When we think about the largest tech companies in the world, we think of companies like Amazon, Google, Microsoft, and Facebook who serve billions of customers every single year. Even Apple, who is arguably the tech giant with the most premium prices, has managed to sell 2.2 billion iPhones as of 2018.
This really isn’t surprising though, if you want to build a company worth hundreds of billions if not trillions, you have to be a household name. Michael Bloomberg is however, the exception. We all know Michael Bloomberg today for Bloomberg media and his political career.
However, his real cash cow is not a household name by any means. In fact, his core business only serves 325,000 customers annually. Now, that’s not a small amount by any means. But, given that his company is worth $60 billion, each customer translates to $184,000 worth of market cap.
To put that into perspective, Google is worth $1.73 trillion and they are estimated to have 4 billion annual users. This means that each Google user translates to about $432 worth of market cap which is 425 times less than Bloomberg.
So, here’s how Michael Bloomberg built a $60 billion empire with only 325,000 customers.
Taking a look back at Michael’s roots, Michael was born on February 14, 1942 in Brighton, Boston. He came from a regular middle class immigrant family. His father side was from Poland and his mother’s side was from Lithuania. And, his father worked as a bookkeeper for a dairy company.
During Michael’s early life, his family did move around a couple of times, but they never really left the Boston area. After graduating high school in 1960, Michael attended Johns Hopkins University where he majored in Electrical Engineering.
And right after he finished up his undergraduate studies, he turned around and attended Harvard Business School to get his MBA. You see, Michael never actually had any ambitions of starting a company. He was perfectly content with working a solid 9 to 5 throughout his life. With an electrical engineering degree and an MBA by age 24, he was perfectly on track to accomplish this.
Ironically though, Michael wouldn’t actually get an engineering job as you might think, he actually decided to jump into the heart of Wall Street. In 1966, Michael scored a modest job as a security counting clerk at the popular investment bank Salomon Brothers.
For anyone who isn’t familiar with what a security is, a security is just a tradable financial asset. This include everything from stocks and bonds to options and futures contracts. As a security counting clerk, it was Michael’s job to keep track of the incoming buy and sell order and make sure that everything was accounted for.
Nowadays, all of this is done in a fraction of a second thanks to computers, but back in the day, all of this had to be done manually. Despite his humble beginnings, Michael quickly worked up the corporate ladder.
By the early 1970s, he was placed in charge of the company’s equity trading division, and by the late 1970s, he was given the responsibility of developing a computerized financial system. By 1981, Michael had worked at Salomon Brothers for 15 years and though he didn’t hold an executive position, he was a general partner.
Things at Salomon Brothers, however, would take a massive turn in 1981. The management at Salomon Brothers would decide to cash out and they would sell the company to Phibro Corporation for $800 million. Usually, this wouldn’t be a problem as employees would just transfer over to Phibro.
However, Phibro wasn’t too fond of Salomon’s old management, and they would end up firing Michael. It wasn’t all bad though as they gave him a fat severance package. And when we say fat, we mean massive as in $10 million. Combine this with the money that Michael had saved and invested over the past 15 years, it is estimated that Michael was worth $10 to $20 million when everything was said and done.
At this point, he could have easily retired. He could have thrown his let’s say $15 million into the S&P 500, and earned $600,000 per year for the rest of his life. Adjusting for inflation, that’s the same as earning $2 million per year today.
But Michael wasn’t done working. According to him, ”To say I fit in there and loved what I was doing is an understatement.” So, it seems like Michael is part of the 15% of Americans who actually like their jobs. Michael said that if another investing firm like Goldman Sachs offered him a partner position, he would have taken it in a heartbeat. However, no one offered him a job, so he decided to just start his own company called Innovative Market Systems and keep doing what he was doing at Salomon Brothers, which was developing a computerized financial system.
In 1982, Michael hired a couple of computer programmers and they worked on automating the financial markets. The goal was to create a computer called the Market Master Terminal that could provide real-time market data and financial calculations to investors. Nowadays, we can get a lot of this information for free. We can just go onto Google and type in whatever stock we want it will tell us the current price and various financial calculations like PE ratios, dividend yields, market caps, and so on and so forth.
Back then though, this process was much more complicated. If you wanted to buy stock in the 1970s and 1980s, you had to call up a broker and make an offer for a stock. Your broker then would turn around and inquire other brokers to see if there’s anyone willing to sell you the sock at your desired price.
