This IS the reason capital IQ started. They've done reasonably well.
There are a couple reasons why it's really difficult to disrupt this industry:
1) An mvp won't cut it. If I'm a trader with 300MM in my pocket, then I need access to information. All information.
2)Reliability. Traders need a highly reliable connection. No room for error. A great counter example is Reuters. I worked on a support desk where I had both Reuters and Bloomberg (at a cost of something insane, probably close to 100k/yr). I imagine that when a major pricing error occurred on any exchange, I would find out within 30 seconds to a minute. Despite all its resources, Reuters proved time and again to have pricing issues. Connecting to hundreds of exchanges with thousands of securities is difficult. When you start to go outside of the US, there's some really bizarre logic. Bloomberg was incredibly reliable on the other hand, and their support team responds to issues within minutes.
2) Network effects. Bloomberg messenger is the way to communicate in finance. Also, Bloomberg leverages its network to constantly monitor prices, so pricing problems are discovered REALLY quickly. It's kind of like open-sourcing security pricing monitoring.
3) Reputation. Even if you create a perfect replica of Bloomberg, would I stake my clients money on your track record? Even with a good track record, why would I not trust Bloomberg when it's the de facto standard?
4) IP? not sure about this one, but I imagine there are a lot of features baked into Bloomberg with legal protection.
5) The cost is insignificant for most of wall street.
Funny story: on a whim I interviewed with capital IQ while I was in college. They asked me to design an interface that would allow people to access financial information quickly. Having never used or seen Bloomberg, I immediately started describing a system of keyboard shortcuts, to which my interviewer responded that I was basically just describing Bloomberg terminal. Didn't get the job.
You dodged a bullet. I worked for CIQ from 2003-2007, it was not such a great time. (I recently reminisced a bit here: http://mcfunley.com/manual-delivery)
At one point I was offered a job with Bloomberg that I didn't wind up taking. In my last interview with a director, he described an experience he had rewriting quite a bit of the Bloomberg terminal as a modern (for the time anyway) Windows app as some kind of skunkworks project. He said he was nearly fired for this. His superiors explained to him very slowly that although the terminal looks like obvious insanity to a tech person, it's embedded in the culture in finance. People like it in part because it's insane. It's hard to attack this with modern methods.
One other giant stinking reason it's really hard to innovate here is data. All of these companies are vertically integrated. CIQ, for example, is (or was back then, anyway) a tiny shim of a crappy tech company in New York and thousands and thousands of people doing data collection in India. The data is the product. Initially CIQ was just the website, and they bought their data from competitors. As they became successful their competitors shut them down and they had to scramble to replicate datasets by themselves.
I tried to implement a back button for Bloomberg while I was there. I came up with a few hacky prototypes before giving up, and never showed it to anyone. The software just wasn't designed for this.
Could you give me a range of how much a dev can expect to earn at bloomberg? I'm curious because currently I'm a client (front office finance) but by next year I hope to get a tech degree and job. I'm just bracing myself for what kind of pay cut i'll need to take.
Yes, and in fact if you look at the job boards you can get a picture. I am going to speak from what I saw two years ago.
If you teach devs in their classes you can get a starting salary of around $150k. That's a tough team to get into, since it's one particular team. If you are a developer in general you get around $80-120K starting. I got $95K straight out of a master's program.
Like any other company, a lot of it has to do with their commission to the recruiter that they pay. If you can somehow apply without a recruiter and have them really like you, you can probably get a larger salary.
If you stay for years then over time you'll be making more, probably around $200-300K. Unless you're really instrumental to the company, then you'll be making $500k probably. Still not as much as a trader or quant getting multi million dollar bonuses to stick around. But definitely good. Their company is a meritocracy, and if you want to keep one thing in mind, it is this: the more good work you do and the more indispensable your work is, the more you will be able to ask for in a couple years. Making yourself really indispensable is the trick there, and it's very possible.
Actually my advice to you is this: if this is a whole year away, look around and see what companies you like and form connections with hiring managers WITHIN that company, rather than external recruiters. How? I don't know, get to know employees and then have them put in a good word. They get a commission actually for introducing you, but it's nowhere near what a recruiter would get.
Great thoughts here, and funny story on Cap IQ. Speaking of which, Cap IQ is exactly an example of positioning away from the Bloomberg terminal (with a core initial focus on investment banking as opposed to trading). Unclear whether there's a big juicy opportunity out there like this, like there was when Neal Goldman and his co-founders started Cap IQ in 1999. And great points on #4 and #5, although there's a whole subsegment (underbelly?) of financial services companies which are more cost conscious and where $20k per year for one user is a real investment. Bloomberg is not going after those as aggressively as far as I know.
Not all Bloomberg users are traders though, and that's where I would try to challenge them. I worked on software for many years that was used side by side with Bloomberg. Many of our customers were Bloomberg customers as well -- although our software was a bit more niche and we didn't hit the heights that Bloomberg did. But when I doubted if we were in the right business, I would look over to Bloomberg and convince myself that the money was there for the right products.
While Bloomberg has almost any conceivable piece of data in real time, what they were missing was presentation. For instance, if you wanted to make a presentation to your board which demonstrated your value as a money manager, you'd have to leave Bloomberg to do it. That's how we were able to share space with them. But I've heard rumors they are moving in this direction now.
I also agree with the author that the data is really the lynch pin. Some commonly used data can be very expensive to acquire if you are able to get it at all. For instance try finding out what stocks and weights make up the Russell 2000 index (and then legally redistribute that data). We were fortunate in that we got in the business when data vendors were willing to negotiate with small software vendors. And much of the value we offered was in those accumulated contracts.
Once those contracts are in place it is very difficult for either side to cancel them without pissing off their customers. For instance a couple years ago FactSet and Morningstar got into a spat and FactSet's contract to provide Morningstar data wasn't renewed. All hell broke loose on both sides. They made a deal. Data is pretty big chasm for a startup to cross. And users are particular about what data vendors they use, even for nearly equivalent products.
