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Inside the Bloomberg Machine

By Greg MacSweeney March 23, 2011 URL: Related: Q&A with Bloomberg cofounder Thomas Secunda If it ain't broke, don't fix it. The mantra applies to many things, including cars, bicycles and kitchen appliances. It also applies to business plans. But something has been changing at Bloomberg LP, the wildly successful market data services provider that has followed the same basic business principles -- innovation and customer service -- since it was founded. Bloomberg LP has not-so-quietly built an empire that has woven its way into the fabric of Wall Street. But, until recently, the firm has been an inward-looking, closed-to-the-outsideworld organization that relied on its own pool of talented professionals to develop tools and features for its customers. Bloomberg rarely engaged other companies (except its own clients), its executives never spoke publicly, and it didn't market itself like most of its direct competitors do, with general advertising. Instead, Bloomberg spent time developing strong relationships with clients by providing superior customer service on its primary product, which has served it so well since the company was founded: the Bloomberg Professional service, or, as it's more commonly known, the Terminal.

Bloomberg's Manhattan headquarters And this inward-looking strategy (with a healthy dose of paranoia) has worked. Since Bloomberg's beginnings in 1981, when Michael Bloomberg used his $10 million Salomon Brothers severance check to found the company, it has captured about one-third of the

multibillion-dollar market for delivery of financial data, news and tools/applications for financial professionals. The company brings in nearly $7 billion in annual revenue, with 85 percent originating from the Bloomberg Professional terminal service. That's not to say Bloomberg relies on its original technology -- rather, the company is, pardon the expression, a machine in terms of releasing new products and generating revenue. Today, however, Bloomberg seems to have adopted a more "open" policy. It is engaging with outside firms and talking to the press (as you can see from this article), and even has built a marketing department, which observers say didn't exist until last year. A Culture of Healthy Paranoia Although the Bloomberg terminal has grown and expanded drastically since it first landed on two dozen desks at Merrill Lynch (an early Bloomberg investor and first customer) in 1982, the core product remains the same: market data, news and analysis in one place, often faster than the competition. And the paranoia that drove the cofounders -- Bloomberg, Thomas Secunda, Charles Zegar and Duncan MacMillan -- to continually develop new features to stay ahead of competitors still lives on in the organization today, according to employees, who speak of this feeling of paranoia in a positive way, as a healthy motivator. That motivation has grown the terminal, or, "the Bloomberg," into a product with approximately 30,000 functions that are used by slightly more than 300,000 subscribers, most of whom use only a small fraction of the available tools. "There's a healthy paranoia that people who work at Bloomberg seem to have that keeps them looking over their shoulder," says Domenic Maida, global business manager, Bloomberg Professional service. "It keeps their hearts beating faster when they think about solving problems and making sure that they are first to market with the solution." People outside the firm also see the same positive culture. "There is a level of paranoia, in a good way," says Sang Lee, founder and managing partner of research and advisory firm Aite Group. "From an outsider's perspective, that is probably what drives them to innovate." That feeling is shared among the technical staff, according to Shawn Edwards, chief technology officer for Bloomberg LP. "They're often the ones working through the night," he says. "They're the ones who are kept up coding and thinking about getting to market, and that's a huge factor of what we do -- getting our ideas out to market first and responding to our customers fast." Noting Bloomberg's ability to rapidly deploy new products, some of its competitors have begun to offer similar responsiveness. Acknowledging that previous versions of his firm's products saw updates yearly, Harry Tempkin, head of equities in the Americas for Thomson Reuters, says the provider's new platform, Thomson Reuters Eikon, features updates at least every month. "Customers on Eikon receive new releases every month. The desktop management is very light and it is easy for us to add new capabilities," he says, adding that Eikon's hosted platform resides in the cloud, which makes it easy to send out new releases. The "paranoia" at Bloomberg has developed into a top-down culture of innovation that helps the company improve, outsiders say. "The culture at Bloomberg fosters innovation," says Yanay Lehavi, a Bloomberg client and EVP for front office and trading applications at PIMCO, the global asset manager with $1.2 trillion in assets under management. "It starts at

