8 ms·

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

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.

hangonhn 13y ago
You really nailed it with #5.
greenyoda 13y ago
"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.
mattturck 13y ago
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.
- squigs25 13y ago
  good points, and great article! Maybe you know better than I do, were Neal Goldman and co-founders originally Bloomberg guys?
  - mcfunley 13y ago
    They were all investment bankers. Originally they were competing with Factset and Thomson, not so much Bloomberg.
izyda 13y ago
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.
- apaprocki 13y ago
  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.
IBM 13y ago
What do you think about Factset's chances?
- cmbaus 13y ago
  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.
cmbaus 13y ago
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.
- croikle 13y ago
  > For instance try finding out what stocks and weights make up the Russell 2000 index This actually sounds like a fun little linear algebra problem.
mcfunley 13y ago
> 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 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.
- EGreg 13y ago
  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.
  - xmonkee 13y ago
    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.
    - EGreg 13y ago
      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.
washedup 13y ago
Not only that, but Reuters data services are questionable as well.
- markovbling 13y ago
  I can confirm this wholeheartedly 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!
Sniperfish 13y ago
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. (source: work on sell-side trading desks)
markovbling 13y ago
hahaha i lol'd :)

hangonhn 13y ago

You really nailed it with #5.

greenyoda 13y ago

"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.

mattturck 13y ago

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.

squigs25 13y ago
good points, and great article! Maybe you know better than I do, were Neal Goldman and co-founders originally Bloomberg guys?
- mcfunley 13y ago
  They were all investment bankers. Originally they were competing with Factset and Thomson, not so much Bloomberg.

izyda 13y ago

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.

apaprocki 13y ago
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.

IBM 13y ago

What do you think about Factset's chances?

cmbaus 13y ago
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.

cmbaus 13y ago

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.

croikle 13y ago
> For instance try finding out what stocks and weights make up the Russell 2000 index This actually sounds like a fun little linear algebra problem.

mcfunley 13y ago

> 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 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.

EGreg 13y ago
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.
- xmonkee 13y ago
  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.
  - EGreg 13y ago
    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.

washedup 13y ago

Not only that, but Reuters data services are questionable as well.

markovbling 13y ago
I can confirm this wholeheartedly 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!

Sniperfish 13y ago

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. (source: work on sell-side trading desks)

markovbling 13y ago

hahaha i lol'd :)