As you can see, this is an extremely inefficient system, and your ability to sell or buy stocks depended on your broker’s ability to match you with a seller/buyer. Michael wanted to change this using computers; however, no one seemed to be interested at the time except for Merrill Lynch.
Merrill Lynch agreed to buy 20 terminals from Michael as long as it met a list of criteria within six months. For instance, the machine had to be capable of specific government bond calculations. Given Michael’s experience in Wall Street, matching the requirements of Merrill Lynch wasn’t too difficult, and he would thoroughly impress Merrill Lynch.
In fact, they would be so impressed that they would order 1000 more terminals on one condition: The company couldn’t sell the technology to anyone else for 5 years. Given that nobody else even wanted the tech at the time, Michael agreed.
Aside from buying 1000 machines, Merrill Lynch would even invest into Innovative Market Systems buying up a 30% stake.
Over the next 2 years, Michael and his team would continue improving the capabilities of their terminal and even created a portable version. Again, this doesn’t seem very impressive today, but in the 1980s, this was cutting edge technology, and Merrill Lynch had cleverly bought exclusivity.
Realizing the potential of the product, Michael felt that he had sold himself short by agreeing to Merrill’s exclusivity deal. So, he would go to Merrill Lynch in 1984 and see if there was any way to renegotiate the contract.
Fortunately for Michael, Merrill actually had no problem with Michael breaking the contract and selling the terminal to competitors now that they had a 30% stake in the company. By this point though, competitors were starting to enter the scene and offer their own financial information services.
However, none of them offered as in-depth information as Bloomberg. Competitors only provided basic data like trading volume, stock prices, and bond prices. Meanwhile Bloomberg boasted 40 different in-depth financial metrics on any bond or stock on the market.
Getting access to this information though would not be cheap. Michael clearly avoided a one time purchase model and instead opted for a subscription model. And he didn’t charge $10 or $20 or even $100 per month. He charged $1,000 per month per terminal. Such a terminal makes no sense for average retail traders, but for hedge funds and investment banks that are trading billions of dollars every single day, $1,000 per month is nothing especially when you consider the value of the information from the terminal.
Despite this, the terminal didn’t take off right after its release as most of Wall Street still didn’t quite understand the potential of the product. The companies that did use the terminal, however, preferred it over everything else on the market.
In 1988, for instance, the Wall Street Journal started to use the terminal to get their daily bond data instead from the official Federal Reserve Bank of New York. In the meantime, Michael would actually go ahead and rebrand the company in 1986 renaming it from Innovative Market Systems to Bloomberg LP or Bloomberg Limited Partnership.
He would also change the name of the terminal from market master terminal to Bloomberg Professional service. According to Bloomberg, the original name sounded like a kitchen product. Plus, everyone at Merrill Lynch was already calling the machines Bloombergs, so it made sense to change the official name to Bloomberg Professional Service.
No one actually calls it the Bloomberg Professional Service though, the most popular name for the service is the Bloomberg Terminal. Anyway, after the rebranding, Michael would continue to slowly but consistently expand across Wall Street.
By the end of the 1980s, Bloomberg boasted a total of 5000 customers. And though that sounds relatively small, when you consider that each customer is paying $1,000 per month, it’s actually massive.
Moving onto the 1990s, subscribing to a financial information service transitioned from being a luxury to a necessity as more and more investors adopted the technology. This drove significantly more traffic to Bloomberg, but it still wasn’t a breakout moment or anything like that.
By 1992, Bloomberg boasted 14,000 terminals and by 1994, this number ballooned to 31,000 terminals worldwide. The biggest increase, however, came after Bloomberg embraced the Internet.
For the longest time, Bloomberg insisted that the internet was unrelated to their service and that the internet could never replace them. However, once Reuters and Dow Jones started to provide their financial data through the internet in 1996, Bloomberg caved in and offered the Bloomberg terminal as an internet subscription as well.
It is a good thing that he didn’t let his ego take the better of him as missing the internet could have been deadly. Fortunately though, Bloomberg made the right decision and this allowed the company to thrive as we entered the new century.
Since 2000, Bloomberg has continued to improve their product and customer base, and today, they have evolved into being the backbone of the financial markets. They have also increased their price from $1,000 per month to $2,000 per month. So, even though they only have 325,000 customers today, that comes out to a solid $7.8 billion per year which is about 80% of their entire annual revenue. And that’s how Michael Bloomberg made $59 billion with only 325,000 customers.