There have been some reasonable exits in the financial software business that don't get much play in the Valley. For instance BlackDiamond sold their reporting package (again presentation) to Advent in San Francisco for about $70million and eVestment has been taking on investment and growing like crazy. But neither of those companies competed head to head with Bloomberg's core business. But they are big enough markets that I could see Bloomberg wanting to grow into them.
In general, if you want a slice of the market that Bloomberg is in, I don't think it would easy to do it head on over data. You have to outflank them where they are weak, and hope to chip away at their mindshare that way.
I never found presentations that hard. For most presentations I kept an Excel template with the BBG Excel plugin, which would then be linked by Powerpoint.
But I do agree with the point that not everyone is a trader. The quality of a lot of macro data often wasn't there. For this I also had a Datastream terminal, which excelled in longer term macro data.
Certainly Excel works for many people, but there was a significant number of users who wanted a vertically integrated presentation/reporting platform. I think there is still room for innovation in this area.
I agree that there may be space for vertically integrated presentation/reporting platform, but do you think this space is as lucrative as the actual data streaming? My guess would be that financial services customers would be very price insensitive to mission critical/directly revenue generating data/analysis (hence, Bloomberg's subscription costs) while a reporting platform would be just a nice plus but a much harder sell. Thoughts?
Presentation is pretty important in much of the business because that's how the products are sold and fees justified.
Let's say your firm trades bonds. Your product is your expertise in trading those bonds, and you have to sell that expertise. How are you going to do that? Much of it is still reputation, but the days of closing a pension fund with a few martinis and your good looks are coming to an end. You have to have the numbers to back up your claims.
You might be able to do something with the correlations of the index returns and stock returns, but I doubt their would be enough information there to depend on results.
"Reputation. Even if you create a perfect replica of Bloomberg, would I stake my clients money on your track record?"
It's not just your clients' money, but your own safety. If you lose money for your client while using an unproven technology, the client might try to sue you for negligence. Using the system that's "industry standard" would be a defense against that.
Great points. I think #2 (reliability) and #3 (reputation)are really key here.
I would argue that there is a caveat to #1. Agreed that a MVP for a Bloomberg replacement wouldn't work unless you had everything Bloomberg had and more (in which case, it's hardly an MVP and good luck). That said, I think an MVP for a niche fin-tech data product that Bloomberg does not have would work if the sales pitch is that I use your product in addition to Bloomberg. If you offer me an edge by providing data (or analysis) others don't have, an MVP would be fine. Heck, some traders/funds would pay for just a csv file if it contained unique (but directly useful) financial data/analysis (an obvious example that may have had potential 5 years ago was sentiment, although now everyone and their dog is offering that and it's not entirely clear there's direct value to it). I think the very fact Bloomberg can look like its "from the 1980s" just reflects the needs of the market it serves. Wall Street doesn't put great value on pretty interfaces, ease of use, or anything other than direct value add to their revenue generation process (ie. investing, pricing, selling financial products, etc.). Tell me how your product makes me more money today. I think any fin-tech startup needs to be driven by that philosophy if they want to succeed, I don't see how you'd convince a trader that the fact your app offers a nice interface or interesting but questionably actionable analysis is any real advantage if the other guy offers analysis or data that is directly applicable.
Another thought: while disrupting pricing data would be very difficult (given the speed + accuracy required + relationship with exchanges), what about other financial data like fundamentals/accounting/relationships data? That data is free - it's all on the SEC's EDGAR (and it's far more than just financial documents, there's plenty of data on individuals too). Would Fact Set or Capital IQ, for instance, have more competition if the SEC had API/machine readable data? There has been some effort through XBRL to do this - although the percentage of filing actually available in that format and the lack of consistency in the format (in some cases, there's at least several hundred 'tags' for the same or similar financial line item) makes any large scale data processing from EDGAR a massive undertaking.
"the lack of consistency in the format (in some cases, there's at least several hundred 'tags' for the same or similar financial line item) makes any large scale data processing from EDGAR a massive undertaking."
Izyda, you are absolutely correct on the issues with XBRL. I'm the co-founder of a company called TagniFi that is working on a solution. We have a standardized dataset that makes comparing this data across companies, industries and sectors possible. We are in beta so you are welcome to check out for API for free:
http://www.tagnifi.com
This looks very cool - I will certainly sign up for the beta. I think there is real potential in this space.
The only concern - and maybe you have a solution - I have is that to my knowledge, XBRL has only been required on 10K's and 10Q's since around 2009 (I may be incorrect, 2010?). As someone involved in research with financial data, there's really no avoiding using pre 2009 data. Parsing that from raw text files is even harder than XBRL - is TagniFi able to do that as well? (I've perused your website but haven't found the answer). Unfortunately, without that capability, I'm forced to rely on services like Fact Set at least partially.
Thanks for the feedback. You are correct that the lack of history is an issue for us but we have to start somewhere and the cost to collect non-XBRL data is really high. The timing of the available history in XBRL depends on the size of the company. XBRL was phased in starting in 2009 with the largest 500 companies filing their 2010 10-Ks in XBRL. These 10-Ks generally had income statement data back to 2007 so that is where most of our data starts on the larger companies. The next largest 1,500 companies started filing in 2010 so their data generally starts in 2008. The remaining 9,000 companies started filing XBRL in 2011 so their data generally starts in 2009. This means we have 7 years of data for the largest 500 companies, 6 years of data on the next largest 1,500 companies and 5 years of data on the remaining 9,000 companies. Since the cost to go back and collect this data manually is really high we are going to focus on building the deepest datasets (footnotes and industry-specific) to offset the lack of history.
"(an obvious example that may have had potential 5 years ago was sentiment, although now everyone and their dog is offering that and it's not entirely clear there's direct value to it)"
Presumably the sentiment you are referring to is real time financial sentiment derived from online chatter. A source other than online chatter wouldn't yield enough data in terms of time granularity or symbols, i.e we've had sentiment data for decades in the form of the AAII and NAAIM, they just weren't useful as data sources for active trading.
5 years ago a statistically significant sample set of investors and traders wasn't chatting online to yield actionable data. Today there is, the data has alpha, and smart money is trading on it.
