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In the twilight you probably would have missed him. In late 2012, at about 6:30 every weekday evening, a slight, compact bald man in his 50s would emerge from the shadow of the tower on Manhattan’s East Side that houses Bloomberg LP, the world’s largest financial data provider. Dressed in triathlon gear, he’d perform some short stretches, then slip quietly away into the streets leading west. It was an unassuming afterwork routine for a man faced with a difficult task.

Earlier that year Stanley Young — fitness fanatic, financial technology veteran and former member of the British Army’s Special Forces — had been hired away from NYSE Euronext, where he’d spent more than three years as head of the exchange operator’s technology division, to manage Bloomberg’s enterprise data business. Great hopes were invested in Young. Bloomberg had risen to the pinnacle of the financial data industry on the back of its fabled desktop terminal, a one-stop, perma-blinking information pleasure dome encompassing data, news, analytics and much, much more — the financial product world’s answer to the Broadway show. But the company that Michael Bloomberg famously founded in 1982 with a $10 million severance check from Salomon Brothers recognized that the financial industry was changing and that it would have to adapt to survive: As Wall Street cut jobs and embraced greater automation, the model of a fixed-price, all-encompassing black-box terminal, installed at great cost on a financial professional’s desk, had a limited shelf life.

The terminal was, and still is, Bloomberg’s lifeblood. More than 80 percent of 2013 revenue came from the service, which the firm sells to customers for a flat fee of about $20,000 a year. Pivoting away from the terminal while doing nothing to damage the rivers of gold it diverted into the company’s balance sheet was sure to be tricky. Young was brought in to manage that transition by building up Bloomberg’s presence in direct, open feeds, à la carte data provision and in-firm data management — in other words, every part of the data world that exists outside the serene and closed ecosystem of the terminal. Evening runs in Central Park were his therapy.

But less than a year after joining Bloomberg, Young was gone. “Stanley Young joined Bloomberg to help broaden our enterprise offerings and strategy,” a statement by the company announced in May 2013. “We are grateful to Stanley for his contributions and wish him well in his future endeavors.” Bloomberg insiders say Young’s time at the firm coincided with a “civil war” over how deep and significant the pivot toward the enterprise business would be. Vice chairman Thomas Secunda, one of four founding partners of the firm and current head of the financial products division, is known throughout the industry as Mr. Terminal.

“Tom’s a brilliant guy; he’s got a brain the size of a planet,” says one former Bloomberg senior executive. “But everything he does is colored by the desire to see everything on the terminal. He has great ideas, but they all lead back to the terminal. If you want to access new functionality, if you want to access product innovation at Bloomberg, it’s $20,000 a year to buy the terminal subscription, and that’s nonnegotiable. There’s no other way in.”

Gerard Francis, a Bloomberg lifer who has been at the company for more than two decades and previously served as Secunda’s chief of staff, replaced Young. The Englishman’s exit and the appointment of Francis at the helm of the enterprise group were largely interpreted by insiders as a sign that, in the civil war over the fate of the Bloomberg data business, the status quo — the terminal and Mr. Terminal — had won. Francis laughs off this suggestion. “There’s nothing further from the truth than that statement,” he tells Institutional Investor. “That’s a little strong.”

The news of Young’s departure was lost amid the furor that erupted at about the same time over revelations that reporters from Bloomberg’s news division had improperly accessed data related to clients’ terminal usage to generate stories. But in the grand narrative of Bloomberg’s future as a financial data company, Young’s failure to break the primacy of the terminal at the heart of the firm’s business model was a much more significant event. Now, with finance undergoing deep currents of change and many critics questioning whether Bloomberg’s terminal obsession will allow it to remain relevant into the next decade, the financial data giant is fighting harder than ever to repel a growing army of would-be disrupters.

Bloomberg — the company and the terminal — came of age in the 1980s, when there was no consumer Internet and the shift to automation throughout the financial industry was in its infancy. There were no dark pools, no algos, no matching engines and no kill switches in 1982, the year Bloomberg made its first sale. At that time, when most information in the real world was fragmented, disconnected, messy and difficult to digest, the terminal provided order and sense. That remained the case well into the 1990s, even as the Internet gained traction.

But times have shifted. The Internet is far slicker and faster than it was in 1999, and consumer technology — with its portable whirligig of apps, social networks, smartphones and selfies — is at the leading edge of innovation. Although the Bloomberg terminal, with its striking interface of black background and blinking orange and green lettering, once appeared innovative, now it “looks like something out of MS-DOS,” says Leigh Drogen, referring to the Microsoft Corp. operating system, popular throughout the 1980s and early 1990s, that ran on typed keyboard commands rather than the clickable icons made famous by Apple and Microsoft Windows. Drogen, 27, is chief executive and founder of Estimize, a data start-up that is one of many small companies looking to chip away at the edges of Bloomberg’s market share.

But the shift is more than cosmetic. In the wake of the 2008 crisis, with financial firms facing a raft of new regulatory and compliance costs, Basel III rules forcing banks to keep more capital in-house and growth throughout much of the developed world remaining below trend, the financial industry is cutting jobs and thinking far more carefully about how it spends its money than ever before. “All of those data vendors and data sales that are tied to bums on seats have reduced over the past few years, and I don’t think we’ve seen the end of that reduction,” says Douglas Taylor, founder and managing partner of Burton-Taylor International Consulting, an Osprey, Florida–­based firm specializing in the financial data industry. “Those bums aren’t going to be cyclical; the desktops won’t come back.”

