June 23, 2008

The New York Times

The New Fight for Financial News

For years, The Thomson Corporation was the information giant that rarely talked about its own business.

 

But since its acquisition of Reuters, which closed this year, that reticence has softened. Thomas H. Glocer, the head of the combined company, is very candid about where he is aiming next.

 

“For a long time, Bloomberg had it too easy,” he said in a recent interview. 

Thomson Reuters is going hard after Bloomberg L.P., which has long been the marquee name on Wall Street for financial information.  The companies are in a dead heat: Thomson Reuters has 34 percent of the market for financial data and Bloomberg 33 percent.

Thomson Reuters is a far larger, more diverse company: its strength is delivering electronic data and services to professionals, including lawyers, doctors and scientists.  It was Bloomberg, however, that defined the market by providing information unmatched in scope by any other company, married to a disciplined and customer-driven culture. 

Mr. Glocer concedes that there is some symmetry in Thomson Reuters’s challenge to Bloomberg.  After all, it was Bloomberg in the early 1980s that revolutionized financial information, stealing the market away from established companies like Reuters and Dow Jones. 

 

“Reuters used to be B.O.A.C.,” Mr. Glocer said, referring to one of the airlines that later formed British Airways.  “Along came Richard Branson and Virgin, and suddenly British Airways became a much better airline.  Bloomberg is that Virgin that forced Reuters to sharpen up.”

That point is not lost on Peter T. Grauer, who was appointed chairman of Bloomberg in 2001 shortly before the company’s founder, Michael R. Bloomberg, became the mayor of New York.  The takeover of Reuters by Thomson might be a first step to reclaiming a business that Bloomberg redefined and in which Bloomberg has set the standard.

“My job is to worry, to take nothing for granted and make sure that we think about things in terms of humility,” said Mr. Grauer, a close friend of Mr. Bloomberg and a former investment management executive.  “Great companies have begun to believe their own press and hubris has killed them.  My mission in life is to never let that happen.”

It was in the early 1980s that Mr. Bloomberg, a former trader at Salomon Brothers, took the high pressure atmosphere of the trading floor, imported it to the newsroom and delivered the result through proprietary, advanced technology backed by exceptional customer service. 

“This company has, in many ways, the most powerful business model I’ve ever encountered,” said Daniel L. Doctoroff, who stepped down in December as Mr. Bloomberg’s deputy mayor for economic development to become the company’s president.

The roots of Thomson Reuters go deeper.  Thomson, which is controlled by the Toronto-based family of the same name, began with a newspaper empire that the company abandoned to concentrate on electronic data.  While Reuters is best known for its news service, the company turned to financial information in the 1980s and is now the leading information provider in some arenas, including foreign exchange and commodities.

While Mr. Glocer may have to deal with all the usual problems that mergers bring, he has the advantage of running a significantly bigger company.  The combined revenues of Thomson and Reuters last year were $12.5 billion, more than twice those of Bloomberg, and Thomson Reuters has about five times as many employees.

Mr. Glocer thinks he can go after Bloomberg on price and, more important, on flexibility.  While Bloomberg, which is privately held, generated about $5.4 billion in revenue last year and has about 10,000 employees, the company still offers, for the most part, a single product: the Bloomberg terminal and its vast array of data — once available only through Bloomberg’s proprietary desktop system, but now found on ordinary computers and even BlackBerrys.  Bloomberg combines that news and data with sophisticated analytical software that allows traders to swiftly execute and track trades.

For clients, Bloomberg is a “take it or leave it” proposition that supplies everything the company generates for a monthly fee of $1,500 a user ($1,800 a month for the small number of firms that use only one terminal).  Traders who have no interest in, say, debt markets cannot reduce their Bloomberg costs by subscribing to a service that drops that data.

Bloomberg’s price and packaging may not have mattered as much during a bull market, but with Wall Street firms looking to cut costs, the fourth Bloomberg terminal on a trading desk could start to be seen as a luxury. 

Thomson Reuters has its own terminal products, some of which are delivered through proprietary terminals.  Mr. Glocer said that a customer could pay about $1,000 a month for a Thomson Reuters terminal.