No, actually, I am referring to real time sentiment analysis of any kind - services such as http://www.dataminr.com/ or http://www.infotrie.com/ do this today mostly using online chatter, which you correctly point out probably would not be possible 5 years ago. However, real time news sentiment analysis would have been possible and relatively novel 5 years ago. For instance, Columbia's Paul Tetlock published a very interesting paper in the Journal of Finance in 2007 ago on the subject here: http://www0.gsb.columbia.edu/faculty/ptetlock/papers/Tetlock... (he used words from a Wall Street Journal column). If you read the paper, you'll find he used daily data over the 16 year period 1984-1999. While this is not of the same granularity you could get from services like InfoTrie or Dataminr, it certainly is of high enough granularity to trade on (and could have been done 10 years ago apparently!) and appears more useful than AAII or NAAIM.
I am interested in your claim that the data has alpha and smart money is trading on it. I have been looking for any peer reviewed, academic articles actually documenting that alpha (ie. by anyone except the people trying to sell you the data). One such paper I found was Bollen et al's http://arxiv.org/abs/1010.3003. From my understanding, there are several problems with the methodology (I could find a rebuttal paper I read if you're interested) and the methodology was used in Derwent Capital - although the fund only traded it for 1 month: http://venturebeat.com/2012/05/28/twitter-fueled-hedge-fund-...
DataMinr is an event detection service not a 'real time sentiment'
infotrie does sentiment analysis on news stories they also mix this news sentiment with social media sentiment. This is a muddled approach and not pure real time sentiment.
Let's back up a moment. You wouldn't expect Gallup to have accurate surveys of the presidential election by processing news articles and blogs. They poll individuals in brief snapshots of time. Polling for sentiment is the same thing. News articles and blog posts are amplified opinions of a small set of people, they are a poor substitute for direct measurement of many many people.
The Bollen paper is widely discredited in our space. Derwent licensed the technology and subsequently ran into trouble because the tech and data was not sound.. though Bollen's initial theory was correct.
Not peer reviewed but you can see a few papers Deltix published documenting alpha:
News articles and blog posts are amplified opinions of a small set of people, they are a poor substitute for direct measurement of many many people.
You might be correct (sounds very reasonable) but I guess the question is why do I necessarily care about directly measuring many many people? What if loud, amplified opinions are actually better indicator of market momentum?. Tetlock's article suggests that those amplified opinions actually do contain useful information. Again, I have yet to find any conclusive evidence that measuring people's chatter actually ... matters.
Derwent licensed the technology and subsequently ran into trouble because the tech and data was not sound.. though Bollen's initial theory was correct.
Right - I think there are more than a couple complaints about his paper. Why do you say his initial theory was correct though? If I recall correctly, his initial theory was that social chatter contained market information that could be extracted using neural networks and used to predict short term market returns (like a few days forward). I haven't really seen anything along the same lines (especially using his approach of neural networks) anywhere - although the articles you link to might be considered similar.
I am just reading through the articles you posted from Deltix now, sound interesting. One problem is that because of the relatively novelty of services like PsychSignal, the data does not go back as far as traditional indicators (this was a problem with Bollen's paper as well). When you say you have impressive alpha, sharpe, or whatever for 6 months.. that does not really prove much, especially in the eyes of academics. I'd love to replicate or work with this data presented in Deltix - but given the data is proprietary, that's difficult to do.
side note:
This was just mentioned in the Wall Street Journal yesterday, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1807265 claims to find signal in blog posts. That's not to say measuring many people's chatter wouldn't work as well or better though. Also just heard of paper today, so no guarantees about quality but maybe someone finds it interesting.
Re: "shipping a csv" -- this market is exactly what the Bloomberg App Store caters to. Bloomberg takes care of all the distribution, billing, discoverability headaches for your niche play and you just focus on the product. The nice thing about the store is that all apps are monthly recurring fees. There are no 0.99 downloads and some are quite expensive.
totally agree - and probably why if all you have is a niche play, even if it has potential to be extremely profitable, attempting to replace the Bloomberg App Store is like trying to replace the Apple app store for one mobile game.
I work for an asset management firm designing the back-end architecture including interfacing data feeds and Reuters gives us issues at least once a week.
They recently updated their Eikon app and the addin was auto-disabled by excel because Excel deemed it as unstable.
I contacted support and they said they were aware of the issue.
Blows my mind that they could release a software update that breaks a critical part of their offering - and not even send an email to clients telling them how to fix an issue that they caused (forced update) and knew about!
Bloomberg support is excellent but I disagree it is as significant in decision making as some commentators appear to imply. Many shops will have internal support able to handle the majority of first line questions, then Bloomberg support is relied on more for edge cases or tier 2 support. Especially at the senior (decision makers) level they may have someone contact Bloomberg on their behalf; so the degree to which support is better is not punishing competition.
Tangential to 5) there are numerous financial services firms of various scales, and even the mid-sized and small shops (for whom $20k/yr + exchange fees is not a write-off amount) disproportionately use Bloomberg. I think squigs25 identifies some of these reasons, I would highlight and add the following:
1) Network effect - Even if you build a better mousetrap capital markets are highly connected. On the sell side we may adapt our technology choices to our most significant clients on the buy-side to provide as seamless a service as possible to clients. Bloomberg messenger has been mentioned by many people and that is a huge factor in our decision making, but simpler things contribute too:
1.a) Consistency - If my client calls we're discussing a trade or security it is a significant advantage in seeing the same thing they see. Be it VWAP on the day to 6dp, the order we're looking at published research, recent trades, if we're looking at the same thing the service I can provide is improved. My service and execution is how I differentiate myself. This relies on us using the same system
1.b) Connectivity - I can have a Bloomberg EMSX client able to send trades to me in ~5 minutes with no exaggeration. Similarly if they want to receive our IOIs or TA (basically advertising from the sell-side to the buy-side) and have an acronym - the connection between the systems already exists and I can find and target your specific acronym in under 5 minutes.
B) Incentives - Smaller shops are, in my experience, less likely to mandate technology to sales/trading/research. It is also unlikely that my personal technology expenses are tied to my comp. Even if cost is significant to the firm it may not be to the individual who have influence
C) Inertia - Capital Markets are not Technology firms. Technology exists to facilitate a job and if it does that well enough there is scant appetite for change. No one wants to re-learn tools that have been familiar for years. They want to even less when that is fundamentally not seen as part of the job, it's a facilitator and should be easy and convenient as a result.
