpartisan 'good government' candidate. Unfortunately for Bloomy, most of the country doesn't want a Jew from New York.
ReplyDeleteBut I don't think he'd be a bad president. I'd vote for him, he was relatively free of ridiculous ideology and egotism as mayor. At least he wasn't ceaselessly aggressive and self-aggrandizing like Giuliani. Granted you probably needed someone that egotistical to clean up NYC after all those years, but I don't trust Rudy with the Bomb.
"What about his candidacy? What would be the point? Who does he think would vote for him?"
ReplyDeleteI agree. At least Ross Perot took some Populist stands. Outside of Wall Streeters, what constituency could Bloomberg appeal to?
Most of the comments have covered what I would have said, but don't seem to integrate it. Bloomberg is selling a lot of integrated information and whatnot, yes, and he's selling cachet too to a certain extent. What he's really selling is access same as exclusive country clubs; if you're a member of the club you can network and get in on the ground floors of deals, not because of the databases, but simply because you're 'where it's at'. This is a positive feedback loop; people connect with bloomberg, which allows Bloomberg to feed their egos which connects them more to Bloomberg and so on.
ReplyDeletePut another way, there's a big market for insider access, but given that insider trading is illegal, the way to get it is to know people.
D.C. currently runs on a parallel system. Which is why nothing about our markets or our politics makes any sense to outsiders; that's because it's run for insiders who may not be honest with each other but who stay connected to each other anyways.
Bloomberg is kinda like a species of anerobic bacteria that thrives on mine trailings; it's not so much that he's special, it's that nobody else wants the job, making it very high return for the person who takes it.
m, only in New York would he be taken seriously
What he's really selling is access same as exclusive country clubs; if you're a member of the club you can network and get in on the ground floors of deals, not because of the databases, but simply because you're 'where it's at'.
ReplyDeleteSeriously, factually, does Bloomberg Inc. give its customers useful insider trading information -- not just more filters and screens and stuff -- sooner than the info. is available from non-Bloomberg sources? I've never heard of Bloomberg being implicated in any of the mutual fund front-running scandals.
His presidency is being touted all over the new york papers -they LOVE the idea- the new york and washington establishment is completely unaware that an open borders, pro Iraq war neocon is not exactly the alternative candidate most of America is looking for.
ReplyDeleteA few thoughts on previous comments:
ReplyDelete"one of the most pathetic reasons that bloomberg has a such a grip is the embedded email system, which is like AIM for rich people."
I never gave much thought to the cachet of a Bloomberg e-mail address before, but a recent experience of mine fits this observation. I read a book by a billionaire hedge fund manager and had a question that I didn't see in the FAQ on the book's companion website. After sending a e-mail to the webmaster and not getting any response, I figured what the hell, I'd try writing the money manager himself. I looked up the faculty directory of the business school where I knew he was an adjunct professor and found his e-mail address; it ended in bloomberg.net. I wrote him on a Friday night and when I woke up Saturday I was surprised to see he had written me back and answered my question.
"Superb information is priced out of the realm of the amateur and the small time operator."
In his book, The Dhando Investor, Mohnish Pabrai -- one of today's top investors -- lists nine different sources he uses to find investment ideas. Some are expensive (OID, VIC), some are free (Nasdaq.com), but Bloomberg isn't one of them.
"...the quickest way to get to Delancey and Ludlow, and if there are any restaurants around still taking reservations."
'Inoteca is open to 3am, I think, but doesn't take reservations. There's usually a wait before midnight though. The Kuma Inn is open to midnight and does take reservations. Both cool places on Ludlow not to far from Delancey. Neither is ridiculously expensive, fwiw.
"Seriously, factually, does Bloomberg Inc. give its customers useful insider trading information..."
I would doubt it. Any company that made it through the Elliot Spitzer era unscathed is probably clean. It got to the point where Spitzer was running out of actual criminal targets and branched out into a dubious crusade against former NYSE chief Dick Grasso, who had the temerity to earn more money as a Pace U. dropout than Spitzer inherited.
It amazes me how few financial market data are available on the Internet.
ReplyDeleteaceflyer, what data are you referring to? What is it that you want but can't find?
ReplyDelete