Max Bowie: Is Bloomberg Really to Blame?

Putting all your eggs in one basket is a high-risk strategy as Bloomberg Professional traders found out on April 17.

max-bowie
Perhaps this incident will prompt firms to look at their assets for data, order routing and chat, and treat them like any other investment—with the idea of creating a diversified portfolio.

The data giant’s recent outage has left many wondering whether the industry is too reliant on a single data provider. Max says the industry that willingly let itself become so reliant on one vendor ignores alternative providers at its peril.

Not since a double-whammy of outages for Reuters in 2006 has a single vendor experienced sufficient service disruption to singlehandedly halt markets. But on Friday, April 17, Bloomberg did just that when an uncharacteristic terminal outage left thousands of screens blank and forced many London traders to reluctantly head to the pub early.

The incident was caused by failures in both software and hardware components of the vendor’s network, as well as failures to its back-up processes, causing thousands of the vendor’s Bloomberg Professional terminals to disconnect from its network. For those failures, Bloomberg should—and did—shoulder the blame. However, Bloomberg doesn’t deserve to take the blame for traders being unable to work: That should fall squarely on those who thought they didn’t need a back-up of their own.

Market Stagnation
Of course, you’d expect other vendors to be crowing about how the mighty have fallen. However, the market stagnation during the outage suggests several potential scenarios, none of which reflect favorably on other vendors or their clients. So why did all the activity typically conducted over Bloomberg not simply shift to other mechanisms? Possibly because other vendors don’t have the same level of market penetration for their terminal business, especially in the front office. Or possibly because when push comes to shove, traders simply don’t feel confident turning to the other tools on their desktops—or, given the extent to which they use and rely on Bloomberg, perhaps aren’t familiar enough with these tools to use them with confidence. Or possibly, these users simply don’t have alternatives to turn to when such incidents occur.

Bloomberg’s back-up processes to prevent such network outages may have suffered problems of their own, but at least the vendor had them. It’s possible that some firms adopted a Bloomberg-or-bust approach, especially considering (a) the cost of Bloomberg terminals, and (b) the constraints still facing many firms’ data budgets. And if that’s the case, those firms have no one to blame but themselves.

“One or two systems are so dominant that when they stop trading, they introduce systematic risk into the market. The focus on one or two systems is risky for an entire market. When one vendor is so big, it’s very risky to put all your eggs in one or two baskets,” says Morgan Downey, himself a former head of commodities at Bloomberg and chief executive of Money.Net, a low-cost data terminal hoping to disrupt those bigger players.

Perhaps this incident will prompt firms to look at their assets for data, order routing and chat, and treat them like any other investment—with the idea of creating a diversified portfolio.

Dominant Position
So how did Bloomberg attain this dominant and “systematic” position? Not by acquisition, but through hard work, comprehensive content and industry-benchmark customer service. Its acquisitions have been few and far between, and have been opportunistic add-ons rather than competitive land-grabs. In short, Bloomberg won users’ over-reliance fair and square, with the full complicity of all those clients left twiddling their thumbs.

Perhaps this incident will prompt firms to look at their assets for data, order routing and chat, and treat them like any other investment—with the idea of creating a diversified portfolio rather than putting all one’s assets into one stock. And while it may still be hard to persuade a Bloomberg user to switch to a Money.Net terminal, there are other initiatives underway—such as the bank consortium-backed Symphony messaging platform—designed to break the vendor’s stronghold over critical data functions.

Blame Game
So before you blame Bloomberg for the keystone position that it holds in today’s financial markets, remember that you helped put it there, and only you can change that position by putting your money where your data is and giving other vendors a chance—not only will it increase competition and ultimately result in better deals for you, but you never know when you might need them.

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