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October 23, 2015

The Sweet Symphony of Disruption

Startup Looks to Challenge the Vaunted Bloomberg Terminal

For more than two decades Bloomberg and its flagship terminal have been the gold standard in the financial data and analytics industry. The terminal’s combination of real time financial data, news, and trading platforms provides valuable information to users, but its messaging platform is widely regarded as the crown jewel of a $25 billion dollar industry. For many terminal subscribers, messaging is the ONLY feature they use, which has caught the attention of customers looking to cut cost, and competitors looking to take down the Bloomberg juggernaut.

Enter Symphony Communications, an open source messaging platform that launched this month. The startup hopes to capitalize on terminal subscribers that only use Bloomberg’s chat function. Backed by large Wall Street institutions and current Bloomberg customers, Symphony offers a similar chat function at a fraction of the cost of a Bloomberg subscription. Beyond price disruption; Symphony has ambitions to leverage its technology to create an open and flexible ecosystem for fintech innovation, in sharp contrast with Bloomberg, a company famous for its rigidity.

The Incumbent: Bloomberg

Founded by billionaire and former Mayor of New York City Michael Bloomberg, the company rose to prominence in the early 1990’s as the original disruptor in the space. The Bloomberg terminal’s combination of data and communication functions outpaced earlier Wall Street data companies like Quotron and Telerate who were out of business by the mid 90’s.


Outside of the two dominant players, Bloomberg and Thomson Reuters, the remaining 41% of the financial news and information market is extremely fragmented. FactSet Research is the third largest company at 3.6% market share according to research from Burton-Taylor Consulting. Other viable competitors include S&P Capital IQ, Morningstar, and YCharts.

Outside of the two dominant players, Bloomberg and Thomson Reuters, the remaining 41% of the financial news and information market is extremely fragmented. FactSet Research is the third largest company at 3.6% market share according to research from Burton-Taylor Consulting. Other viable competitors include S&P Capital IQ, Morningstar, and YCharts.

The terminal’s messaging system remains, to this day, the most used feature. In fact, Bloomberg subscribers are increasingly using only the chat platform while still paying for the entire terminal bundle. The New York Times reported earlier this month that more than half of the people at Wall Street giant Goldman Sachs who have Bloomberg terminals use them primarily for chat and other simple functions.

At a cost of $20,000-$24,000 per individual for an annual subscription companies are paying a hefty price for functions many users do not use. Take into account larger institutions which can have contracts for hundreds of terminals it is not uncommon for a Bloomberg contract to reach into the tens of millions. Such a cost is becoming less appealing to an industry in the middle of an aggressive run of cost-cutting as it faces new regulations and changes in the markets. If recent figures are any indication, the impact is already being felt.

At first glance Bloomberg looks untouchable. Its 325,000 terminal subscriptions account for a leading 32% market share and revenues of $8.45 billion in 2014 according to Burton-Taylor Consulting. Upon a closer look, however, the numbers show cause for concern. In 2014, the number of Bloomberg terminals grew only 1.9 percent, from 319,000 to 325,000 down from a 12% increase in 2013 according to The New York Times. Are these recent statistics a fluke or an indication that Bloomberg is vulnerable to a more flexible, lower priced competitor? The answer remains to be seen, but industry backed Symphony communications is betting on the latter.

The Disruptor: Symphony Communications

Backed by Goldman Sachs and other large financial institutions, Symphony is not looking to compete with Bloomberg head to head in the short-term., The recently launched startup is targeting potential terminal chord cutters that specifically use Bloomberg’s chat function, which the company has never been willing to package separately. Currently free for companies with 50 or fewer users and $15 per month per user with 50 or more users, the cost savings are massive compared to $20,000 + and a yearlong Bloomberg contract.

The chart above represents the highest priced offerings on an annual basis from each company. For example, Bloomberg offers terminals for $20,000 per user annually for companies with more than one user while Thomson Reuters offers a bare bones terminal for $3,600 annually. Worth noting is money.net and Symphony offer monthly rates for a more flexible alternative to Bloomberg and Thomson Reuter’s annual contracts.


The chart above represents the highest priced offerings on an annual basis from each company. For example, Bloomberg offers terminals for $20,000 per user annually for companies with more than one user while Thomson Reuters offers a bare bones terminal for $3,600 annually. Worth noting is money.net and Symphony offer monthly rates for a more flexible alternative to Bloomberg and Thomson Reuter’s annual contracts.

Beyond cost, Symphony’s real disruptive potential lies in its open source software which allows developers to customize and create their own applications to make improvements and tailor the system to their needs. In addition, CEO David Gurle envisions an App Store-like ecosystem that he hopes will become a hosting ground for small, innovative fintech firms. Such an ecosystem could help create new services to help Symphony take users away from Bloomberg and make it the go to chat service for new fintech applications and platforms. In fact, it is already happening.

Money.net, another startup founded in 2014 to challenge Bloomberg directly as a source of both news and financial data, has incorporated Symphony as one of the chat applications on its platform. Instead of viewing money.net as a competitor, Symphony has partnered with them. In doing so, the startup is disrupting Bloomberg on two fronts. Both as a stand-alone, low cost chat option and as a chat function on a full service financial information platform that is also comparably cheaper at $90 per month according to the company’s website. In both scenarios symphony is taking users willing to convert from Bloomberg to either service.

The economic graveyard is littered with the corporate bones of companies like Kodak and Blockbuster who failed to adjust to changing technologies and market factors.

Backed by Wall Street goliaths like Goldman Sachs, Morgan Stanley, and JP Morgan, Symphony is poised to eclipse the 100,000 user mark by the end of the year, according to Gurle. Considering the value of the Bloomberg terminal messaging system is derived from the users that it connects, it will be crucial for Symphony to continue to grow its user base. Only once the user pool reaches a high enough threshold will current Bloomberg users feel comfortable enough to take the ultimate step of cutting their terminal chords for good.

Conclusion

The economic graveyard is littered with the corporate bones of companies like Kodak and Blockbuster who failed to adjust to changing technologies and market factors. Companies that maintained the status quo rather disrupt themselves for the better. So too is that graveyard full of companies who have challenged Bloomberg and its terminal just like Symphony and money.net are currently attempting. In fact, Symphony is already running into challenges as politicians and regulators in Europe question whether the messaging platform could undermine transparency of financial markets.

It is a classic case of the disruptor vs. the entrenched stalwart set to play out over the coming months and years. Will Symphony gain users and force Bloomberg to unbundle its chat function for the first time ever? Will Symphony’s open sourced software lead to the next big thing in financial information sharing? Or Will Bloomberg fend off another set of competitive upstarts bent on its downfall? Only time will tell, but one thing is for sure; this is a case study in disruption worth watching.

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