Meanwhile, there has been a shift throughout the financial data consumer base from eyeballs to machines, part of a broader, society­wide transition to what the title of a recent book by Erik Brynjolfsson and Andrew McAfee terms “the second machine age.” Digital, machine learning–driven technologies are beginning to replace humans as the dominant agents in the financial markets — a trend best captured by the rise of high frequency trading, which now accounts for north of 50 percent of U.S. equity trading. As the human presence on Wall Street fades, so too, presumably, will the need for specialized products that only humans use. The terminal is not designed for machines; it is a product built for human consumption.

Changes to market structure in the wake of the financial crisis mean that many securities that were once traded through opaque over-the-counter channels, such as derivatives, are being forced onto open, transparent markets. This, in the view of some in the industry, hands a considerable data advantage to exchanges and clearinghouses, where many of these new markets will be transacted. Whereas specialist vendors such as Bloomberg once provided prices and data to help users understand these sometimes illiquid securities, public prices and the data around them will now fall into the custody of the exchange operators, robbing the data firms of one source of their historical competitive advantage.

Perhaps most critically, software development costs have fallen to the point that the barriers to entry into the financial data market are far lower today than previously. Countless ambitious start-ups are looking to exploit open, easy-to-deploy, cheap technologies, many of them adapted from the consumer realm, to carve niches for themselves in the data world. “There’s a fervor of debate, discussion and conjecture taking place in the market data industry the likes of which I haven’t seen before, and I’ve been in this industry for 20 years,” says David Craig, president of the financial and risk business at Thomson Reuters. “The cost of doing something fresh and innovative is lower than it’s ever been before.”

The overall financial data market continues to grow but at a decreasing velocity: It rose 6.8 percent in 2011, 2.3 percent in 2012 and just 0.7 percent in 2013, according to Burton-Taylor. Between the scandal over its reporters’ use of terminal information and the departure of Young, 2013 was a difficult time for Bloomberg. Financially, however, it was a banner year. As a privately held company, Bloomberg does not release its financial statements to the public. But according to Burton-Taylor, the firm generated revenue of $8.3 billion in 2013, pulling clear of its longtime rival Thomson Reuters to claim the mantle of the world’s largest financial data company.

Thomson Reuters was formed in 2008 by the merger of Canada’s Thomson Corp. and British news and information firm Reuters Group. That year it commanded nearly 35 percent of the financial data market and Bloomberg accounted for 27 percent. By 2012, Bloomberg had overtaken its competitor, claiming almost 31 percent of the market, compared with Thomson Reuters’ 29.5 percent. In 2013, Thomson Reuters’ revenue, affected by divestitures, shrank 6.4 percent, to $7 billion (for 27 percent of the market), according to Burton-Taylor; Bloomberg’s 5 percent increase in revenue gave it a 32 percent share. In a cost-constrained environment, Bloomberg continues to grow both of its main financial data businesses: 3,300 new terminals were sold last year, taking its total number of subscribers close to 320,000, while revenue in the enterprise business jumped by 16 percent.

But the problem for Bloomberg is not what’s happening now — it’s the challenges ahead. Every player in the financial data industry faces these difficulties, but some are better equipped to deal with them than others. The terminal, most people agree, is the financial industry’s ultimate fetish object, a symbol of status and prestige. “This thing will make you dinner and clean your apartment if you know how to ask it to,” jokes Doug Peta, a 15-year veteran of Wall Street who now works as a senior strategist at BCA Research, an economic research firm owned by Euromoney Institutional Investor, the publisher of Institutional Investor. “For many years it’s been a badge of status to be on the Bloomberg terminal; it’s a sign that your job is important,” adds Matt Turck, a managing partner at FirstMark Capital, a New York–based venture capital firm. Turck spent more than four years at Bloomberg Ventures, the firm’s investment arm (since relaunched as Bloomberg Beta), before joining FirstMark.

But it’s an open question whether subsisting on the terminal alone will be enough to allow Bloomberg to defend its market dominance as it sails into these headwinds. The firm today is saddled with a classic innovator’s dilemma: how to change and disrupt itself without cannibalizing existing business. This is the same type of problem that ensnared IBM Corp., trapped in the “velvet cage” of its mainframe, in the 1970s and Microsoft, with its defensive and litigious overreliance on its Windows operating system, in the early 2000s.

It’s an uncertain moment for Bloomberg to find itself faced with this dilemma: Mike Bloomberg, the company’s majority shareholder, has returned to the firm after a 12-year hiatus spent running New York City, although it’s not yet clear exactly what role he will play in the day-to-day data operations. The former mayor has always thought of the firm he gave his name to as a lean, nimble start-up fighting entrenched interests and old technologies, but solving the innovator’s dilemma will involve a fundamental reimagining of the way the firm conceives of itself. Even as late as 2001, in his corporate memoir, Bloomberg by Bloomberg, the billionaire wrote: “Positioning ourselves to respond is what competition is all about. Since Bloomberg is up against companies many times our size, we have to enter each commercial fight with an advantage.”