Reliability cannot be emphasized enough. The uptime % we expect (and Bloomberg delivers) is exceptionally high during and around market hours.
Factset's main defensive position it that they have direct feeds from most of the money managers and can do attribution analysis on their trade data overnight. That might not be as hard as getting the market data Bloomberg has, but still a pretty big step.
Also the performance attribution that FactSet provides requires constituent data from the major indexes. Money managers are particular as hell about their indexes, so you can't just provide generic indexes, unless you first convince them that the generic indexes have value. That could take years.
Funny timing, we are pretty big bloomberg users and just had the Reuters Eikon sales team in.
Things bloomberg does well....
- Emsx, they have the largest trading network in the world. If you are able to trade, its free and every broker is hooked up to it. You can be up and running in a few days.
- market Data. To get full market data for just the Canadian exchanges is about $15,000/month. With a bloomberg terminal its about $300/month.
- excel plugin. You can pull real time data, reference (non changing data like the dividend rate) and historical market data into excel. You can experiment so quickly with the combination of bloomberg and excel. This can't be stated enough.
- decent api. You can pull the same data you could from excel into your C++/C# or java app with their api. This also really simplifies prototyping and makes it easy to write the basic infrastructure you need at a a hedge fund.
With these three things bloomberg has done something pretty remarkable. They've locked down the lower end market here making it hard for competitors to start from the bottom as the bottom is significantly less profitable now.
EDIT as to what Eikon does better than bloomberg, the answer is not much. They have a bit better discover ability for functions due to their auto complete typing being much better than bloomberg.
Eikon also ranks analysts predictions and then gives predictions as to how a company will do against its earnings, they tell me their predictive model can be very accurate.
Reuters also has reuters news integration which is arguably better than bloomberg's news.
I used to lead the BB MSG product lead, I can safely say from the inside the communication aspects were absolutely viewed as the killer feature. Simply all US Bond trading is done over the BB MSG system - this is a trillion dollar per day plus market and you must have the BB terminal to interact - the $20,000 a month is cheap to be able to make daily trades of multi tens of millions of dollars. Whenever we made a change to the code, we were told: if you break MSG, when the Wall Street Journal writes its front page story on why the bond market came to a screeching halt, you name will be mentioned.
To give another example, in an annual product planning session, the metric was asked of product managers: how many of our user base would go if we removed your product area. The Derivative team got up and said 50,000. The MSG/Comms team got up and said All of them. The Derivative team replied, we were taking a guess on our number, the MSG guys are absolutely right, we lose the entire business without Comms.
People who haven't used a bloomberg terminal often don't realize that its value is far greater than the data it provides. The article already mentioned network effects due to chat system and other similar features. Another component of network effect is the eco-system of vendors who have built their products assuming access to bloomberg on a local machine (so they don't have to provide their own data)
24 hours a day someone is available for a live chat. If I remember correctly, hit the 'help' button twice and a chat window pops up where an actual live user answers questions. These questions can range from not understanding how to use some feature to help locating data and beyond. If the discussion is getting too involved for chat, the support person won't hesitate to call you.
Bloomberg bundles in several interfaces beyond their GUI. The excel plugin, which updates your spreadsheet in real time is fantastically easy to use. Programmers can use official apis in various languages to query static data or subscribe to real-time feeds (although exchange contracts need to be signed separately).
Bloomberg symbology is hugely important. People outside the industry might find it absurd that it isn't very easy to know the _name_ of the instruments being traded. Are you trading AAPL? Is it the one traded in US, Europe's various exchanges or anywhere else in the world? Are you using cusip? isin? sedol? reuters symbol? bloomberg symbol?
The bbg GUI looks like it belongs to the mainframe era, but the user interface is actually very convenient for people who rely on it daily. Simple commands bring up the data you need immediately, no need to click though a bunch of menus.
Upstarts will have trouble toppling bloomberg for another reason: vendor contracts are a mess. Getting the right to distribute data is very expensive. The contract costs a fair chuck of change, then the distributor must keep track of every single end-user of the data (which associated costs of technology, legal, etc.) This is the case with very standard data feeds, like New York Stock Exchange! A great deal of data comes from markets where deals are done 'over the counter.'
I don't say all this to discourage anyone from trying. I've thought about this problem a bit and it certainly will be a very interesting project for whoever tries to get in the game.
I say this a lot: "You don't know what's customer support until you try Bloomberg's." It's surreal.
One year and a half ago I was involved in an important project which required niche data. I was creating so many help requests I got sent a real person for a couple of hours whenever I needed.
For comparison, this same project required even more data from Reuters and the replies from the support team were so bad things escalated quickly to top managers. It took some time but eventually we had a meeting with top managers from Reuters and then I finally got a real person for a couple of hours.
That is all just hand holding so you didn't go back to your boss and say the words "bloomberg didn't have the data", which is their version of a nightmare.
The value is really only in the data and delivering it to you. The server side software might be wizardry as mentioned here but the client software is a joke. Want to render a chart or read a story? It uses internet explorer in as the rendering engine for you and is slower than molasses.
You're assuming a lot there. I had to use the official source of the data and that was Reuters for around 80% of it. Bloomberg did provide their own feed for some of these cases which I ended up using as a backup in case Reuters failed.
I didn't write this on the previous comment but I had much more joy working with the Bloomberg API than with the several Reuters APIs (like DataScope Select - how can a new API be like that?!).
Another huge thing -- Data quality. Bloomberg gets free crowd-sourced feedback on their data. Apparently, there are hedge-funds (especially for less liquid assets) that make money by finding broken data, buying something cheap (or shorting) and then calling BBG to fix their info.
"It would take immense amounts of venture capital money to build a direct competitor across all those niches."
Wait. You don't need to. Niches actually make it easy to take apart. Concentrate on one niche and do it better, faster, and cheaper than Bloomberg.
