In 1981 , Michael Bloomberg started a company with three co-workers and a revolutionary idea: proprietary terminals offering real-time market data and analytical technology to businesses and traders. More than 25 years later, Bloomberg L.P. has become one of the largest financial information and news organizations in the world - and its wide-ranging impact on the financial markets led the CME Group Center for Innovation to name Bloomberg its 2008 winner of the Fred Arditti Innovation Award.
One door closes, another opens Bloomberg L.P. came into being after the sudden end of Bloomberg's career as a partner at Salomon Brothers. He was shown the door after 15 years at the firm, as one of 63 top-level Salomon executives to lose their jobs when Salomon merged with Phibro Corporation, a publicly held commodities trading firm. The good news was he was given a $10 million severance package. Bloomberg finished his last day at Salomon on Sept. 30, 1981, the way he began his first, working a 12-hour day. The next day, he went to work at his own company.
Today, Bloomberg L.P. has more than 10,000 employees at 130 state-of-the-art offices all over the world. But back then, as Bloomberg tells it, it was "four guys, one room and a coffee pot" in a small office in Manhattan with a view of an alley. Bloomberg was the first employee, but he started the firm with three other colleagues from Salomon.
"The real fun was back at the beginning," he says. "I'll never forget how hard we worked for three years to get our first order."
That order would be the best transaction Bloomberg ever made. Merrill Lynch ordered 20 terminals at a cost of $1,000 per terminal.
"I remember writing 20 x $1,000 on the back of an envelope thinking, 'That would cover our overhead,'" Bloomberg says. "Today, that wouldn't cover our food bill."
The deal with Merrill Lynch was actually more complicated, more speculative and, well, luckier than that, as detailed in his book Bloomberg by Bloomberg. In the sales meeting with Merrill, Bloomberg explained that his firm's technology would provide data unique in the capital markets - a system that would provide yield curve analysis, updated throughout the day as the markets moved, including futures versus cash. The technology would then note every transaction and mark positions to market instantly. Bloomberg said that he could deliver the system within six months - faster than Merrill would be able to do if the company developed it internally.In June 1983, Bloomberg delivered the system to Merrill on time. They ran one function on the computer and it crashed, but no one seemed to mind. The pieces were in place and Bloomberg was on his way.
As it turned out, this was virtually the only break Bloomberg needed because Merrill Lynch signed him to an exclusive deal that prevented him from selling his terminals to competitors for five years. Merrill Lynch later took a 30 percent stake in the firm for $30 million and helped disseminate Bloomberg terminals to its customers around the globe. Both companies expanded rapidly, equipped with technology that gave them an edge.
Today, the terminals have evolved into the BLOOMBERG PROFESSIONAL service, which is used by approximately 250,000 subscribers from the world's central banks, investment institutions, commercial banks, government offices and agencies, law firms, corporations and news organizations in more than 150 countries. Bloomberg News encompasses television and radio programs in seven languages, financial book publishing, an award-winning magazine and print news carried by more than 400 publications in 70 countries.
What's so special? Bloomberg L.P. is known by the general public for its media services rather than for its analytical technology. But it was the technology that set Bloomberg apart from every other data vendor and newswire service. Bloomberg had the right customer in Merrill. And it had the right product at the right time when the bond markets blossomed in the 1980s.
What made Bloomberg terminals so valuable is that they could provide bond pricing information in a way no one else could. Bloomberg terminals provided the relative value of debt instruments based on their yield and price histories, giving Merrill Lynch an accurate picture of the bond market instantly. Such information was valuable for anyone trading the interest rate market.
Bloomberg advanced his company further in May 1987, when he convinced The Wall Street Journal and Associated Press that his company should become the sole disseminator of daily U.S. government bond prices, a role that had been handled by the Federal Reserve Bank of New York for more than a century. The Fed was literally hand-delivering critical bond data to newspapers and wire services via a courier. Bloomberg simply automated that delivery process, a move that put the company on the map. By 1990, Bloomberg decided it was time to move into the news business. He began building news desks to cover the financial markets around the world. The company held its own against newswire behemoths Dow Jones and Reuters by proving to customers that its news coverage was as good as or better than the competition. The company broke into the television and radio sectors in 1991 and is now considered a major force in financial news.
