Why Bloomberg is interested in LinkedIn

By Felix Salmon
December 10, 2012

As Henry Blodget realizes, the most interesting part of the latest speculation about Bloomberg buying the FT is buried en passant:

Factions within his company have argued that it would be smarter to buy a digital property, pointing to the Web site LinkedIn as an example.

As Blodget also notes, this isn’t really an either/or choice: the price tag for LinkedIn would be so gargantuan that it would make very little difference whether Bloomberg also bought the FT or not. But a billion dollars — the much bandied-about price tag on the FT — is still a large enough sum that anybody paying such a price has to have a pretty clear strategic reason for doing so. And if you’re going to start putting serious money against a strategic vision, then it makes sense to be very clear what that strategy is, and what it isn’t.

The purchase of the FT would basically be a soft-power move. Bloomberg has a stated aim of becoming “the world’s most influential news organization”, and the FT would be a helpful fill-in acquisition on the road to that goal. Bloomberg’s influence started in the financial markets, but the company has become more ambitious than that, so it’s investing other ways of reaching important people who might not have any need or desire to spend $20,000 a year on a Bloomberg terminal. And the investment in news outside the Bloomberg wire is paying off: Bloomberg TV got the first Obama interview after the election, for instance, while Bloomberg Businessweek had that juicy interview with Tim Cook.

Still, the FT is a news product, which would fit within the broader Bloomberg News operation, and wouldn’t really alter the mission or the economics of the company as a whole. Bloomberg makes its money selling terminals to Wall Street, and it sells those terminals as a one-stop shop for everything you need, from the Lebanese yield curve to the flight schedule between Rio de Janeiro and Santiago de Chile. One of the things that Bloomberg subscribers want is high-quality news, and thus was Bloomberg News born: its first job is always to give the terminal subscribers the news they’re demanding.

Buying LinkedIn, by contrast, would involve moving far beyond the terminal and into a much bigger world. Bloomberg’s business has — somewhat amazingly — not yet been disrupted by the internet. To the contrary, Bloomberg has been able to piggyback on the bandwidth revolution, and can now sell terminals in Riyadh as easily as it can in London. But there’s a limit to how many people are willing and able to spend $20,000 a year on an information terminal, especially given how much richness of information can be found on the internet for free. And Bloomberg is running up against that limit. Which means that the company is faced with a choice: either continue to reap the spectacular dividends from the existing franchise, or else try and grow, somehow, beyond the confines of the terminal.

If Bloomberg opts for growth (and there’s no reason why it should, given that it’s not a public company), then it’s easy to see why LinkedIn could be a very smart way of getting there. In the beginning, traders got Bloomberg terminals because of the unrivaled fixed-income analytics. But for many years now the terminal’s killer app has been its messaging product, which alone is worth $20,000 a year to many if not most of Bloomberg’s subscribers.

More than five years ago I was describing Bloomberg as “the world’s first social-networking billionaire”. With apologies for quoting myself:

Bloomberg invented social networking before Mark Zuckerberg was even born. Bloomberg LP was founded in 1981, and Bloomberg saw very early on the huge potential of two-way information flows. Rather than just sending information to his clients, he would allow them to ask specific questions and get immediate answers. Once that was possible, it was relatively easy to allow them to message each other. Long before email really took off, Bloomberg messages were regularly flying all over Wall Street, both within firms and between them.

At the center of it all was an open directory of pretty much everybody on the Street. Everybody had his own page on Bloomberg, could be found very easily, and could communicate equally easily with anybody else on the system, bypassing the phone calls and layers of secretaries which had previously intermediated the conversation. It wasn’t long until a Bloomberg became as necessary as a telephone as a tool for keeping in touch. And even today, long after every firm has opened its systems up to the internet and email, many research notes and messages continue to be sent out on Bloombergs instead.

Since then, however, the social-networking world has exploded, even as the Bloomberg network hasn’t. The astonishing rise of Facebook and LinkedIn show the power of network effects: everybody’s on them because everybody’s on them, while attempts to build smaller, more “exclusive” networks invariably fail. Bloomberg might have been the first social network, but it shunned rather than embraced the open internet, and today it’s in pretty much the same place it was in five years ago: extremely profitable, but with limited growth potential.

The acquisition of LinkedIn would be a clear declaration that Bloomberg had its eye on more than just the people with $20,000/year terminal budgets, and was interested in reaching the professional world more broadly. LinkedIn has not taken off as a messaging medium in the way that Bloomberg did, but in many ways it’s the closest thing there is to Bloomberg Messenger for the rest of us. Bloomberg knows, on a deep institutional level, how professionals network and message each other; LinkedIn has a network which dwarfs Bloomberg’s. The two together could be a formidable combination.

That said, I don’t think LinkedIn would be worth the money, for Bloomberg. If you’re thinking of acquiring a company, the first question to ask is how much it would cost to build something similar yourself. And if Bloomberg wanted to port its network over to the internet, so that it was available to people who don’t subscribe to the terminal, the benefits could be similar while the cost (including any drop in terminal subscriptions) would surely be much lower.

Pricing would be tough; I suspect that Bloomberg would want to charge something reasonably substantial for the service, positioning it somewhere in between LinkedIn, which is free, and the terminal. The trick would be to make it expensive enough that current Bloomberg subscribers wouldn’t need to worry about getting constantly spammed by random nobodies. Maybe that’s not possible: maybe the universe of Bloomberg subscribers is the maximum size that an open network, where everybody is connected to everybody else, can get. At some point, surely, spam starts becoming a problem.

But surely it’s inevitable that Bloomberg’s social network will make its way onto the internet at some point, somehow. When that happens, it will become an immediate and obvious competitor to LinkedIn. And if LinkedIn is worried about that potential competition, maybe it should be receptive to any overtures it receives.

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