Having been in finance, there is a lot of unhappy Bloomberg users. The organization itself, however, is pretty top-notch. They have some really brilliant people working there and the customer service is quite good.
That said, I think in a classic innovator's dilemma scenario, one could build a company that has very few features but does it well and don't actually need to provide support. More importantly, do it for cheap.
Then again, "cheap" isn't usually what finance companies look for. The inefficiencies of that industry is staggering. So long as they come out ahead, it might not be worth it for them to save some money but have to live with limitations.
So maybe the right approach is to target some segment of the finance industry that cares only about a niche and has to really watch their bottom lines.
Yes, agreed. But the difficulty here is that a lot of those niches are very small, in terms of number of users. Assume for example you're building a product focused on munis, which I don't think is a very well covered niche for now. How many potential users are we talking about here? 20,000? A bit more maybe? Yet you need to build a whole technology platform to serve them. Only makes sense (from a venture perspective) if you use munis as a beachhead to expand into another area, but as it turns out, the next area requires you to pretty much start from scratch on a number of fronts, because it is going to be so specific. So building a large business here requires you to address a bunch of different niches and hire specific teams for each - lots of venture money required, IMHO.
As someone who has used Bloomberg's Terminal for 5 years: Bloomberg's sum of the parts product is far more valuable than the parts sold one by one - add to that the immediate top-knotch customer support 24/7/365 and breadth/depth of the data they have, Bloomberg is a killer product. IMHO, I really doubt any product decoupling will be of value to any of Bloomberg's current customers.
I'm not the only person to have thought about this - what about new guys who can use 'a Bloomberg' but can't afford the price? Is there a way forward for these guys to create new customers?
Absolutely, there are many customers left out at +$20k a terminal per year. The questions is, which of Bloomberg's services they want the most. I wished I knew the answer.
Reuters has been trying to topple Bloomberg relentlessly for years. Although they managed to reach feature parity with them on the content, data & analytics and communications(BB Chat vs. Reuters Messaging) on most of the asset classes they continued to loose even at FX where they are the strongest: Bloomberg at its core is a communications company and Reuters didn't manage to break into the most valuable part of their community i.e. buy side.
Buy side, asset management companies like hedge funds, pension funds, has be the target audience for any startups so that sell side companies would flock into the systems for creating transactions. The term flocking must be taken literally as buy side doesn't have time to wait around to find their favorite counterparts. The easiest(!) way to achieve this is to create JV's with financial institutions which is exactly what Markit did
- founded in 2003
- reached $1B and 3000+ employees in 2013
BB can only be toppled by breaking into the buy side community and getting the backing of some of the key players on the sell side. Would they care? Absolutely, as they hate the fact that they have no negotiation power over their data & terminal spend with BB. The cost of maintaining BB terminals is definitely not a noise or a friction of their expenses as some commenters suggested: At every market downturn trading desks are asked to slash terminal costs by deciding between the terminals(BB vs. Reuters) or start sharing terminals. With Reuters banks could negotiate contracts. However with BB they can't negotiate at all as they absolutely own the community.
The arguments here sound similar to why Office is still huge.
- While expensive, it's not expensive for the people that use it professionally.
- It's got more features than any single user needs, but each user's got their own subset that they care about that it's a big moat to cross for competitors.
- Network effects. File-format interop with other Office users sells a lot of copies.
- It's "the standard." You don't need a reason to choose Office over its competitors, but you need a reason to choose a competitor over Office.
As a former Bloomberg user (ugh, its so annoying that my new boss does not see the value in $25k/yr for my favorite IM client), I can say that the author has it dead right that most underestimate the caché and value to the actual network (so what if the new product is good, all my clients/brokers/etc are on Bloomberg)
TR's Eikon product shows you how hard hard it is to compete, depending on the package it can be 1/3 the price of a Bloomberg for a great product, but still has trouble gaining traction...
Some of my collegaues paid for Bloomber _only_ to access Bloomberg chat. This is not $1/y, this is around $20000/y.
And of all the trading stuff I worked with, Bloomberg had the less downtime of all. Even it's full (FULL) of legacy shit and crazy interfaces (things like some realtime feed has a binary protocol and I had to write the state machine for doing the handshakes, error checking and stuff). Still, it worked 100% of the time.
Toppling Bloomberg is kinda like Toppling Google. They are giants. If you go head on, you will most likely fail because you will try to do a lot of things in marginally better (if that) way. I can only think of one way: targeting a very very small niche that BBG handles and do it significantly better (not necessarily cheaper). Keep in mind that the costs of $20,000/yr for a BBG license might sound like a lot to us but for wall st, that is chump change. Ok well lately, firms are getting cost aware but even then, it won't make a dent.
First, Bloomberg's code base represents decades of cumulative institutional knowledge. That's both the downside (it looks 30 years old) and the upside (it's been thoroughly tested and users know what to expect).
Second, for Bloomberg's target customers (big banks, big traders, big hedge funds), the price is just noise in their budget. If you had a "cheaper" Bloomberg clone, you might get more customers but less total revenue. The people who have been trading for 10+ years and know Bloomberg terminal by heart will still want a Bloomberg terminal.
Yes on both. The second point is particularly interesting, and counter-intuitive. There's something about the necessary learning curve to figure out how to use a Bloomberg terminal that makes it sticky. People end up viewing knowing how to navigate the terminal as part of their professional skillset. Of course, that probably only works as long as there's no serious enough alternative in sight.
I once did a technical visit there and the IT Director/VP started trolling me on kernel internals. It took me a bit to figure out he was vetting what someone in L3 had told him.
Bloomberg has driven more kernel tunings on traditional unix flavors than any org I'm aware of. Smartest people in the room.
Remember the Bloomberg terminal snooping controversy from last year? Reporters at Bloomberg News had access to terminal meta data that allowed them to view user contact information and monitor login activity.
When the activity was disclosed, Goldman and a few other banks were trying to figure out ways to replicate some of the features (including chat). I'm not sure where those projects stand today but my point is that their biggest clients desired to sponsor the unbundling of some of the terminal's core features.
As an ex-trader I always wonder what the right attack vector is, but I agree generally. BB is not standing still by any means.
