Date: October 2013 Instructor: Prof. Michael J. Lenox Class name: Foundations of Business Strategy Presented by: Nikolay Zvezdin Subject: Executive Summary: Bloomberg L.P. Competitive Position Analysis Re: Strategic Analysis

Company Overview Type Limited partnership Industry Financial Services, Mass media, Technology Founded October 1, 1981 Founder(s) Michael Bloomberg, Thomas Secunda, Duncan MacMillan, Charles Zegar Headquarters Bloomberg Tower, Midtown Manhattan, New York City, USA Number of locations 192 offices Key people Peter Grauer (Chairman), Dan Doctoroff (President & CEO) Revenue Increase US$ 7.92 billion (2012) Owner(s) Michael Bloomberg (88%) Employees 15,000 (2011) Website www.Bloomberg.com Subsidiaries Bloomberg Media Group, Bloomberg New Energy Finance, Bloomberg News, The Bureau of

National Affairs Inc., Bloomberg Law, Bloomberg Government Brands Bloomberg Television, Bloomberg Terminal, Bloomberg BusinessWeek, Bloomberg Briefs,

Bloomberg Aptitude Test

Introduction Bloomberg L.P. is a financial data analytics and media company that provides financial software tools, data services and news through the Bloomberg Professional service to global firms. The company was founded in 1981 by Michael Bloomberg to bring transparency to the otherwise opaque bond market. Within 10 years, Bloomberg L.P. had more than 10,000 customers for the Bloomberg Professional service, a groundbreaking private network of data, analytics and other financial information. In the same decade, Bloomberg L.P. launched Bloomberg News and opened offices worldwide—currently more than 190. Today, Bloomberg L.P. is employing its extensive data, news and technologies offer new tools in the fields of education, government, law, energy and sports. The company’s commitment to innovation and its passion for getting things right remain strong and are the inspiration behind Bloomberg’s award-winning products and solutions.

Competitive Position Whole Bloomberg’s position in the market data, news and financial software markets (Exhibit 1) is dominant. With a 30.82% market share worldwide, Bloomberg L.P. has the only one big competitor that is Thomson Reuters with a 29.48% market share. Other competitors, such as Dow Jones & Company, Inc., Interactive Data Corporation, S&P Capital IQ, FactSet and other small companies hold 39.51% market share for all. That makes Bloomberg L.P. and Thomson Reuters almost the only big companies in the industry. The Bloomberg Professional service, also known as the Bloomberg terminal, is a computer system that provides professionals in finance and other industries access to financial news and analytics. The system enables users to monitor and analyse financial market data in real time and place trades on the electronic trading platform.

The breakdown of Bloomberg terminal users (Exhibit 2) is: 22% Analyst, 20% Trader, 16% Sales, 14% Portfolio Manager, 9% Risk Management Analyst, 19% Others. During the past decade, Bloomberg L.P. developed and introduced technological advances in key products and services such as email and instant messaging. These have made the Bloomberg Professional service the leading choice of more than 315,150 business and financial professionals globally. However competitors, more specifically Thomson Reuters is trying to copy Bloomberg’s success. Following the Bloomberg L.P.’s announce of Bloomberg Terminal, Thomson Reuters announced its EIKON system. However EIKON has failed, that made Bloomberg Professional Service’s market share (Exhibit 3 and Exhibit 4) of 57%, comparing to Thomson Reuters’s 34%. Though, Bloomberg’s revenue for 2012 (Exhibit 5) was $ 7.920 billion compared to Thomson Reuters’s $ 12.890 billion, taking into account that Bloomberg L.P. has a bigger market share comparing to Thomson Reuters, we might conclude that Bloomberg’s team operating the money more effectively, rather than its competitors. Moreover, during the past decade Bloomberg L.P. had shown sustainable revenue generating (Exhibit 6.1), and no losses at all, comparing to Thomson Reuters (Exhibit 6.2), that sometimes had shown losses and high jumps in revenue, after that drops in revenue again. Moreover, before the financial crisis of 2008, Thomson Reuters had shown a huge growth in revenues that is +81%, however after the crisis it shown drop in revenues of -3%. While Bloomberg L.P. had a growth of revenues before crisis of +13.79%, and after crisis it still made revenue and did not lose anything, that is +3.17%. So as we may observe, Bloomberg L.P. is more stable company managing its risks more effectively. Additionally, we may see that the average growth of revenues for Bloomberg L.P. and for Thomson Reuters is 10.04% and 5.75% respectively. Within the last years, Bloomberg L.P. launched the Bloomberg Institute the educational branch of Bloomberg L.P. The Institute has leveraged Bloomberg’s expertise in financial information and contacts in the finance industry to develop a test aimed at helping students and recent alumni connect with financial employers worldwide. The Bloomberg Aptitude Test (BAT) is currently offered on campus by more than 1,028 top universities; to date, the BAT has been taken by more than 100,000 students. That shows that Bloomberg L.P. has not stuck in only one industry, but it is growing in all the others. However the test was free of charge all these years, but soon it will be priced and Bloomberg L.P. will start generating more revenue. None of Bloomberg’s competitors have shown such grow in other industries.