the top and moves down. At Bloomberg, everyone has the enthusiasm, the knowledge and the engineering acumen, and that is rare in a large company." Although there is no single factor that allows Bloomberg to maintain such a high-quality workforce, observers point to Bloomberg's preference to hire recent college graduates, an extensive training program and an internal drive to constantly improve. "I don't think they have smarter people than everyone else," says Bob Iati, partner and global head of consulting at Tabb Group. "But their people are certainly focused on the right things." Thomas Secunda, founding partner and global head of financial products and services at Bloomberg LP, has been with the company every step of the way. Like other Bloomberg employees interviewed for this article, Secunda prefers to talk about the product rather than himself; he demos new features on the terminal when answering questions about the company; continually talks about clients' needs; and, yes, is tightlipped about what new features are in the works for the terminal. During a nearly two-hour interview that spans a variety of topics, it becomes evident that Secunda's drive and enthusiasm for his job have not waned after 30 years with the company. But again, he prefers to downplay the internal workings of the company and, instead, tries to steer the conversation back to clients' needs and his company's products. When discussing the Bloomberg Professional service, his eyes light up. Pressed about how Bloomberg maintains its focus on customer service and innovation and about how it helps new hires to understand the Bloomberg way, however, and Secunda mentions the internal training programs. "Mostly, we hire new people and put them through pretty extensive training programs both on the sales side and on the programming side, so that they can learn the way to do things here," Secunda says. He notes that although Bloomberg is a global company, most of its employees are based in the United States. Just having access to a good talent pool, though, is different than making the right decisions on who to hire. "A great technologist can do things that an average technologist can't even fathom doing," says Bloomberg's Maida. "And things an average technologist can do in six months, they can figure out how to do it in a week." At Bloomberg, CTO Edwards adds, the company views technologists differently. "A lot of technologists in this sector and this business are viewed as an expense or viewed as a cost," he asserts. "Bloomberg is different. Our technologists are making the product, so they're the heart of the company. It's a different mind-set." Growth During Crisis and Beyond During the previous two years, when most of the industry was hunkering down, slashing costs and laying off workers, Bloomberg did what it often does: It tacked the other way. The firm began one of the biggest periods of growth it has ever seen, in terms of employees and product development, according to Secunda. "We took a view during the turndown that it was a great opportunity for us to run some risk and to give up some growth -- P&L growth, not product growth -- to bring in new people," he says. "So we added a lot of technologists, making it our biggest growth years ever. We added technologists from the Street and a lot of people out of college."

Currently, Bloomberg has 12,900 employees, of which Secunda describes approximately 3,000 of them as research and development staff. "And it seems like we're always hiring because there are opportunities here," he notes. In March, Bloomberg announced plans to hire an additional 500 research and development professionals in 2011 alone. Likewise, when other vendors were slashing rates and renegotiating contracts to retain clients, Bloomberg found a way to create added value for customers. The company started to show clients how to get more out of the Bloomberg platform, often at a competitor's expense. For instance, a Bloomberg user may have had a different provider for certain types of data or types of analytical tools, not knowing that Bloomberg offered that capability in its 30,000function library. As the result of a little client education, when the client switches more functions to the terminal, Bloomberg expands its penetration while saving the client money (and not costing Bloomberg a dime). And Bloomberg's competitors lose out. "We saw the downturn coming at the end of '07 into '08," Secunda relates. "We went to our customers and said, 'Look, you could be a lot more productive with the Bloomberg.'" He adds, "They were worried about keeping their jobs and keeping their firms profitable. So we came up with something we called Bloomberg Value Solutions. Instead of going out and talking to our customers about taking more [products], we talked to them about how they could actually save money by doing more on the Bloomberg terminals they already had [on their desks]." Bloomberg also helped customers find other savings. For instance, exchanges charge for realtime data and the costs are paid by Bloomberg's clients. Bloomberg was able to monitor which clients were not using the data and shut off the feed. "For a big firm, we could save them around a half-million dollars," Secunda boasts. "We did that on our own with our own initiative, and we saved our customers money." (This type of service is not unique to Bloomberg. For instance, SunGards MarketMap, a competitive global market data offering, also allows clients to turn off the real-time data capability to cut costs.) Still, Bloomberg and other market data terminal vendors face ongoing market pressures. According to Aite Group's 2011 Capital Markets IT Spending Study, 15 percent of CIOs plan to cut spending on market data terminals this year. Bloomberg and its largest competitor, Thomson Reuters, are moving to counteract the trend by launching new trading-focused services, Aite says. More Than a One-Trick Pony? Critics note, however, that Bloomberg remains primarily a one-trick pony, as almost all of its revenues -- again, 85 percent -- come from the Bloomberg Professional service. But Bloomberg does have an extensive media network, including hundreds of journalists around the globe, a TV station and Bloomberg BusinessWeek. And Bloomberg's news organization is growing at a time when the rest of the media industry is shrinking. Nonetheless, Bloomberg is aware of the criticism, and this may be why it is a more open organization today than just two years ago, say observers. Currently, Bloomberg is expanding