But that premise no longer holds. Now Bloomberg is many times the size of its competitors. And the race to topple finance’s preeminent data company is on in earnest.

“FIRST IS THE NEW STANDARD” is printed in bold white and green lettering on the black paper cups provided in the sixth-floor lobby of the 55-story Bloomberg Tower on Lexington Avenue. Half meeting place, half food court, the lobby is both comforting and aggressive in the modern corporate style, an airy hangar enclosed in walls of steel and glass that offers a view of a vast, near-circular atrium reaching down to the street below. Employees and visitors mill about, snacking on complimentary bananas, clementines, oatmeal or soup, or sipping tea or coffee, with a choice of six varieties of milk. Coolers are dotted throughout the floor offering “agua fresca,” a combination of lemon juice and water taken in plastic cups stamped with the word “FIRST,” spelled out in a dozen different languages, including Arabic, Chinese, Greek and Russian.

From this embarrassment of nourishment, a bearded, middle-aged man emerges, extending his hand in greeting. Professorial in appearance and gentle in demeanor, Tom Secunda seems an unlikely choice for top general at a firm striding so brassily into the belly of the 21st century. Secunda has been with Bloomberg since before it was Bloomberg, joining what then was known as Innovative Market Systems from Salomon Brothers, where he was a bond trader and colleague of Mike Bloomberg, in 1982 at the age of 27. At the time, the firm was a four-man concern operating out of a 100-square-foot room on Madison Avenue “with a view of an alley,” as Bloomberg puts it in Bloomberg on Bloomberg. Today the firm, renamed Bloomberg in 1986, boasts more than 15,500 employees and a presence in 192 locations around the globe. As head of the core financial products division, Secunda, now 59, presides over a team of 3,000 technologists and sits at the heart of everything the firm does. The way he tells it, the story of how Bloomberg got from there to here is remarkably consistent in its overarching themes.

Bloomberg’s first sale, to Merrill Lynch & Co., was a platform for trading U.S. government bonds. It was 1982. Most trading desks still operated with pen (or pencil) and paper; at many bulge-bracket banks, financial analysis was performed, to the extent it was done at all, literally on the back of an envelope. Mike Bloomberg breezed into Merrill Lynch and promised Ed Moriarty, then head of the capital markets division, a platform that would allow the bank to visualize and analyze in real time the way key instruments and metrics in the debt markets were fluctuating in value and mark traders’ positions to market instantly. Merrill’s head of software development advised Moriarty to wait six months, when the bank would be able to start building the product in-house. Bloomberg pounced, offering to deliver the terminal to Merrill within six months and waive the charge if it was not to the firm’s liking. The gamble worked. “We had a lot of domain experience,” Secunda says. “We thought we could do it because of the way we built technology when we were together at Salomon Brothers.”

Two big ideas guided Bloomberg, Secunda and co-founders Duncan MacMillan and Charles Zegar as they grew their business from there. The first was to engineer a product that the market had not seen before — to be truly innovative and pitch to a segment of Wall Street that was underserved. The key task, as Bloomberg writes in his memoir, was “to find a value-added service not currently available.” The terminal filled an information gap in the financial industry because it allowed nonmathematicians to perform highly sophisticated analysis on financial data without having to strain their brains with the actual math or econometrics behind the calculations.

This was revolutionary at a time when technical and fundamental analysis on Wall Street was limited. Data-driven investment analysis in the early 1980s was still the province of a relatively obscure handful of quantitative specialists, such as the tactical asset allocation fund that William Fouse and Thomas Loeb ran for Wells Fargo & Co. or Nunzio Tartaglia’s advanced proprietary trading group at Morgan Stanley. The terminal opened up a world of analysis to a segment of the market previously self-selected out of intensive data research.

“Bloomberg built its business not in the pointy end of the investment world but in the long tail,” says Rochester Cahan, U.S. portfolio strategist at New York–based Empirical Research Partners. “No one in the quant world uses Bloomberg for backtesting, but we’re not the people they’re targeting. They’re going after mutual funds, the portfolio managers, two guys in a garage calling themselves a hedge fund.”

The second guiding principle the co-founders took from their original sale was to always listen to the customer. As Secunda and Bloomberg built out the bond-trading platform for Merrill Lynch, the considerable amount of time they “spent talking to individuals and learning how they interacted has been the hallmark of how Bloomberg always develops,” the vice chairman says now. The merger of these two principles produced a corporate growth strategy in which selling and development coexisted as equal partners: Development gained from the sales-directed process of constant interaction with clients, and vice versa.

The upstart terminal company was not without competitors. Two companies had already carved out niches for themselves in the fledgling market data business. Quotron was a hardware manufacturer that allowed users to see a consolidated tape of stock quotes, along with some news. Telerate, an electronic bond information terminal, “basically invented the concept of the Internet,” according to Secunda. Dow Jones & Co., the reigning financial information behemoth of the 1980s, bought Telerate for $1.6 billion in 1990; eight years later it sold the business for less than one third of that. Citibank bought Quotron, but the company, as Secunda puts it, “basically disappeared.” He attributes the demise of these two early competitors to inertia: As technology advanced and markets changed, Quotron and Telerate failed to adapt and respond to new problems. This is a lesson Bloomberg has absorbed at every level. The firm, Secunda says, has never been in a battle about price because it is always in a battle about value.