Changing Industry The main products of the industry are: Data production, Analytics, Research, News, Regulatory data support. And the main industry activities are: providing financial data and research, providing fixed income market data, providing balance sheet data, providing regulatory compliance support, providing financial data and research, providing fixed income market data, providing balance sheet data, providing regulatory compliance support. And according to IRN’s latest report - The Global Financial Data Market – that looks at the financial data and allied software industry defined as market data, reference data, credit ratings and associated analytical and allied software, in total, a worldwide market of $ 23.2 billion, $ 6.0 billion within the US. Thomson Reuters is the leader in its share of total market’s revenue (Exhibit 7), however it is still losing positions in its global market’s share to Bloomberg L.P. and as we observed before, Thomson Reuters is highly unstable. The financial data market remained largely unchanged in 2008 compared with 2007 but experienced a sharp decline in sales of 5.5% in 2009. However, nowadays most of the key players in the industry has covered its losses during the crisis, and even gained more profits and revenues. In response to the crisis, many data vendors and suppliers tried to improve the value for money of their offers. These moves have ranged from being more flexible when negotiating contracts – e.g. reducing normally fixed annual fees for firms that have lost headcount – to offering more data over a common infrastructure. Some suppliers are also trying as far as possible to price data on a bespoke basis. The top players of the industry have approached its own methods. While Bloomberg L.P. has been more focusing on improving its data and software quality, as well as trying to combine the financial industry with educational, Thomson Reuters has applied its approach of acquiring its suppliers, that is known as vertical integration. However as we have seen, the first approach has been more successful. After the crisis hit the whole financial world, Bloomberg L.P. has acquired only 3 companies (Exhibit 8.1) that were the biggest companies in their industry. While Thomson Reuters acquired 24 different size companies (Exhibit 8.2). We can interpret that as a signal that Thomson Reuters either does not has its own recourses and possibilities to growth, either it want to growth as much as possible, even without taking into account its falling revenues of -3% (2009) and -7% (2012).