The flipside is, most of the money managed by firms is not handled over Bloomberg nor is Bloomberg the final point of analysis before trades are made. For example one group at my old firm (in fixed income) used a custom built set of tools on top of excel connected directly to their own bare metal sitting on the floors of all the exchanges where they traded contracts. They pulled in their own prices at their own frequency (which was much faster/accurate than available via Bloomberg). Same was true in our group - data came from the exchanges (though with not as custom/frequent a setup), and bloomberg was used as a quick and dirty way to look up historicals/trends, rather than anything live.
More recently I've thought the best attack vector is messaging. There isn't a Bloomberg messaging app on the appstore. Of all the use cases, this is the most irreplaceable - you can probably pay up for all the data flows (banks all pay exchanges directly for higher fidelity data flows than Bloomberg provides) but aggregating that 500k odd userbase of finance professionals? INSANELY HARD. If Bloomberg had an API though . . .
Bloomberg chat/msg is available on iOS, Android and BB devices and app stores. You just don't get it unless you're a subscriber. The entire terminal is available on iPads, even.
I suspect the answer is...not by a direct head-on competitor. There's very little desire for Bloomberg users to switch. It's not overly expensive (relatively), so there's little price pressure, it works really well, there's a broad network effect, information is accurate and timely and reliable.
So say you duplicated all that, maybe even with a slicker interface. Who cares? Charge 1/2 the price. So what? Just because the guy down the street sells Pepsi for $1 doesn't mean I feel any pressure to go walk all that way when my $2 Coke is just fine.
I suspect that coming in from some other angle, doing something entirely different, and slowly bringing on-line some of the Bloomberg terminal's attributes and winning over users is the only way. But even that would be tough. If I'm spending all day looking at my Bloomberg terminal, do I really want to fuss around with some other machine and yet another monitor? How can the space on a trader's desk be physically won?
At this point, it's like winning over corporate America's reliance on Microsoft Office products. It's almost not worth the effort. Just build a different app that does something else entirely that helps with productivity that Office doesn't cover...rather than produce yet another word processor, spreadsheet, presentation suite.
the big underlying question: why does financial data cost so much? why does it cost 20.000$/year to subscribe to the NYSE feed? because banks and exchange build their own network and profited from standing in between. this will change. new structures will replace large parts of banks and exchanges. it starts with payments but it doesn't stop there.
Exchanges are natural monopolies. As such, they really ought to be regulated in such a way that they cannot be exploited to create unnatural monopolies. But they aren't, and so someone has.
The only way to topple bloomberg would be to provide a service that they can't match and that most financial participants want desperately, then build out the capabilities bloomberg already does later. What is that service? I have no idea.
There is at most a very small chance you can beat them with the same product at a lower price.
Very interesting article. I think they capture the way to beat Bloomberg - latch on to it. Add analysis on top of it. Bloomberg's support is solid, but they don't do advanced analytics.
The challenge is Bloomberg is locked in to the hearts and minds of all 320,000 users. Most don't want to change their ways. If you want to sell a trader on a technology, you have to dazzle them in a minute. And these are people who haven't had to change their keystrokes in years. They like the DOS-like interface.
And Bloomberg has billions to toss into R&D every year. Every competitor is nervous about "Is this the year they come for our space, and take us out because the marginal cost of the asset class is 0, since they're already paying for the terminal."
I worked at Bloomberg my first job out of grad school. At the time, I had a great time programming desktop apps using the pure Win32 API (anyone remember that?) and even selling some of them on download.com -- in short, I was pretty close to that time's version of an app store dev and deeply cared about consumer facing UX.
Bloomberg has new recruits go through 3 months of training, where they teach you basic computer science and C and C++, all the concepts underpinning their crazy codebase on the back end. Throughout this whole time, I kept remarking how outdated the Bloomberg front end seemed to be, how reminscent of DOS. One thing I kept mentioning the most is how I wish Bloomberg would take a page from web browsers of the time and introduce Autosuggest as you type.
Anyway long story short, I got lucky. I got placed on exactly the team I wanted - the one responsible for the main Bloomberg front end. Most people were working on a backend function, and I got to work on user facing stuff that all our users dealt with. And lo and behold, exactly the project I kept talking about came down the pike, and I was placed on it.
As a junior programmer it was very rewarding - I wound up building about 3 different modes for reacting to various keyboard/mouse combinations. I kept campaigning for the one that was closest to desktop browsers but they went with another one. I remember them specifically asking me to take away any newfangled transition fx, making it all match the rest of the DOS-like look.
I had a counterpart in another team, working on the backend and sending me the actual data to display. This guy was with the company for a couple years already and probably did way more awesome work than me. My biggest challenge was wrestling with the legacy codebase on the front end. We kept going back and forth under major time pressure - Bloomberg is quite agile - to iron out all the kinks and edge cases. In the end the feature was slowly turned on for internal employees and then our clients.
I gotta say, it felt awesome to have the opportunity to make such a big difference at a company straight out of grad school. To this day I imagine I saved Bloomberg millions of dollars in Help Desk calls (there's a dedicated button on the terminal) where people would just call to ask what they should type.
And yet, after all that, it's just a line on my resume and a story I can tell in interviews. You don't know for sure if I didn't make it up. Don't get me wrong, I am proud to have made a difference and I'm glad to have had such an opportunity. But having my own businsss means I can build on my work year after year, and show that I did it. The value I create can increase over time, and I have the option of hiring others to help me bring it to fruition. Having hundreds of thousands of people use the products that I designed for them, and knowing I can continue innovating on top of this and build more of my dreams year after year definitely makes me even more excited.
That was a good story and quite interesting. But it didn't really give much perspective to the question "Can the Bloomberg Terminal be 'Toppled'?". Do you have any insight on that?
The cost is immeterial here, i think the way it should be done is priority/exlcusive contracts for certain data and price the tool ridiculasly like 1 million type and get few high worth brokers to use it. Add some thing like AI stuff or only sold for ferrai/lamb/bugatti owners. Then it gets word of mouth and trader will make the client/companies buy these.... make some money out of these idiots (BTW, i have no experience in trades but i personally beleive the trade messages time should be regualted across the world so everyone gets the mesage at the delivery and based on your connection you can pickup may be slightly faster)
Literally, absolutely. I've seen them hurled through sheet-rock walls by furious traders, and have fond memories of a chap whose monicker was "Elvis" launching an entire monitor tree, bloomberg term and all through a 13th story window.