From its birth as a bond-trading tool, the terminal has carried out that value mandate by taking on countless new features. These include news, a plethora of trading and execution platforms (in fixed income, equities, foreign exchange, options and futures) and a “launchpad” that allows users to customize and program the terminal to suit their particular needs. Today it includes more than 15,000 functions designed to capture every element of a financial professional’s work flow over the course of a given day. Even Bloomberg’s competitors acknowledge the astonishing depth and reach of the terminal’s functionality. “Even if I only use three screens for my job, those screens are very good — they do exactly what I want,” says Stephane Dubois, CEO and founder of Xignite, a San Diego–based firm with a cloud-based data distribution service that is pitched to the segment of the market beneath Bloomberg’s 320,000 terminal users. “And the quality of that very small portion of the terminal that I actually need to do my job justifies the spend.”

As it developed through the 1980s and ’90s, the terminal came to be defined by its four key features: data, analytics, news and messaging. Although each of these can be replicated by other firms, Bloomberg’s fundamental value proposition is that only its terminal can give you all four in one place simultaneously. But more interesting than the features themselves is the manner in which the company has gone about the business of developing them. In its early days Bloomberg had to build everything itself — software and hardware — for the simple reason that there was no technology available on the open market that fit the fledgling data company’s specifications. Secunda recalls how Bloomberg commissioned Motorola to custom-build a superfast modem, able to run at 9,600 baud, or bits per second, at a time when the standard was 4,800, to meet the needs of its first customers.

In the perennial build-or-buy debate that every technology company faces, Bloomberg emerged in the years that followed as one of the most zealous advocates for the in-house case. Secunda reels off, with the energy and enthusiasm of a man several decades his junior, a list of the signal products and services — some of them roaring successes, others met with a wall of client indifference — that the firm has built itself: a 320-character, Twitter-like microblogging service that was the terminal’s earliest messaging platform; a first-generation “farm” of graphical processing units, the electronic circuits that facilitate image display on a screen; a real-time compliance engine for e-mail. “Our direction was always to worry about the future, always to worry less about this year’s revenues than the future’s revenues,” he says.

The strength of the company’s belief in itself as an incubator of innovation perhaps explains why in the first years of the terminal Bloomberg’s developers were reluctant to let their baby play with other technologies. As Microsoft’s suite of office products proliferated in the workplace in the 1990s, Excel came to be an essential tool for the financial industry. At Bloomberg a fear existed that if it was too easy to import terminal data into Excel, sales would drop as companies replaced subscriptions with a single machine distributing data to many different people. Customer feedback reassured the firm that it would not lose clients that way: The heaviest users of Excel, it turned out, were also the heaviest users of the terminal. Starting in the mid-1990s a project named Bloomberg Open began to unlock the terminal so that it could interact more freely with external applications.

This has gone hand in hand with a thawing of Bloomberg’s historical intransigence in the deal market. “If the company being shopped was good enough to consider buying, it wouldn’t be for sale,” was Mike Bloomberg’s crisp summation in 2001 of the firm’s approach to potential acquisitions. But in 2006, Bloomberg purchased Brainpower, a Netherlands-registered investment analytics company, and in May 2012 it bought PolarLake, a Dublin-based provider of enterprise data management technology. Brainpower had built a search engine for structured equity data. “We said, ‘That’s exactly what we would build; it’s brilliant,’” recalls Secunda. Bloomberg was working on a similar product at the time but realized it would need three years to finish it and get it to market. “So we bought them,” Secunda adds. “I love companies that build, that are brilliant.”

The mistrust of the world beyond the walls of Bloomberg may have softened, but the wave of competitors has not abated. For much of the 1990s and 2000s, Reuters loomed as Bloomberg’s main rival. In 1996 the company unveiled the Reuters 3000, a system dubbed “the Bloomberg killer” and developed for a reported cost of $100 million. But the Reuters 3000 never matched the sales of the Bloomberg terminal. Later it was rebranded as the Reuters 3000 Xtra, another product that failed to excite the market. When Reuters merged with Thomson in 2008, the new entity shifted away from the terminal business to focus on the area where Thomson was already a market leader: data feeds that plug directly into financial firms’ own servers and technology — a more flexible, open-ended data provision model than the closed box of the desktop terminal.

Shortly afterward Thomson Reuters pivoted back to the desktop, spending the lion’s share of a $1 billion firmwide technology investment to develop and launch its Eikon terminal. “They basically realized that by abandoning the desktop they lost mind share with the traders and the people who matter in the industry,” says Joseph Gits, who worked as executive vice president in the quantitative analytics infrastructure group at Thomson for five years after the Canadian company bought his firm, Quantitative Analytics, in 2007. Eikon’s user growth has been solid, if not spectacular, since its launch in late 2010.