Conclusion The market data, analysis and financial software industry is highly competitive, and almost owned by two major players that are Bloomberg L.P. and Thomson Reuters. Other companies are small and medium players that cannot compete with the industry major companies. All the new entrants of the industry (Exhibit 9) will face a huge luck of market power, luck of recourses that has major players, and of course luck of customers. That is why there almost no possibility to enter the market. Moreover, Bloomberg L.P. and Thomson Reuters are already well known and recognised to all customers, and they have positioned themselves as the only valuable financial data and software providers, so it will be hard to attract these companies’ customers. The industry of market data, analysis and financial software requires a big capital, that most of entrants cannot afford. Most of the distribution channels of Bloomberg L.P. and Thomson Reuters are owned by themselves, and have a high quality and very hard to compete with. Additionally, most of Bloomberg’s and Reuters’s customers are big companies, such as banks, government organizations, funds, and others, that require only the best products, and they most probably will not by loyal with new entrants of the market, since they have not shown such results yet, as Bloomberg L.P. and Thomson Reuters. The industry itself is highly profitable, however even the big players such as Thomson Reuters lose money sometimes. That is why the entrance to the industry requires not only big capital, but also big experience, and great team of managers. Due to this most of potential entrants will be afraid of such requirements and will not enter the industry. The only possible substitute of Bloomberg Terminal for big companies is only Thomson Reuters EIKON. However, during the past decade EIKON has failed, and due to this Reuters can expect to see only medium and small size companies as customers. Development of such platform as Bloomberg Terminal or EIKON, will take a long time, and a lot of capital, that is usually not affordable for new entrants of the industry. That is why Bloomberg might see itself as monopoly in the market of professional software provider to big companies. Almost all of Bloomberg L.P. products are made and developed by the company itself, and that is why it needs only the small number of suppliers. However the only big competitor to Bloomberg L.P., Thomson Reuters, highly dependent on suppliers, and due to this it applies the approach of vertical integration. The competition between online and offline companies almost does not exist, because Bloomberg L.P. has developed and succeed both channels. Bloomberg L.P. has its TV channels, internet channels, printed versions, and most of the data can be reached throw Bloomberg Professional service, also known as Bloomberg Terminal. Due to well recognition of Bloomberg L.P., the company does not require much of advertisement, and instead it uses its own channels to advertise other companies. As a first mover and innovator, Bloomberg L.P. has gained a competitive advantage in the market data, analysis and financial software industry. However, the competition with Thomson Reuters still exists for greater market revenue share and for medium and small companies demand for lower prices. Though, Bloomberg L.P. has already established itself as a company with high quality product and service for high price. So the price is the only think that Bloomberg L.P. should work for now. Thus, Bloomberg L.P.’s competitive position for big companies is not at risk.

Exhibits Exhibit 1: The Market Data, News & Financial Software Markets.

Exhibit 2: Bloomberg Terminal Users.

30.82%

29.48%

39.70%

The Market Data and Analysis Industry Market Share

Bloomberg L.P.

Thomson Reuters

Others (Dow Jones & Company, Inc., Interactive Data Corporation, S&P Capital IQ, FactSet)

22%

20%

16%

14%

9%

19%

Bloomberg Terminal Users

Analyst

Trader

Sales

Portfolio Manager

Risk Management Analyst

Others

Exhibit 3: Professional Service’s Market Share

Exhibit 4: Bloomberg Terminal comparison to Thomson Reuters EIKON Bloomberg Terminal Thomson Reuters EIKON

57% market share 34% market share 315.150 users 190.000 users Most of the users are in the US, Europe and Middle East

Most of the users are in Europe and Asia

A bigger data size A smaller data size Costs $2,200/month for 1 Bloomberg Terminal; $1,800/month for 2+ Terminals

Costs $1,800/month

Available more specific trading instruments (fixed income, credit, credit derivatives, etc.)

Less options in trading instruments

More technical analysis tools available Less technical analysis tools available Not intuitive user interface Intuitive user interface

Exhibit 5: Revenues for 2012

57%34%

9%

Professional Service's Market Share

Bloomberg Terminal (315,150 users)

Thomson Reuters EIKON (190,000 users)

FactSet Research Systems (49,900 users)

7,920.00

12,890.00

3,030.00

806.00 224.30 288.00 -

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

Bloomberg L.P.

Thomson Reuters

Dow Jones & Company, Inc.

FactSet Interactive Data

Corporation

S&P Capital IQ

Revenues for 2012 (in millions)

Exhibit 6.1: Bloomberg L.P. Revenues

Exhibit 6.2: Thomson Reuters Revenues

7.69% 9.97% 23.19% 13.79% 10.62% 3.17% 8.70% 9.21% 4.04%0.0000

1.0000

2.0000

3.0000

4.0000

5.0000

6.0000

7.0000

8.0000

9.0000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Bloomberg L.P. Revenues (in billions)

Bloomberg L.P. Revenues (in billions)

% of Change

-12% -20%

6% 1% 81%

-3%

1% 5%

-7%-2

0

2

4

6

8

10

12

14

16

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Thomson Reuters Revenues (in billions)

Thomson Reuters Revenues (in billions)

% of Change

Exhibit 7: % of Revenue of Total Market

Exhibit 8.1: Bloomberg L.P.’s Acquisitions

Bloomberg L.P Year Target % of Change of Revenue (annually)

2009 BusinessWeek 3.17%

2009 New Energy Finance

2011 Bureau of National Affairs (BNA) 9.21%

Exhibit 8.2: Thomson Reuters’s Acquisitions

32%

51%

12%

3% 1% 1%

% of Revenue of Total Market

Bloomberg L.P.