Bloomberg News implemented new and better ways to generate and send financial news to customers. For example, Bloomberg computers are programmed to periodically update market information, rather than have reporters do so. Automated market information about the Dow Jones Industrial Average, S&P 500 Index or other indexes is created and sent to customers in a matter of milliseconds - and reads like a story. The screen will display something like, "The Dow Jones Industrial Average was 1.09 percent lower at 3:01 p.m. Eastern time, down 62.14 at 12202."
The story includes the biggest gainers and losers in the index. Interestingly, for an entrepreneur who pays incredible attention to detail in all aspects of his business - down to the salt-water fish tanks and free snacks for employees at each office - Bloomberg finds very little value in detailing a long-term business plan.
"If you're going to succeed, you need a vision, one that's affordable, practical and fills a customer need," he writes in his book. "Then go for it. Don't worry too much about the details. Don't second-guess your creativity. Avoid overanalyzing the new project's potential. Most importantly, don't strategize about the long-term too much."
Government entrepreneurship
Bloomberg entered public service when he was elected mayor of New York City in 2001. He was re-elected in 2005 and plans to step down in 2009 when his term ends. As mayor of New York City, Bloomberg has brought much of the same innovative spirit to government.
The budget overseen by the mayor's office is the largest municipal budget in the United States - roughly $63 billion a year. The city employs more than 370,000 full-time and full-time equivalent employees and spends about $20 billion to educate almost 1.1 million children. Bloomberg says innovation is needed in the public sphere and jokes that running a government budget is the exact opposite of running a corporate one.
"Business is a dog-eat-dog world," Bloomberg says. "Government is actually just the reverse."
In business, executives typically move more resources into the profitable lines of the company and cut away resources from failing product lines. In government, however, profitable areas often are used to bolster unprofitable and underperforming areas.
Yet even there, Bloomberg has tried to bring efficiency and innovation to government by trying to measure the effectiveness of programs and hold various sectors accountable.
"You have to be able to collect and trust the data," Bloomberg says. "If you can't measure it, you can't manage it."
Bloomberg says he doesn't know what his next step will be after he steps down as mayor after his second term. He's often been rumored to be a strong candidate for a federal post, although he ruled out a run for president. But if he follows his personal credo that transformation is good, Bloomberg will likely be leading change.
PULLQUOTE: As the winner of CME Group Center for Innovation's Fred Arditti Innovation Award in April, Michael Bloomberg was recognized for his entrepreneurial skills and ability to bring truly groundbreaking change to the financial markets.
What is admirable about Michael Bloomberg is not just that he built his company, Bloomberg L.P., into one of the top data and news companies in the world, but that he did it with his own money, from scratch, and almost entirely internally and organically.
Bloomberg, now worth an estimated $11.5 billion according to Forbes Magazine, reveals the secret to building a successful company or organization.
"Innovation is having the instinct that it might work," Bloomberg says. "We want people who try things that don't work, but don't quit. Don't walk away from trying the next thing."
CME Group Center for Innovation Adds Bloomberg to Winners' List
The CME Group Center for Innovation (CFI) was founded in 2003 to create and sponsor thought-provoking original programming that identifies, showcases and fosters examples of significant innovation and creative thinking across multiple industries.
The CME Group Fred Arditti Innovation Award, sponsored by the center, honors an individual or group whose innovative ideas, products or services have created significant change to markets, commerce or trade. The annual award honors innovation that has had a positive impact on the economic well-being of individuals, industries or nations. The award is named after the exchange's former chief economist
Fred Arditti, who was instrumental in developing the International Monetary Market index upon which CME Group's Eurodollar futures contract, the world's most actively traded futures contract, was founded.
Michael Bloomberg, founder of Bloomberg L.P. and current mayor of New York City, was the recipient of the 2008 award in April. He was recognized for the tremendous innovations in financial markets that he fostered through the founding of his company, today one of the largest financial information and news organizations in the world.
Prior recipients of the award include: William Sharpe, Nobel Prize-winner in economics; Eugene Fama, Distinguished Service Professor of Finance at the University of Chicago Graduate School of Business; and Leo Melamed, CME Group chairman emeritus.
CFI's advisory council is responsible for selecting each year's recipient. John P. Gould, Steven
G. Rothmeier Distinguished Service Professor of Economics, University of Chicago Graduate School of Business, serves as the council's chairman. Other noted committee members include Gary S. Becker and Robert Merton, Nobel Prize-winning economists; David D. Hale, international economist; Michael
H. Moskow, former president, Federal Reserve Bank of Chicago; and Robert J. Shiller, Stanley B. Resor Professor of Economics, Yale University and chief economist, Macro Securities Research, LLC.
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