Thomson Reuters remains a significant force in the market, and its strategy is about much more than just the desktop. The development of Eikon is designed to go hand in hand with the development of the Elektron business, which pulls together all the disparate data feeds and facilities that the company has built up over the past two decades on the enterprise side. Thomson Reuters’ grand strategy is to integrate the two so that any customer can access the full power of the firm’s data and applications, through any channel and in any quantity it wishes; that data can be picked apart, built upon and adapted internally. “You can get more content or less content, and we’ll charge different price points, so it’s not a one-size-fits-all solution,” explains Philip Brittan, chief technology officer at Thomson Reuters’ financial and risk business, adding that the company is halfway through the process of migrating all its legacy content and infrastructure onto Eikon and Elektron. “The whole thing is designed to be a modern, extensible platform. So it will grow and evolve. It’s not just a fixed box.” Industry observers say this integration is precisely the kind of juggling act between the terminal and the feeds-focused enterprise business that Bloomberg has attempted. Some argue that Thomson Reuters is doing a better job of it.

Bloomberg’s other competitors have made less of an impact. In 1991 six large banks and brokerages formed the Electronic Joint Venture, a market data and U.S. government securities–trading platform. One year later the president of the EJV told the New York Times: “I would characterize our success so far as being very limited. We’ve had between zero and 5 percent of the market. Lately, it’s been closer to zero.” The EJV’s market share never shifted beyond that point. In 1999, Wired listed InSite and Quote.com as two “little Davids” that “slingshot by slingshot” were harnessing the power of the nascent World Wide Web “to dent the Bloomberg Goliath.” Though the Goliath has survived, largely undented, to this day, the parade of Bloomberg killers rolls on.

Today rumors abound that Secunda, who has acted as the firm’s strategic chieftain in the absence of Mike Bloomberg, is about to retire. He concedes that he is building a house on the island he owns in the Caribbean, but he rejects any suggestion that he is about to throw in the terminal. Bloomberg himself returned to work on January 13. Insiders suggest the former mayor has devoted most of his early energy to Bloomberg View, the news division’s fledgling opinion site, but Secunda does not rule out the possibility of his co-founder’s taking a firmer hand in steering the financial products group.

Three decades after they invented the financial data business, Secunda and Bloomberg both appear as committed to their 32-year-old start-up as ever. In the words of their own firm’s custom “agua fresca” cups, they still want to be FIRST.

On Wall Street the old joke is that the Bloomberg terminal is the world’s most expensive instant messaging service. E-mail and chat functions, and the social network they create, were central to the product’s value at the beginning and have remained so since. “Bloomberg isn’t going to be disrupted until you take that social piece away,” says Estimize’s Drogen. “Once you do, it will crumble.”

Last October saw the strongest attempt yet to loosen the glue of Bloomberg chat. That’s when London-based financial data company Markit Group launched what it calls its messaging federation. Throughout most financial firms, even those that have a high concentration of terminal users, there is usually an in-house messaging network that sits alongside the interfirm Bloomberg system. Instead of creating a closed communications network from scratch, Markit built a switchboard that allows these in-firm messaging platforms to speak to one another. In the view of Brad Levy, the firm’s global head of processing, it makes no sense for Markit to disrupt Bloomberg chat by replicating that service brick by brick; indeed, the company is adamant that disrupting Bloomberg is not even the federation’s primary objective. “Seventy-five to 90 percent of the people in finance don’t have a terminal,” says Levy, who headed the principal strategic investments group at Goldman Sachs Group before joining Markit in 2012. “They have e-mail and systems, and they’re struggling every day to keep their heads above water. We want to capture that underserved part of the population.”

Bloomberg’s terminal is still a product that appeals primarily to the front office. Markit is going after a larger market, pitching to the huddled masses of the middle and back offices. Because the two networks are designed to serve different segments of the market, there’s no reason they can’t coexist. It’s not hard to imagine a chat partition in which Bloomberg claims the top 300,000 financial professionals and Markit captures the million or so support staff who work in their wake.

When the Markit federation launched in October, BlueMountain Capital Management, a New York–based hedge fund firm, was the only founding member from the buy side. “Generally, we think competition is good and the more people innovate in the space, the better,” says BlueMountain chief operating officer Michael Liberman, whose firm is a happy Bloomberg customer. But if Markit’s chat federation gains traction in the industry, it will eventually want to expand into the front office, bringing it into collision with Bloomberg. And if more people are brought into the network, Markit plans to use it as a hub that will allow for the integration of innovative new services, not just from Markit but from outside as well.

“In all areas, from analytics to compliance to messaging, we’re seeing sophisticated new products and applications emerge that will together at some point undermine the terminal,” says Heidi Johnson, product head of collaboration services, Markit’s brand name for the messaging network. “But you need the network to be established, which is why collaboration services is so important.”

Naturally, that’s a big if — two big ifs, to be exact. Certainly, the initiative has strong backers. Eight banks, including Citi, Deutsche Bank, Goldman Sachs and JP­Morgan Chase & Co., joined the federation when it launched in October, each of them paying a single license fee of about $500,000 a year. None of them was willing to speak to II about the project. Markit puts its “conservative” estimate of users who have access to the network today at 200,000, although it’s not clear how active those users are. Whether the firm can build on its early momentum to create a thriving and valuable network remains to be seen, but Bloomberg is certainly taking the threat seriously: In Secunda’s description the company is “paranoid” about new developments in the marketplace.