into the legal arena with the launch of Bloomberg Law to provide legal analysis tools and research. And in 2010, stepping far away from its core financial news business, the company launched Bloomberg Sports Baseball along with Bloomberg Fantasy Baseball products, which take some of the data analysis tools developed in financial services and offer them to the sports world's equivalent to quants. Aite's Lee insists that Bloomberg's business plan is sound, noting that the industry (and the competition) is always watching to see what Bloomberg will do next. "Certainly Bloomberg has shown recently that it is not afraid to do new things," the analyst says. "And they certainly have the cash to do it." According to Lee, outsiders have wondered why Bloomberg hasn't made a larger push into the fixed-income electronic execution space. "People thought Bloomberg could provide a fixed income execution venue on top of [its data and tools]," he explains. "There are opportunities in the fixed income electronic market. If there is someone who could do something innovative in the fixed income side, I would not count out Bloomberg." Bloomberg already offers Bloomberg Fixed Income Trading (FIT). Another area where Bloomberg could grow would be the low-latency market data infrastructure market, as well as the derivatives data space, comments Tabb Group's Iati. "A number of companies have stepped up on the low-latency market data infrastructure side," he says. "That was an area where Bloomberg had an opportunity to step in, but they didn't. They may still do so, and wherever they look to expand, they have a great opportunity." (Bloomberg does offer B-Pipe, a consolidated, real-time, platform-agnostic high-volume market data feed.) Speed & Response Despite a perceived lack of other products, Bloomberg's "one-trick pony" certainly has legs. The product is so compelling, say observers, because of Bloomberg's "insanely good" customer service. For instance, numerous buy-side customers, from head traders to technology leads, speak of how their Bloomberg representatives will drop everything for them. In fact, one client jokes that it's difficult to keep his Bloomberg rep out of his office. "It is hard to fathom a day without at least one Bloomberg representative walking around," says PIMCO's Lehavi. The focus on serving the customer is not limited to the largest customers, such as PIMCO, where you would expect Bloomberg to have a regular presence. Even small shops attest to Bloomberg's attentive service. "They will dedicate resources to you," says Chris O'Connor, partner at the hedge fund RedMile Group. "I am a trader at a firm with four Bloomberg users," O'Connor notes, but he can get support at anytime. "You can't say that about a lot of other organizations." Further, the company's responsiveness isn't limited to customer service. New tools, features and functionality are regularly developed for clients, often with surprising speed. "Bloomberg is very receptive to suggestions," says O'Connor. "I come across things that they may not anticipate, since they aren't doing what I am doing day to day." The new functions sometimes aren't perfect. "There are dozens of functions that they start with, they refine them," says Michael Kotlarz, technology equity analyst with Oppenheimer