Thomson Reuters

Dow Jones & Company, Inc

FactSet

Interactive Data Corporation

S&P Capital IQ

Thomson Reuters Year Target % of Change of Revenue (annually)

2009 Streamlogics -3%

2009 Vhayu Technologies

2009 Hugin Group

2009 Abacus software business from Deloitte

2009 Sabrix, Inc

2010 Aegisoft LLC 1%

2010 Point Carbon A/S 2010 Serengeti Law

2010 Pangea3

2010 Highline Financial

2010 GeneGo

2011 CorpSmart from Deloitte 5% 2011 Manatron from Thoma

Bravo

2011 GFMS 2011 Emochila

2012 Dr Tax -7%

2012 RedEgg

2012 Apsmart

2012 Zawya Limited

2012 FX Alliance Inc

2012 MarkMonitor

2012 Select TaxWorks Assets of RedGear Technologies

2013 Pricing Partners N/A

2013 foreign exchange options business of Tradeweb

Exhibit 9: Five Forces Analysis for Bloomberg L.P.

References 1. “Bloomberg L.P. official web site”

www.bloomberg.com 2. “Bloomberg L.P.”

www.en.wikipedia.org/wiki/Bloomberg_L.P. 3. “Bloomberg L.P.”Institute of Media and Communications Policy

http://www.mediadb.eu/en/data-base/international-media-corporations/bloomberg-lp.html 4. “Thomson Reuters official web site”

www.thomsonreuters.com 5. “Thomson Reuters”

www.en.wikipedia.org/wiki/Thomson_Reuters 6. “Market Data Sales Drop In Market Slowdown”

http://www.forbes.com/sites/tomgroenfeldt/2012/02/01/market-data-sales-drop-in-market-slowdown-thomson-reuters-off/

7. “Getting it right, right from the start. Partnering with customers for Day 1s” http://thomsonreuters.com/articles/2013/getting-it-right-right-from-the-start

8. “Thomson Reuters’ Eikon fails to unseat Bloomberg” http://www.canadianbusiness.com/business-strategy/thomson-reuters-eikon-fails-to-unseat-bloomberg/

9. “Bloomberg Terminal vs Thomson Reuters Eikon” http://wallstreetfool.com/2013/04/07/bloomberg-terminal-vs-thomson-reuters-eikon/

10. “Bloomberg LP beats Thomson Reuters” http://www.crainsnewyork.com/article/20120223/MEDIA_ENTERTAINMENT/120229958

11. “Sustainability EDGE” Bloomberg. Sustainability Update 2011. http://www.bloomberg.com/bsustainfiles12/images/report_2011/2011_BloombergSustainabilityUpdate.pdf

12. “Thomson Reuters” Institute of Media and Communications Policy http://www.mediadb.eu/nc/en/data-base/usmk-2010/thompson-reuters-corporation.html?sword_list%5B0%5D=thompson&sword_list%5B1%5D=reuters

13. “The $23.2bn Global Financial Data Market - A return to growth in 2010 but users remain cautious” IRN Research http://www.irn-research.com/news/the-global-financial-data-market/

14. “Financial Market Data/Analysis Global Share & Segment Sizing 2013” Burton-Taylor International Consulting LLC, 2013

EntryHigh entry barriers (+)

Entrants cannot duplicate the product (+)

Entrants cannot afford the entrance to the industry (+)

SuppliersAlmost everything produced and developed

without outside suppliers (+)

Highly developed delivery channels (+)

BuyersBig companies purchase ONLY Bloomberg Termianl

(+)

Mediun and small companies cannot afford Bloomberg Terminal (-)

SubstitutesThomson Reuters EIKON (-)

No other substitutes to big companies (+)

RivalryNo competition expected for big

companies (+)

High competition for small and medium size businesses (-)