As it happens, there’s plenty else for Bloomberg to be paranoid about. Beyond Markit and a relatively small band of midsize competitors (FactSet Research Systems, Interactive Data Corp., S&P Capital IQ), some of the most interesting things in the market data industry are happening in the start-up community, aided by advances made in consumer technology since the advent of “web 2.0” in the late 2000s. Bloomberg regularly boasts of the 3,000 technologists it employs, but the emerging breed of start-ups adapting technological advances to finance is trying to show that you no longer need a similar-­size army of programmers to compete.

Often these start-ups favor a lighter approach, competing less directly with the terminal (see “Start-ups Estimize and Kensho Take Aim at Bloomberg”). Daniel Nadler, 30, founded Kensho Technologies in early 2013 with the mission of bringing statistically intensive real-time analysis of large data sets to an audience beyond the small group of hedge fund firms that can perform that type of work today. Estimize uses crowdsourcing to meet what its founder, the 27-year-old Drogen, feels is the need for a more accurate representation of the market’s expectations of company results. Both start-ups have had significant early success in attracting venture capital. Neither Nadler nor Drogen is so naive as to contend that his company in its current state is capable of disrupting Bloomberg in its entirety. But from small beginnings start-ups like Kensho and Estimize hope to prove business concepts that will allow them to move on to bigger things. “We’re interested in going well beyond Bloomberg,” Nadler says. “Where Bloomberg ends is where we begin.”

Other firms have taken a different approach, positioning themselves as hubs for innovation and aggregation throughout the entire data community. OpenFin, a New York–based start-up, has used Google’s Chromium, the foundation of the Chrome browser, and HTML5, an open presentation standard used widely in web development, to build a technology that acts as an enabling trampoline on which developers can build and deploy new applications into financial firms. OpenFin, which CEO Mazy Dar started in 2010 with Chuck Doerr, an engineer and technologist he worked with at IntercontinentalExchange, has raised $3 million in external capital to date. Three global banks are now using its technology, which Dar says is attractive to firms because HTML5 gives a richness and depth to the user interface that most financial technologies lack. “Finance has never done the user experience well,” he says. “Consumer IT has made financial professionals want better.”

Dar compares what his firm is doing to the way Google disrupted Apple’s dominance in the smartphone market: by building an operating system that appealed to handset manufacturers, rather than a handset factory. “We’re doing the same thing for all the other companies that want to compete against Bloomberg,” he says, adding that building a slightly cheaper terminal “is not how the disruption of the terminal will happen. It’s more about fostering collaboration.”

Whereas Dar puts the emphasis on collaboration, Xignite’s Dubois stresses the importance of rationalization. To satisfy what its CEO describes as the industry’s “obsession” with cost, Xignite has built a repository of market data that sits in the cloud. This cuts costs, Dubois says, by eliminating the “massive” redundancy and repetition of data sets that characterize finance today, both within firms and from one firm to the next. According to Dubois, Xignite has more than 1,000 clients, including several big banks and Bloomberg itself, which hosts some of its own data on its nominal rival’s cloud.

Xignite and Kensho have both formed partnerships with Nasdaq OMX Group to have their products hosted on FinQloud, the exchange operator’s own cloud computing platform. Many financial technology start-ups face a problem in clearing the forbidding security and compliance barriers that most firms, especially the big banks, mandate for the purchase of new software, a process that can last for months.

FinQloud is designed to solve that problem by allowing developers and start-ups to drop their products and services into a secure, compliance-ready cloud. Nasdaq sees FinQloud as the type of environment that, like OpenFin, could nurture innovation, by providing a secure pen for developers to play in, and solve the data replication problem Xignite is targeting, because the exchange can funnel all of its own feeds into the cloud and sell firms on the virtues of a single, convenient, lightweight data hub. It’s highly doubtful that other data originators (exchanges, data firms) would want to put their data on FinQloud, but Nasdaq is busy buying up data assets to make the proposition more attractive. “More and more of what the data vendors do, we have our sights on,” says Brian Hyndman, senior vice president of global data products. He adds that Nasdaq has no plans to get into the terminal business “at this time.”

Nasdaq, whose data business generated $281 million in revenue during the first nine months of 2013, a 7.5 percent increase over the same period the previous year, is perhaps the most vocal of the exchanges when it comes to declaring an intention to take market share away from Bloomberg. The strategy is based on more than bluster. Postcrisis financial reforms and capital constraints placed on the dealer banks by the Basel III framework mean that OTC markets are being forced onto exchangelike models. All exchanges are exploiting these prevailing winds in their favor to move more aggressively into the data market. This is nothing new; exchanges have long made money by selling feeds of data related to the securities that trade on them. But until now that largely has been a story about equities. The prospect of the derivatives market pricing in public brings a vast new terrain of data under the exchanges’ control.

Xignite, Nasdaq, OpenFin and many of their smaller upstart peers are making the same wager: that consumers of financial data, accustomed to switching among multiple apps and tools to get things done in their private lives, will be happy to operate the same way at work. As they see it, it’s a bet on flexibility and choice versus the all-in, nonnegotiable model of the terminal. They believe that in the long run financial institutions, catering to both their human employees and automated processes, will want data in customizable, discretionary slices rather than a single-price salami. And that view is fundamentally anathema to the Bloomberg way of doing things, according to Xignite’s Dubois. Bloomberg, he says, knows that if it opens up and allows its underlying data to be purchased in discrete segments, “it’ll be like Ross Perot said — there’ll be a giant sucking sound as customers desert the terminal.”

