Subscribers Fear Bloomberg Is Becoming Their Rival
Long thought of as a company that serves the needs of Wall Street firms, Bloomberg L.P. is quietly becoming more like them, moving recently into businesses that have been the domain of the largest banks.
This relatively unheralded expansion by Bloomberg helps explain Wall Street's consternation at recent disclosures that some customer data was freely available to reporters and others inside the company. The fear inside banks is that Bloomberg could use that data not only to write negative news articles but also to compete directly.
In recent years, Bloomberg has offered new ways to trade stocks, bonds and more complicated financial products, potentially taking revenue from subscribers to the ubiquitous Bloomberg desktop terminals, which contain a vast store of market data. The expansion is even leading Bloomberg to offer traditional Wall Street services like wealth management and research.
"If you add all this stuff up together, they do look increasingly like a brokerage business," said Larry Tabb, founder of the consulting firm Tabb Group.
He said that Bloomberg was not yet a dominant force in these activities and had been careful to placate the concerns of subscribers. But, he said, "it makes some of these brokers think, are these guys friend or foe?"
Bloomberg says its trading operations are walled off from its data operations and asserts that it has won the trust of clients over the years. The company is eager to protect both its revenue and the wealth of Michael R. Bloomberg, which are still primarily generated by the terminals business.
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But the sources of revenue are changing.
Bloomberg's expansion has been motivated in part by a slowdown in the core terminals business. Before the financial crisis of 2008, executives had created the 10B initiative, which had the aim of increasing the company's annual revenue to $10 billion by 2014, according to company employees who spoke on the condition of anonymity out of fear of jeopardizing their careers. Last year, with revenue stuck at about $8 billion, this goal has been quietly de-emphasized, the employees said.
The expansion has taken place in many new areas, including products that provide political and sports intelligence. But the continuing efforts to capture Wall Street business are particularly tricky because they risk alienating the financial firms that pay for most of the terminals.
"They have to be very careful in how they sell themselves, and who they broker to," said David B. Weiss, a senior analyst at the Aite Group. "You don't want to mess with a $6 billion a year golden goose."
Bloomberg executives have said the firm is only moving into areas that complement its core business of allowing customers to analyze data and communicate with subscribers. Lengthy contracts stipulate the ways that Bloomberg can use information it gathers about terminal users.
Still, financial companies are seeking assurances from Bloomberg that important data is not finding its way into divisions at the company that could exploit it. Bloomberg executives apologized after Goldman Sachs and other banks complained that Bloomberg's journalists were able to look at information about when customers logged in and what functions they were using.
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People close to the company said Tuesday that the same data had been accessible to employees in its trading division, known as Bloomberg Tradebook, but that the company had cut off that access recently.
Bloomberg has said from the beginning that it shields specific trading activity of customers from employees not authorized to see it.
The criticism of Bloomberg has been caused in part by Wall Street's desire to push down the steep $20,000 yearly price tag for a Bloomberg terminal. Many bankers say they have little choice but to pay if they want to communicate with their customers, most of whom are on Bloomberg's networks.
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Thomson Reuters, Bloomberg's primary rival in the data world, also provides trading capabilities, but it rarely vies for the trades itself and emphasizes what it calls its neutrality. The company has not moved into many of the business lines where Bloomberg is now looking to make money.
"Our strategy is to partner with our customers and not to compete with them," said Yvonne Diaz, a spokeswoman for Thomson Reuters.
The most obvious business line that competes with Wall Street is Tradebook, a subsidiary of Bloomberg that is registered to trade on behalf of clients, collecting valuable commissions for each trade. It is fighting for those commissions with trading desks across Wall Street.
Tradebook was originally created in 1996, 14 years after Mr. Bloomberg founded the larger company. For many years, Tradebook failed to gain much traction, but in 2010 it hired an ambitious new chief executive, Ray Tierney, from Morgan Stanley.
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Mr. Tierney has helped Tradebook win a greater market share in stocks and options and has developed new products. Last fall, it introduced Bloomberg Pool, which serves as a competitor to Wall Street's dark pools, where stock trades are executed away from the public exchanges.
Beyond Tradebook, Bloomberg's clients use the company's software to look for and execute trades in many different markets, putting the company at the center of the information flow between buyers and sellers. Bloomberg says this data is protected even within the company.
Bloomberg will be adding to its trading operations soon, when it introduces a type of electronic exchange for financial instruments known as swaps, one of the most heavily traded products on Wall Street. Bloomberg expects to charge customers for using the service.
Like other Wall Street firms, Bloomberg has not been afraid to resort to legal muscle to protect its swaps business. It has hired a top Washington lawyer, Eugene Scalia, to challenge rules for the swaps exchanges that were proposed by the Commodity Futures Trading Commission.
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The company contends that the commission's rules could prompt investors to move out of the swaps market into another market that could be weaker and less transparent. But some industry officials have argued that the case is motivated by Bloomberg's desire to bolster business for its own swaps trading operation.
Bloomberg is even showing signs that it wants a slice of that most traditional of Wall Street businesses, investment advice for individuals. Its offering in this area, BloombergBlack, is in a testing phase. It is intended to serve somewhat like a scaled-down Bloomberg terminal for investors at home. Automated money management is seen as a growth opportunity by many brokerage houses.
"The perfect customer for this is a guy who's done a lot of investing and it's a hobby for him," said Joshua Brown, a financial adviser at Fusion Analytics, and author of the Reformed Broker blog. "That's a pretty good market."