Amongst the paraphernalia of techy things that we use to invest money, the Bloomberg terminals in Marcellus are the clunkiest, most 1980s-looking bit of kit in our office. And yet we pay a fortune to use these machines. This article in the FT explains why Bloomberg is able to command such loyalty from millions of people like us: “There are five main reasons why Bloomberg defies gravity: knowing their client preferences; the cost of substitution; a superior brand and network effects; a disciplined pricing strategy; and a long-term vision around product expansion.” In plain English, Bloomberg has managed to integrate in one firm all the elements which a firm a dominant position in a sector.
Let’s focus on the three cleverest things which underpin Bloomberg’s total dominance: “Let’s start with client preferences. A lot is said about how the Bloomberg user interface is increasingly dated…The reality is that most Bloomberg users are used to it and don’t dislike it. Knowing what your important clients and not the whole world want is crucial…Look under the hood and you can see that Bloomberg seamlessly brings together data, analytics and other services. All backed by world-class customer service.
Second is the cost of substitution. In core front-office sales and trading, especially in fixed income, how many market participants do you know that have ever used an alternative? When these revenue generators are bringing in millions of dollars of revenue and trading huge amounts of risk capital, is it worth their bosses changing their daily workflow? As for portfolio managers and research analysts, there would be significant frictional cost to switching. Bloomberg is connected to all their models in some way…
The natural state for businesses is to offer a menu of pricing options. I have personal experience of this seeing the inner workings of the world’s largest interdealer broker over almost a decade. Try and look at the fees charged by any major financial services provider and you will get thousands of different rate cards with a plethora of bespoke pricing deals. All of this leads to constant jostling for position.
But Bloomberg is at its heart a one-product, one-fee company. Sure, they discount on the second terminal but they understand the value of the network and the need to not strike too many discounts. Instead of trying to tempt customers with a confusing menu of different tiers, services and pricing, Bloomberg’s army of salespeople just focus on selling the terminal’s bundled benefits…”
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
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