Bloomberg shows little sign that it fears that sucking sound. Incumbency and size have their benefits. Markit CEO Lance Uggla explains how industry incumbents have approached competition throughout history: “The new little disruptive players come in, they move quickly into a niche area of need, and they actually disintermediate the big firms like us, Bloomberg, Thomson Reuters. And then we buy them.”

But many of the emerging start-ups declare themselves uninterested in being acquired. “In the past, if we were to be really successful, maybe Bloomberg would want to buy us in five years,” notes Kensho’s Nadler, adding that the velocity of change in the technology sector is such that start-ups can disrupt incumbents, even giant ones like Bloomberg, faster than ever before. “We think of it the other way around: Maybe we’ll buy Bloomberg in five years.”

In any event, Bloomberg, despite the recent relaxation of its stance, is not an acquisitive firm. But even without buying, Bloomberg has a way to disrupt the disrupters: It can simply replicate their products in-house and feed them into the terminal.

Secunda says that Bloomberg monitors what its competitors are doing but that he tries not to let it affect the way the company thinks about new-product development, as that would involve “playing leapfrog.” He explains: “You never win by being just a little bit better than your competitor. You’ve got to think in ways that nobody else is thinking. I want disruptive practices.”

Those disruptive practices need to take shape within a specific venue: the terminal. But few of the interesting recent developments in the market data industry fit within that framework, leaving Bloomberg little room to self-disruptively replicate what its competitors are doing. Consider Xignite or OpenFin: The very premise of these companies is that they are something the terminal is not. Their products can’t be added to the terminal because they’re not designed to sit there.

It was partly to diversify away from the terminal that Bloomberg acquired PolarLake in 2012. Young’s recruitment from NYSE Technologies was designed to further the company’s efforts in this area, allowing it to provide data and analytics outside the terminal, in more flexible portions that could interact more freely with customers’ middle and back offices. Secunda declines to comment specifically on Young’s departure. And he rejects the charge, repeated often by industry observers, that Bloomberg’s data offerings are not sufficiently open.

Recall the introduction of Bloomberg Open in the 1990s. The linchpin of this effort was Bloomberg’s release of its API, or application programming interface, the protocol that allows users to take information and tools off the terminal and have them interact with their in-house applications. In the early 2000s, Bloomberg extended this opening of the API to customers’ servers by releasing its own server API. Two years ago Bloomberg created an app store, which allows developers to build and sell their apps to the terminal community. The store started with 45 apps and now hosts 265, with an active user base of 20,000. Secunda expresses disbelief at the suggestion that his firm could be any more open than it currently is.

But Bloomberg’s charging model still ties all these open applications to the terminal, and that’s the critical point. As a Bloomberg customer you can have maximum openness — but only as long as you pay the $20,000-a-year subscription for a terminal. Nonsubscribers are left with limited choices for accessing Bloomberg data (mainly commoditized historical and price data), even though they may be willing to buy it on a per-unit, pay-as-you-go basis. The enterprise business, which now accounts for about 10 percent of Bloomberg’s revenue, enough to comfortably make it the company’s second-biggest wealth generator, is growing by more than 15 percent a year. But most of its customers are also terminal subscribers.

“I’m a big fan of our enterprise business, but I’m a big fan of our enterprise business because it provides our customers with a more complete solution in conjunction with the terminal,” says Secunda.

Every time Bloomberg is faced with a problem, the firm comes back to the same answer: the terminal. Any new business at Bloomberg has to serve two objectives. Does it enhance the terminal? And could it one day be a stand-alone business? The firm has had successes in this area — in order management and with Bvault, its archiving and e-d­iscovery platform — but critics contend that the dual focus blunts true innovation. Secunda sees no problem with channeling innovation through the terminal because the terminal is here to stay; he is “very bullish” on its future.

For Bloomberg there is no innovator’s dilemma because the firm fundamentally believes the terminal will thrive for years to come. There is no fear of self-­cannibalization because there is no need for self-disruption. But Thomson Reuters in particular remains a formidable competitor, and Eikon is finally gaining support after a difficult period following its 2010 launch. There are now more than 120,000 paying users of the Thomson Reuters terminal, and net sales in the company’s financial and risk group, which operates Eikon, turned positive in the third quarter of 2013 for the first time in two years. There are signs that in its attempt to fuse the terminal and feeds business, Bloomberg’s biggest rival is thinking carefully about the evolution of its role as a data provider, especially in a world where data is becoming more ubiquitous and easier to access. “Data now needs to talk to each other,” says financial and risk business head Craig. Thomson Reuters, interestingly, was a founding member of the Markit messaging federation. “There’s a pressure to collaborate more,” Craig notes.