Figuratively, probably not, it's basically considered a standard. It'll only go away through attrition as a result of other trading tools providing the same functionality and better, but as this is already the case and the groundswell isn't happening - anyones guess. We probably have to wait for the folks who cut their teeth in the 90's and before to retire, for the culture to shift.
The problem with trying to 'top' Bloomberg isn't so much in making a better (all encompassing) product; it is more in trying to convince the legions of users and financial companies to make a change.
The world of finance is terrible slow at adopting new technology (I know a lot still use XP, sadly). So first, you have to convince people to upgrade. Then the next fun part: actually doing it. 1) fund the change. 2) get the gigantic IT departments to implement the change. Not so easy.
Then, will users even want to use something else? The finance world still uses Blackberry!
It's not the technology that matters to end users. users don't see if you're using NodeJS, or Ember or whatever. They just see the functionality and data.
Another tricky part to competing with high priced financial services like this is that often the decision maker doesn't bear the actual cost. In a large bank spending another 20K for core services isn't going to affect a trader's or salesperson's bonus and on the buy side (hedge funds or institutions) these are often taken care of by the prime broker.
When it's someone else's money, you're likely to pick the highest quality and not really care if 80% of the functionality/quality is available for 25% of the cost.
[1] One older gent I know asked me why his Outlook wouldn't send mail. He said, "I keep hitting <1><Go> and it doesn't send!"
[2] Many folks don't realize that Bloomberg is way more than just IM and market data. In fact it has a comprehensive set of extraordinarily usable and precise analytic tools that are simply unmatched by anyone else's offerings, including the internal tools of nearly every bank and most hedge funds.
This is a topic that is of deep interest to me, as someone who works in the finance and tech space. I think the key is not to think about how to replicate the BBG Terminal experience - but how to chip away at things that it does well. The IM part is key and theres a consortium of big banks and others who are trying to replace that with their own IM network. Im open to discussing ideas with people in this forum - let me know if there is any interest.
Hi, I'm an engineer at Kensho (mentioned in the linked post). As the author mentioned, we're targeting the analytical insights space to start. We're ~25 people[0] who aim to revolutionize access to complex, meaningful financial analysis in a way that is intuitive, fast and meaningful. We also read HN, and I'm happy to answer questions.
I think the reason the largest startups focus on institutional investors is because these are by far the largest users of financial data and are willing to pay for it (just look at Bloomberg's subscription fees). With just a few customers, you could have a million dollar business. How much would an individual pay for access to similar data? Given they could just give their funds to a professional to manage, probably less than that professional costs them.
That said, your startup looks cool and could be very useful if you're able to extract data all historical financial data from annual and quarterly filings (something that is very difficult right now) but it's worth noting that there any many startups in the space of making investing easier for retail investors (many of whom frankly aren't passionate about or interested in anything to do with investing beyond growing their personal funds) probably the most notable ones are maybe Wealthfront https://www.wealthfront.com/, Robinhood https://www.robinhood.com/, and most related to your startup, Quandl.
There are plenty of retail investors who want to do their own fundamental analysis which is our target market for now. If it works out well then probably we would think of scaling up.
> (something that is very difficult right now)
I agree, our parsers sometimes have a tough time extracting the data so we have to modify the parsers accordingly. Our data acquisition expenses are ridiculously low since we don't have to buy it from third parties.
We already have the service up and running for Indian retail investors with paying customers (craytheon.com). Some of those customers asked us if we can start a similar service for US markets.
It's an interesting concept, thanks for the response.
Speaking of parsing, I was made aware of http://www.tagnifi.com/ I think elsewhere in this thread (I have no affiliation with them whatsoever). They appear to parse XBRL - probably in much a similar way as you do (although, I think they offer just raw data rather than the screening tools you do, so slightly different purpose/target). Just thought I'd share in case you found in interesting/useful.
I did not know about tagnifi. You are right they just offer the raw data while we go one step further by creating the financial charts from the raw data but I would be keeping an eye on them from now on.
As you pointed in your comment that they don't appear to parse pre xbrl data while we do.
In your earlier comment you said most startups in fin-tech space are not passionate/interested about actual investing, I completely agree. I have seen many startups claim that their users by using their service will get above average returns.
So if their service provides above average returns why are they even selling the service, just trade/invest your own money and you will be rich in no time.
The reason we started Craytheon because we wanted a service which would help us make better investment decisions in the stock market. Which is why the first US company we added to our database was Enron.
I don't think that is true. There are a lot of new firms targeting individual investors (even some YC funded). You are going to be competing against the brokerages themselves which are constantly pushing more sophisticated platforms for active traders.
Most individuals should not be active traders, and for non-active traders then your product has to compete against something like the Vanguard lifecycle funds which are damn good and cheap products.
I really want to believe there is a value add in products like Betterment, but is Betterment really significantly better than a Vanguard fund? I doubt it.
It might be possible to charge more than Vanguard, but I think that most who do are preying on the ignorance of investors, and that's not how I would want to make a living.
> There are a lot of new firms targeting individual investors
Can you please list a few, I would really appreciate that.
> your product has to compete against something like the Vanguard lifecycle funds
I think you are confused with what we do. We are not a financial advisory firm. We just take the raw data from convert it into financial charts and valuation models. The end user then can make his/her own investment decision based on that data.
There are plenty of retail investors who want to do that and that is our target market for now.
The problems with getting software onto traders computers are simpler than this article leads you to believe.
Insurance. Getting insurance to install a .exe as part of a banks trading process is insanely difficult. The banks aren't interested in going down that route.
If a start-up can figure out a way to provide the mass financial information that Bloomberg provides and charge even 1/10th of what Bloomberg charges ($20,000 per year), it would disrupt the monopoly that is Bloomberg.
