Does the Bloomberg killer end up being…economics?

Bloomberg occupies a coveted position on Wall Street: it is likely the most critical application to the functioning of the global markets. It very rarely goes down, but when it does, markets come to a halt. It has a robust product suite, but the crown jewel of the platform is Bloomberg chat (“IB”). Over the years, Bloomberg created a network that was essential to participate in the markets, and in many areas it still is (such as trading). Many people have a Bloomberg terminal only because of chat, which makes it a very expensive chat application indeed. Over the years there have been numerous stories about which company or product would end up being the ‘bloomberg killer’ which are then followed up with lots of articles saying that ‘Bloomberg can’t be killed’. The interesting point I want to make is that when people have talked about what would kill Bloomberg’s dominance in the market, it was always about a competitive product – but what if the ultimate killer is nothing more exciting than simple economics? Let me explain.

We have the benefit of having almost 5,000 generalist salespeople on our platform, across 130 brokerages in 40+ countries, so we get a very unique angle into emerging trends. While the ‘juniorization of sales’ has been well covered and well talked about, one of the less appreciated knock on effects is what is happening to those junior salespeople: specifically, they aren’t getting a Bloomberg terminal (or if they have one, they’re losing it). This has been happening in research for some time, but now it’s accelerating across the brokerage.

The reason is nothing more than basic economics: if you’re a relationship manager covering smaller accounts (who generate less fees), you increasingly can’t justify the cost of a Bloomberg terminal relative to those fees. So what happens to a salesperson or relationship manager if they get kicked off Bloomberg? They go back to the only relationship channel remaining: email. Here’s where it gets interesting.

The assumption has always been that a Bloomberg ‘killer’ would do two things well: build a new network, and get the industry to use it by getting the buy side to adopt it first. These are two important (and historically unchallenged) ideas. The first point was that there would be a new network. Bloomberg is a historically closed network, so while some of the challengers have offered a quasi open network, for the most part they have been similar to Bloomberg in the sense that they wanted to build their own (closed) network. The second point is that the sell side has to go wherever the buy side is: if they are on Bloomberg, then the sell side has no choice. The buy side decides the venue.

The interesting thing is that this recent evolution challenges both of those items: the information is flowing back to an open network that no one ‘owns’ (email), and the changes are coming from the sell side first (due to cost constraints).

It’s easy to see how these first few snowballs slowly turn into an avalanche. If the junior salespeople on the sell side, who have since been banished from IB, start reaching out via email, they will get in front of more junior people on the buy side via email. This will have people spending more time in their inbox, and less time on IB. As the number of conversations on IB dwindle vs. those happening on the inbox, the ‘cost per relationship’ of IB will increase. At some point, the buy side will also decide their junior people don’t need Bloomberg, and the same process will start on the other side of the street. Individuals rely more and more on email (which in addition to chat, also manages their calendar, contacts, documents, etc.).

The final advantage is that email isn’t a closed system with a ‘cold start’ problem. Everyone is already using email, it’s just a matter of degree of usage. Everyone who has a Bloomberg terminal has a corporate email address, but not everyone with a corporate email address has a Bloomberg terminal. 

Bloomberg might be unintentionally training the entire industry to move away from IB and reform their muscle memory around email. 

Stepping back to the reality on the ground today, I expect to see the trend continue. Sell side firms will move more junior people off of Bloomberg for no other reason than to manage costs, and that trend will occur across the industry, globally. As they do that, there will be fewer participants in the IB ecosystem, as more communication moves to other channels, such as email. As more participants move to email (given its essentially free and universal), the value of the closed ecosystem will go down. That could start a feedback loop leading to end users separating out what they need in terms of data (and looking at other products) and what they need for communication (defaulting back to email). That unbundling would be bad news for the dominant bundled platform in the industry.

It turns out that the real Bloomberg killer might not be a product at all: it may just be changing industry economics.

Blair Livingston, CEO

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