The narrative advanced by many in the industry is that these long-term structural trends provide an opening for the disruption of Bloomberg. Secunda asserts just the opposite, contending that they will actually help, not hinder, the terminal behemoth. Technology lowers the barriers for new entrants, but, he says, Bloomberg also benefits from the increasing velocity of innovation and falling development costs. “The advent of technology into people’s lives has been a real boon for us,” says Secunda, adding that it has allowed the firm to produce “more-sophisticated and interactive products.”

Market reforms may be shifting previously opaque asset classes onto more-open trading platforms, but Secunda points to equities, the most liquid market in the world, as the single asset class that has the most Bloomberg users. “When there is a free flow of information and data, it allows for dramatically more analysis,” he says. Craig agrees, asserting that even if more asset classes move onto public trading venues (a scenario that is yet to materialize in practice), data providers will always have a key advantage over exchanges: their status as “neutral aggregators.” Secunda does not deny that change is sweeping the financial industry. But he disagrees fiercely with the conclusion that change will be bad for Bloomberg.

On only one point does he dispute the premise of the argument — and it’s perhaps the most important point of all. Thumbing his nose at received wisdom, Secunda refuses to believe that there is going to be the dramatic decrease in eyeballs across the industry that many predict. Secunda’s bet, carrying the company he leads with him, is that as markets get more complex, even as automation expands, there will be a need for more, not fewer, humans to make sense of data and guide the machine process. The terminal’s potential customer base is not evaporating, in his view; it’s growing.

Recent history puts some meat on the thesis. Installed throughout Bloomberg’s offices are large screens updating in real time the total number of terminal users and that month’s sales. In New York City alone, the number of terminals grew 93 percent between 2000 (27,000) and the end of 2013 (52,000), even as the local financial workforce declined 14 percent. Bloomberg’s revenues have stayed robust over the past half decade as those of Thomson Reuters have fallen. Defying persistent predictions of its decline, the Bloomberg terminal continues to find new users.

But even if Bloomberg succeeds in heading off the disrupter barbarians at the gate, there’s no reason to assume that this necessarily spells doom for other financial data companies looking to claim market share. InSite, one of the “Davids” taking on the Bloomberg “Goliath” that was profiled by Wired in 1999, was a product of Data Broadcasting Corp., which eventually became Interactive Data Corp., now a market leader in illiquid fixed-income data. In 2013, IDC had estimated annual revenue of $895 million, giving it a 3.5 percent share of the nearly $26 billion industry. With a fragmented pack of small data providers accounting for $5.3 billion of that revenue, there is clearly market share to go around. But the postcrisis environment is not so forgiving. “More and more of this industry has become a zero-sum game over the past five years,” contends Xignite’s Dubois, and few of his peers disagree. It remains to be seen whether Secunda’s bold prognostications about eyeballs and the industry’s undiminished appetite for the terminal will turn out to be brilliantly prescient or seriously misguided.

The past 12 months have not been kind to Bloomberg. A slew of recent press articles has made much of the troubles at Bloomberg News, especially over the reporting of politically contentious stories in China. But news accounts for barely 4 percent of Bloomberg’s annual revenue. Even as this steady feed of external psychoanalysis of the firm has continued, the 3,000 in-house technologists have been hard at work making Bloomberg’s true wealth generator — the terminal — richer, bigger and better than ever before. More than the depth of its functionality, though, it’s the psychological element, the embrace of familiarity, that attaches users to their terminals.

“You’re betting against human nature if you think Bloomberg is going to be toppled from its perch overnight,” says Empirical Research’s Cahan. “People are ingrained in this, and Bloomberg is such a unique system.” The terminal is regularly mocked for the archaic and obscure battery of key commands users employ to access pages. But, Cahan continues, “once you’ve mastered that it’s incredibly powerful. It’s like knowing a new language — why would you want to change?”

Competitors, Secunda argues, will not beat Bloomberg by copying Bloomberg but by outthinking it. But can Bloomberg be beaten at all? Large-scale disruption has jolted countless industries, from automobiles to home computers to music to phones. The financial industry may be next in line. “I think we’re on the cusp of something truly disruptive, and I think the transformation is going to be just as significant as it has been in the consumer space,” says BlueMountain’s Liberman, and he is not alone in the thought. Cahan believes that “as younger traders take over, those who grew up on iPhones and Gmail, there’s going to be a shift in the tools of choice,” weakening the industry’s patience with the quirks and peculiarities of the terminal. That generational shift, coupled with the ever-intensifying sophistication of information technology, arguably works far more strongly in favor of the market data upstarts than of Bloomberg, which has to master new tricks even as it defends its vast empire.

But institutional finance, involving the mobilization of large sums of money at risk and dominated by a small family of large, conservative, mostly risk-averse institutions, is special. The industry has neither the agility nor the consumer focus that has allowed disrupters to flourish in other arenas over the past decade. If Facebook’s philosophy was to “move fast and break things,” as co-founder and CEO Mark Zuckerberg once said, most large financial institutions operate at the opposite end of the audacity spectrum: Move slowly and check with the compliance department. Perhaps, given those constraints, only a fool would bet against a company as ambitious, paranoid and luxurious in its capabilities as Bloomberg. But at a time when the financial industry has more of everything, save people — more data, more regulation, more complexity, more technology — there are plenty of competitors out there ready to gamble. • •

Follow Aaron Timms on Twitter at @aarontimms.

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