Indeed, some Thomson Reuters terminals offering minimal information cost just $25 to $50 a month, depending on volume, according to Douglas B Taylor, the managing partner at Burton-Taylor International Consulting and a former executive with both Thomson Financial and Reuters.

“Bloomberg has a real problem finding new business.  They priced themselves at the top of the market,” Mr. Taylor said.  “There are different points on a pricing curve that Bloomberg can’t hit but that Thomson Reuters can deliver.  It’s going to be hard to figure out where Bloomberg’s new growth opportunities will be that don’t cannibalize its current pricing.”

Mr. Grauer and Mr. Doctoroff both dismissed suggestions that the Bloomberg terminal is too costly, arguing that the price is offset by the returns subscribers generate by using it.

“Price is really not the issue for the vast majority of customers,” Mr. Doctoroff said.  “It’s not how cheap you are.”

Some analysts disagree.  Brad Hintz, a bank analyst at Sanford C. Bernstein, said that the high price of Bloomberg terminals meant that he did not qualify for one when he was the chief financial officer of Lehman Brothers.  That firm, he said, had an executive who was constantly on the hunt for Bloomberg terminals that were not being used.  If no one claimed it, Mr. Hintz said, the executive “would grab the terminal and rip it out of the trading turret and carry it off the trading floor triumphantly.”

Price may be a larger factor in emerging markets, particularly Asia, which both companies agree is the next battleground in their war for financial information supremacy.

Thomson Reuters has been traditionally stronger outside of North America than Bloomberg, especially in India, and it has been aggressive in China. 

Bloomberg rejects the idea that it is lagging in emerging markets.  Mr. Grauer said that “five or six major, government-owned banks” in China use Bloomberg exclusively and that Bloomberg’s business rose 55 percent in that market last year.  (The company declined to quantify the size of its business in China either by revenue or customers.) Reuters business in all of Asia grew by 14 percent last year, although analysts estimate that came on top of a much larger base.

The next stage of the battle may also involve technology.  Even before the takeover, both Thomson and Reuters were developing products for so-called black box trading, computer systems that replace human traders.  The combined company now leads the business of selling data with minimal time delays for black box systems, a highly profitable line of products, according to Mr. Taylor.

Thomas F. Secunda, a former Salomon Brothers programmer who helped Mr. Bloomberg found the company and who remains in charge of its products, acknowledged that “we’re not a big black box shop.” However, he added that the company has technology and expertise it needs to expand that business if demand grows.

While the market downturn has yet to significantly affect either of the two competitors, Thomson Reuters serves its electronic data and services to a much broader range of businesses, giving it protection from financial industry cycles.  (The activities of physicians and scientists, key Thomson customers, do not track the markets’ fortunes.)

Even Reuters’s founding business — the news agency that supplies articles and photos to newspapers and Web sites as well as news video to broadcasters and publishers — is growing.  As traditional publishers like newspapers shrink their staffs, they rely more on news agencies, Mr. Glocer said.  Although he added, perhaps only half-joking, “longer term, I hope the patient doesn’t die.”

But the growth of the Internet can cut both ways.  Thomson Reuters and Bloomberg face common enemies in sites like Yahoo Finance and Google Finance, which offer a much lower level of sophistication and depth but are improving and are, after all, free. 

Reuters is allowing several companies to fill the Internet with free news and, like Bloomberg, posts freely available stories on its own Web site, although Reuters carefully keeps some stories back for paying business customers. 

Neither company has sorted out a strategy for competing with online services.  Michael F.  Holland, the chairman of Holland & Company and the former chief executive of First Boston’s asset management division, said he can no longer justify a Bloomberg terminal for his current role and often turns to the Web for data.  He first used a terminal in the 1980s and remains a fan: “There really is nothing else that’s quite like the Bloomberg,” he said.  “From the beginning, it has provided incredible information.  But at a very high price.”

And when asked what Google Finance and Yahoo Finance might mean for Bloomberg’s future over time, Mr. Grauer paused.  “I don’t know how to answer that,” he said.  “I really don’t know how to answer that."

by Ian Austen