Financial-system founder is unfazed by Net threat, Simon Pritchard writes
Michael Bloomberg has a very big bee in his bonnet about General Electric boss Jack Welch. It seems Mr Welch, the businessman's businessman, has convinced just about everyone that the Internet will completely change his company, so it must inevitably change theirs.
Believe that, of course, and the premium-priced provider of financial information looks remarkably vulnerable to cheaper competitors and a myriad start-up services seeking to grab a piece of the on-line financial commentary space.
For the past three years, Bloomberg has been open to accusations it missed the Internet revolution by insisting users rent its proprietary terminal rather than embrace a Windows-based system delivered over the Internet.
While conceding none of the above, Mr Bloomberg says his company is completely Web friendly, and Jack Welch-style assertions that the Internet changes everything is a bunch of baloney pedalled by over-imaginative journalists.
The issue is a fascinating one since, on the face of it, Bloomberg appears just the kind of business most vulnerable to new entrants crippling its pricing power.
Not surprisingly the ever-combative Mr Bloomberg, in town to open the firm's extremely expensive looking technology-rich new office, demurred. He argues the future is about being in all media and simply doing it better.
'I think the big issue is not whether TV or on-line wins out. You cannot be a media company unless you are in all these businesses,' he said.
'You hear that Jack Welch says GE has to be an Internet company, well how does the Internet change the locomotive business, can you just explain that to me? 'Does the Internet fundamentally change everything? That's what he [Mr Welch] would say and somebody like you would write.' For Mr Bloomberg the Internet is merely another pipe to pump down information that nobody else can deliver in the packaged all singing, all dancing Bloomberg format.
'The reason I don't think the Internet is a challenge to us is that the part that communications plays in our transaction is trivial. What we do at great expense with a lot of human beings is collect publicly available information, clean it, categorise it, equivalence it [and] make it available with search engines.
'The fact that our communications costs are falling doesn't fundamentally change our business.' That proposition is an audacious one, flying in the face of a conventional wisdom, being embraced by the likes of Mr Welch, and investors pumping up Internet firms' stock prices on the basis of a new economic paradigm.
In essence, critics say anyone can buy financial information, customise it with clever programming and deliver it to users in a friendly format over the Internet.
That process has started with sites designed for retail customers needing real-time prices, basic news information and simple charting techniques, but more complex analytical packages are increasingly on offer from specialist firms and brokers to their clients.
For all real-time financial services the reality is that almost all subscribers use only a small fraction of the total package of the services on offer. Surely what the Internet allows is more nimble competitors to offer tailored products much cheaper? For Mr Bloomberg the issue comes down to simple economics.
'If someone else sells a product that is as good as ours for less, or is merely adequate, people will buy it,' he said.
'The fact that we have not had to reduce our prices shows we are different.
'We do not find any customers who take out our terminals in favour of other services.' Unlike Reuters and Bridge, which are aggressively marketing stripped-down versions of their services to financial portal sites, Bloomberg is merely offering its own retail-focused site.
But he argues: 'Remember people are not just buying data, you can easily get a great bucket on bond prices but then you say what's the yield? You have to calculate the yields and everybody's assumptions are different.
'I never look at Reuters, but what I've read they are basically display devices for data bases they have.
'So if you had the data you could easily write code and put what Reuters or Bridge have on a screen. That's not true of us. With us you get the full calculation and presentation. That is something I don't think anybody else can afford or has the ability to do.' What the Internet has done, he argues, is simply lower Bloomberg's cost of distribution. He envisages an imminent future where all Bloomberg customers take their service over the Net, cutting out US$100 million in long distance telephone charges incurred from running a proprietary network.
'In the new world we won't have that [cost] because the customer will still pay the same charge. Customers won't ask for discounts since they don't buy Internet usage in bulk.' Perhaps the greatest challenge to Bloomberg's high value-added service has come, in the United States at least, from commentary services such as CBS Marketwatch and TheStreet.com. These have occupied a market position between the regular news wires and research analyst type commentary.
Their success stems from investors' desire for commentary explicitly telling them how to trade and, importantly, make money.
Mr Bloomberg, however, is not impressed.
Referring to TheStreet .com he said: 'I don't know whether they can survive very long, they have expenses out of control, they have virtually no revenue, it's true they were able to go public, but whether they are successful must surely be judged on more than a six-month track record.' Of course, he has a point in that few on-line news services have yet to turn a profit.
'Keep in mind the most successful attempt to sell news to the public is the Wall Street Journal Interactive edition,' he said.
'But after five years they have only 350,000 subscribers. I'm told the churn rate is 50 per cent . . . and I'm told they lose a fortune on it.' His last word on the future of financial information provision: 'Don't get carried away with the Jack Welch 'we're going to be an Internet company'.
'It won't change his business that much and neither ours.'