I'm not so sure... given the (apparent) network effects, and the fact that (I assume) Bloomberg users aren't going to be too price sensitive, you're unlikely to make a big dent their user-base anytime soon.
What you are likely to do though is bring in new users who were price sensitive or who couldn't justify $20,000 for their particular use-case. For those who wouldn't spend $20,000, $2000 is a lot easier to swallow.
So instead of taking Bloomberg's market, you'd be more likely to create a second tier of service.
For a bond trader who does billions of dollars in trade per year, $20K/year doesn't even show up in the roundoff errors. Maybe a $2K/year service could find its way into the world of people who do day trading from their homes. On the other hand, those people are probably already using a lot of the information that's available free on the internet or from their brokerages, so it could be an uphill battle convincing them to shell out $2K for proprietary financial data.
The problem with the second tier is it might well be actually a smaller addressable market than the top tier; second best isn't really an option for finance professionals. The other problem is that a $2k per annum fee probably doesn't cover content licensing fees for a true Bloomberg competitor, never mind the (high) cost of sales or development costs.
Nevertheless, there's no shortage of niche financial software/data products in the $2k per head range, but there's a reason they're not growing big enough to threaten Bloomberg.
I agree. Good tools could enable a second/separate tier of professionals to create a disruptive presence in the areas dominated by Bloomberg users. It would be simple to expect that Bloomberg would react accordingly.
That's a bit like saying Seiko ought to be able to steal marketshare from Patek Philippe. Exclusivity has its own utility aside from nuts-and-bolts functionality.
key takeaway for me is so many fin-tech startups are asking the question by trying, the only real way to find out. personally agree that this is not a fight you tackle head on - need an angle.
Honest question - why do financial data feeds (stock data) cost so much? Ideally, this is public information, so they should be available for free (or a nominal cost), no?
As a former Goldman Sachs Invesment Banking analyst, we used SNL for bank and insurance data and Bloomberg. CapIQ is pretty unreliable and so we never used it.
one i-bank manager called bloomberg a $2000/month instant messaging service. most of its users probably don't know how to do much besides email. but it's a status symbol to have a bloomberg email address.
Many points have already been covered, but there's one really important one: the data.
It's not just about implementing a niftier interface to look at financial information. You must have the information itself first. Bloomberg has been aggregating so many different sources (hundreds, if not thousands) and they have been doing it for many years now. There aren't that many companies out there that are good at this. Only Reuters comes close to Bloomberg, as far as I know, and they aren't really that close. For individual data sources there are alternatives, but nobody else has such a comprehensive offering. There are all kinds of issues related to each data source that you would have to tackle one by one. Of course, anyone can subscribe to the different data sources, the costs are not going to be prohibitive for a well-funded startup. But regular licences would not allow you to display the data to your customers for free. You'd have to strike deals to be able to resell subscriptions to your customers and make the process easy for them. All of the data providers will want to get paid, data is not free. Once you start processing the data, you have to start archiving it because history is important. Bloomberg has been collecting data for decades. In some cases, they have data that the data providers themselves don't have because they were not so good at archiving in the past and many of them are still focused on providing real-time data only. So, if you wanted to buy historical data, it's going to be hard to get it. Often your only choice is to buy it from Reuters or Bloomberg and they are not going to give you licences for reselling the data. Note that even if you archived a lot of data from real time feeds over time, you still might have problems with the original data providers not letting you use the data for commercial purposes. And last but not least, even you got your hands on all the data that your customers would expect you to have, you still need to process it. Every data source has it's idiosyncracies that you'd have to master (not to mention that data formats have been changing over the years and documentation is often non-existing). This is very tedious and time consuming work, not the kind of stuff that excites most young startup founders. Bloomberg has been very good at processing, normalizing, and storing financial data from a multitude of heterogeneous data sources and they have decades of know-how.
Off the top of my head I can imagine only a couple of possible lines of attack that might have a chance:
- Start with a niche solution, then expand slowly year after year, market after market, data source by data source. Your product will have to be relatively cheap though, so that customers would be willing to buy it in addition to Bloomberg.
- Buy the data from Bloomberg. Develop your own UI. Get acquired by Bloomberg.
One of the problems is that most things are pretty "connect-the-dots". Getting acquired by Bloomberg has historically not been a valid exit, as we will simply build the functionality people want and fully integrate it into the product in a fraction of the time it would take to fully integrate a company (if it is even possible).
Trying to buy each feed indvidually will set you back MORE than $20k. For example, you want stock feeds? Do you want the NASDAQ feed or the NYSE feed? What about the CDNs? And if you want the RAW feed you're also going to hire someone to parse it for you.
There are a couple reasons why it's really difficult to disrupt this industry:
1) An mvp won't cut it. If I'm a trader with 300MM in my pocket, then I need access to information. All information.
2)Reliability. Traders need a highly reliable connection. No room for error. A great counter example is Reuters. I worked on a support desk where I had both Reuters and Bloomberg (at a cost of something insane, probably close to 100k/yr). I imagine that when a major pricing error occurred on any exchange, I would find out within 30 seconds to a minute. Despite all its resources, Reuters proved time and again to have pricing issues. Connecting to hundreds of exchanges with thousands of securities is difficult. When you start to go outside of the US, there's some really bizarre logic. Bloomberg was incredibly reliable on the other hand, and their support team responds to issues within minutes.
2) Network effects. Bloomberg messenger is the way to communicate in finance. Also, Bloomberg leverages its network to constantly monitor prices, so pricing problems are discovered REALLY quickly. It's kind of like open-sourcing security pricing monitoring.
3) Reputation. Even if you create a perfect replica of Bloomberg, would I stake my clients money on your track record? Even with a good track record, why would I not trust Bloomberg when it's the de facto standard?
4) IP? not sure about this one, but I imagine there are a lot of features baked into Bloomberg with legal protection.
5) The cost is insignificant for most of wall street.
Funny story: on a whim I interviewed with capital IQ while I was in college. They asked me to design an interface that would allow people to access financial information quickly. Having never used or seen Bloomberg, I immediately started describing a system of keyboard shortcuts, to which my interviewer responded that I was basically just describing Bloomberg terminal. Didn't get the job.