The Battle To Put Financial Data On Your Desk
For years, the $7.5 billion business of delivering instant financial numbers and news was ruled by two rivals: Reuters Holdings PLC, by far the worldwide leader, and Bloomberg LP, the brash, fast-growing upstart. They fought for the same users, but wound up side by side on many desks. Reuters specialized in foreign exchange and European news, while Bloomberg offered sophisticated financial analytics.
That changed on Mar. 17, when Bridge Information Systems Inc., long regarded as an also-ran, burst onto the scene by paying $510 million for Telerate, Dow Jones & Co.'s money-losing bond-pricing arm. The acquisition could be one of those rare one-plus-one-equals-three deals. Reuters remains the leader by far, with 386,000 desktops. But Bridge, with 169,000 users, will eclipse Bloomberg, with 92,000, as the No.2 provider. Says Ashish Shah, head of equity arbitrage at Bankers Trust New York Corp., who uses Reuters and Bloomberg: "There's warfare for your eyeballs."
Which services will users such as Shah keep? Only two major providers are likely to wind up delivering the real-time data and news that grease financial markets, as traders, financial analysts--and a growing contingent of corporate execs--cut information clutter. "Desktop real estate is more precious than ever," says Michael Wolf, the media partner at Booz, Allen & Hamilton Inc. "Most don't have room for more than two real-time data services."
The winners will split one of the hottest segments of the information economy. With record numbers of mergers and acquisitions and new brokerages investing staggering wealth, spending on financial data and news grew 9.6% in 1997, to $7.5 billion, and will top $10 billion by 2000, according to Veronis, Suhler & Associates. "The number of desks where you can put a terminal is exploding," says Michael Bloomberg.
Bloomberg, who has made billions feeding the demand, will have to fight harder than ever. Bridge was a $130 million laggard until 1995, when it was purchased by Welsh, Carson, Anderson & Stowe, a powerful investment bank with a history of building businesses through acquisitions and spinning them off. It engineered a series of deals, including the 1996 purchase of Knight-Ridder News Service. Bridge will have $1.1 billion in sales after swallowing Dow
Jones Markets--to be renamed Bridge/Telerate.
Absorbing Telerate won't be easy. Because of customer defection to more comprehensive services, Telerate lost $70 million to $100 million last year, say insiders. Its technology and culture differ vastly from those of Bridge, which lost some desktops after previous mergers. "We had to hold the hands of our customers," says Patrick Welsh, a partner in the investment firm that owns half of Bridge. "We gave them incentives to stick with us as we achieved something much larger."
Since buying Bridge, Welsh's firm has poured tens of millions of dollars into its database, technology, delivery systems, and management. It is also tapping customers that have never used real-time data. Bridge collaborated with the New York Stock Exchange to put terminals on the desks of 6,000 chief execs and chief financial officers to get instant trading information. And Bridge is penetrating newsrooms, where Bloomberg has gained priceless publicity by swapping machines for bylines.
Bridge, though, has a serious vulnerability: The key contract that gives it the leading government-bond pricing is in jeopardy. Cantor Fitzgerald LP, the biggest seller of Treasury bonds, supplies exclusive data to Telerate's 94,000 customers--at $30 a head per month. When the contract shifts from Dow Jones to Bridge, Cantor wants payment for the 75,000 users Bridge already had. Bridge argues that the contract is limited to the Telerate customers, leaving the difference at $27 million annually.
The contract, which expires in 2006, is crucial for Telerate. Virtually all bond prices are benchmarked against the prices of T-bills--and Cantor is the biggest seller. In an internal poll last year, customers said they would dump Telerate if it weren't for the Cantor data, according to an insider. If Cantor prevails, Bridge would have to hike its current rates by $45 a month--a 50% jump for bottom-tier customers--to turn a profit, say sources close to the deal.
That would kill its edge as the lowest-cost provider of real-time data. Right now, Bridge sells its services a la carte, providing bare-bones equities data for $150 per desktop, and up to $750 for its entire menu. It also offers an "open" system that lets customers download data to their own PCs and merge them with outside data and programs. "Our rallying cry is, we give our clients more choices, better price, and more open systems," Bridge CEO Thomas Wendel says.
BUZZWORD. Reuters also has an open system and charges $800 to $1,200, depending on the data desired. But it is threatened by the expected arrival of the euro, Europe's new currency, which would reduce the demand for foreign-currency rates. To compensate, Reuters is scrambling to provide the type of analytics that make Bloomberg so valuable. It became so determined, the feds allege, that it tried to duplicate Bloomberg's formula by re-typing thousands of Bloomberg screens into Reuters' system.
Bloomberg is betting on its uniqueness. "Not everybody needs what we have," says Bloomberg, an ex-Salomon Brothers Inc. partner. "But those that do can't get it anywhere else." Which is why his company may continue to thrive despite its costly closed platform and fixed price. Bloomberg charges a flat $1,200 a month per terminal and uses dedicated boxes and software that prevent users from mixing Bloomberg data with outside programs. It stopped making the boxes two years ago and has rolled out newfangled machines that double as PCs. It also has created online access.
Users are still limited to Bloomberg applications, but they have more convenience--another buzzword in the battle for desktop real estate. Reuters has already one-upped the competition with a private-label PalmPilot handheld computer from 3Com Corp. One of the first users was BT's Shah. He raves about getting stock quotes on the fly but still can't live without Bloomberg's securities database. "I'll never get rid of Bloomberg," he says. But what will happen when Bridge comes knocking? "It would have to replace something," he says. That's just what Bridge intends to do.