Funds and a Bloomberg client. "Maybe the functions aren't perfect when they first come out, but they refine them and make them better all the time. ... Bloomberg listens and gets it right." In fact, Bloomberg's responsiveness to client requests has many clients viewing Bloomberg as an extension of their IT organizations. RedMile's O'Connor certainly views Bloomberg as a technology resource. "A lot of the requests [for functionality], I wouldn't even make ... to another data vendor because I know they wouldn't deliver," he says. When Bloomberg rolls out a new service, ideas for the terminal often start with clients and are developed and implemented by Bloomberg, according to Secunda. "We prototype the product and then we put it out in front of our sales force and in front of our customers as an alpha version," he says. "We then go and take what we've learned and build a beta version, and we go back out again and test it. Sometimes those testing periods are measured in months, sometimes in weeks, sometimes in days if it's a specific, small function coming out." Bloomberg's rapid development methodology "allows ... our developers to quickly build applications within the Bloomberg environment," Bloomberg's Edwards adds. "I have built things in front of customers in a meeting here at Bloomberg, and at the end of the meeting, I have had a working prototype, maybe with dummy data, but a prototype of the concept that we're all talking about." Giving clients what they want, and doing it quickly, is part of the goal, notes Bloomberg's Maida. "It's great when we're able to do that for customers," he relates. "It does blow them away, and that's the kind of service we want to provide." Perfection Has Its Price Providing great customer service, an integrated platform and access to thousands of functions does have a cost, and the cost is relatively high. Numerous clients cited the price as a downside of using the Bloomberg Professional service. "Price is always a complaint," says Aite's Lee, noting that users will pay it because of the depth of the product and its integration capabilities. Although Bloomberg doesn't publicly disclose its cost per user, each user pays about $1,700 per month (per seat), or roughly $20,000 per year, for access to Bloomberg Professional. Tradebook charges a commission for executions, and some other Bloomberg Trading Solutions require an additional fee. Thomson Reuters prices its product differently, according to Thomson Reuters' Tempkin, who compares Bloomberg Professional to a premium subscription. "We believe in offering different levels, or flavors, of service for different clients," he explains. "You don't have to get the full premium package if you don't want it. If you just want equities, you can have it." Seth Hoenig, head trader at Glenhill Capital, a long/short hedge fund with $1 billion in assets under management, says, "Bloomberg is expensive, and everyone knows that." Hoenig notes that he's been using Bloomberg since his college days, when he used the Bloomberg terminal at his university to access real-time market data. But, "If you have a good painter, you know it is worth it," he continues. "Bloomberg is like Apple -- it may cost more, but they know what their customers want. They are a business that gets it. It is a high-quality product and it has tremendous value."

According to Aite's Lee, customers are willing to pay the high price because information is integrated across Bloomberg products. "The tight integration between data, workflow and analytics is all there," he says. "And once you get into specific applications, whether it is the OMS or EMS, all of the elements come together. It's a compelling bundled package that isn't easy to find elsewhere." Experts say Bloomberg doesn't have the integration problems that are common with other technology providers because the company develops all of its own technology, while many other companies grow through acquisition. "That is one of the added values of doing it internally," says Tabb Group's Iati. "They don't have the integration problems. There may be better or different tools out there, but everyone understands the Bloomberg box, and it is all in one place." The Original Social Network One of the major hooks of Bloomberg Professional is gaining access to the service's network of users. Long before social networking became a household phrase, Bloomberg developed one of the most focused, extensive and easy-to-use professional networks on the planet. To this day, access to 300,000-plus users is just a few keystrokes away through Instant Bloomberg (IB), Bloomberg's secure version of instant message, and Bloomberg Message, an encrypted e-mail service. The network boasts 2.4 million people profiles, IB traffic of 12 million messages per day and 200 million Bloomberg messages per day. Bloomberg's communication capabilities are mainstream in the financial community, says Glenhill's Hoenig, who notes that a good portion of his communications are through IB and Bloomberg Message. "Bloomberg works with AOL, and it makes my workflow more efficient," he explains. As a reference, Hoenig says four of the six panels on his workstation are filled with Bloomberg information and tools. "People love Bloomberg because the community of Bloomberg users is so strong," Tabb's Iati adds. "Many of the other tools on the desktop may be interchangeable with other providers', but you can't get the community elsewhere. If you are on the community, there are very few people you can't reach. There is no price tag you can put on that. Even with the social networking apps, the direct Bloomberg community is the strongest connection to the industry, especially on the buy side." In essence, Bloomberg is now part of the financial industry culture. "Bloomberg is now part of my daily life," Glenhill's Hoenig says. And that sentiment is commonly echoed by the sources for this story. "People who use Bloomberg think it's the best thing since sliced bread," relates Aite's Lee. It's hard not to wax poetic about the firm's impact on Wall Street since it started 30 years ago. It has leveled the playing field, in many ways, by providing information to investors who, as strange as this sounds today, were completely in the dark back in 1981. Without access to information, traders and investors had to rely on others -- a broker or a public company itself -- to get the information. Providing that information -- coupled with trading tools and analytics -- to anyone who wants to pay the fee was groundbreaking. Bloomberg's Secunda is certainly aware of the company's legacy and how it has changed the markets. "The role that Bloomberg has played in bringing transparency and clarity to the

market is something I'm very proud of," he says. "It's helped the market, because there are many instruments that you couldn't trade unless there was somebody that could give you analysis, descriptions or news on them." Secunda also is proud of the people who make up the company. "I'm immensely proud of the culture of the people and the company," he adds. "The product is wonderful, and I'm very proud of that as well. But the future is the people who sit around here."

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