đ
How Michael Bloomberg Made $59 Billion With Only 325,000 Customers - YouTube
Channel: unknown
[0]
When we think about the largest tech companies
in the world, we think of companies like Amazon,
[4]
Google, Microsoft, and Facebook who serve
billions of customers every single year.
[10]
Even Apple, who is arguably the tech giant
with the most premium prices, has managed
[14]
to sell 2.2 billion iPhones as of 2018.
[18]
This really isnât surprising though, if
you want to build a company worth hundreds
[21]
of billions if not trillions, you have to
be a household name.
[25]
Michael Bloomberg, however, is the exception.
[28]
We all know Michael Bloomberg today for Bloomberg
media and his political career.
[32]
However, his real cash cow is not a household
name by any means.
[36]
In fact, his core business only serves 325,000
customers annually.
[41]
Now, thatâs not a small amount by any means
as I donât even have 325,000 subscribers
[45]
on YouTube.
[46]
But, given that his company is worth $60 billion,
each customer translates to $184,000 worth
[49]
of market cap.
[51]
To put that into perspective, Google is worth
$1.73 trillion and theyâre estimated to
[57]
have 4 billion annual users.
[58]
This means that each Google user translates
to about $432 worth of market cap which is
[63]
425 times less than Bloomberg.
[66]
So, hereâs how Michael Bloomberg built a
$60 billion empire with only 325,000 customers.
[73]
Taking a look back at Michaelâs roots, Michael
was born on February 14, 1942 in Brighton
[77]
Boston.
[78]
He came from a regular middle class immigrant
family.
[81]
His fatherâs side was from Poland and his
motherâs side was from Lithuania.
[85]
And, his father worked as a bookkeeper for
a dairy company.
[89]
During Michaelâs early life, his family
did move around a couple of times, but they
[92]
never really left the Boston area.
[95]
After graduating highschool in 1960, Michael
attended Johns Hopkins University where he
[99]
majored in Electrical Engineering.
[101]
And, right after he finished up his undergraduate
studies, he turned around and attended Harvard
[106]
Business School to get his MBA.
[107]
You see, Michael never actually had any ambitions
of starting a company.
[112]
He was perfectly content with working a solid
9 to 5 throughout his life.
[115]
And, with an electrical engineering degree
and an MBA by age 24, he was perfectly on
[120]
track to accomplish this.
[121]
Ironically though, Michael wouldnât actually
get an engineering job as you might think,
[125]
he actually decided to jump into the heart
of wall street.
[128]
In 1966, Michael scored a modest job as a
security counting clerk at the popular investment
[133]
bank Salomon Brothers.
[134]
For anyone who isnât familiar with what
a security is, a security is just a tradable
[138]
financial asset.
[140]
This includes everything from stocks and bonds
to options and futures contracts.
[144]
As a security counting clerk, it was Michaelâs
job to keep track of the incoming buy and
[147]
sell orders and make sure that everything
was accounted for.
[150]
Nowadays, all of this is done in a fraction
of a second thanks to computers, but back
[155]
in the day all of this had to be done manually.
[158]
Despite his humble beginnings, Michael quickly
worked up the corporate ladder.
[161]
By the early 1970s, he was placed in charge
of the companyâs equity trading division,
[166]
and by the late 1970s, he was given the responsibility
of developing a computerized financial system.
[171]
By 1981, Michael had worked at Salomon Brothers
for 15 years and though he didnât hold an
[176]
executive position, he was a general partner.
[179]
Things at Salomon Brothers, however, would
take a massive turn in 1981.
[184]
The management at Salomon Brothers would decide
to cash out and they would sell the company
[188]
to Phibro Corporation for $800 million.
[191]
Usually, this wouldnât be a problem as employees
would just transfer over to Phibro.
[195]
However, Phibro wasnât too fond of Salomonâs
old management, and they would end up firing
[200]
Michael.
[201]
It wasnât all bad though as they gave him
a fat severance package.
[205]
And when I say fat, I mean massive as in $10
million.
[209]
Combine this with the money that Michael had
saved and invested over the past 15 years,
[213]
and itâs estimated that Michael was worth
$10 to $20 million when everything was said
[218]
and done.
[219]
At this point, he couldâve easily retired.
[222]
He couldâve thrown his letâs say $15 million
into the S&P 500, and earned $600,000 per
[226]
year for the rest of his life.
[228]
Adjusting for inflation, thatâs the same
as earning $2 million per year today.
[232]
Iâm sure Michael was aware of this option
as that was literally his job for the past
[237]
15 years, but I guess he wasnât done working.
[240]
According to Michael, âTo say I fit in there
and loved what I was doing is an understatement.â
[245]
So, it seems like Michael is part of the 15%
of Americans who actually like their jobs
[250]
which is awesome.
[252]
Michael says that if another investing firm
like Goldman Sachs offered him a partner position,
[256]
he wouldâve taken it in a heartbeat.
[258]
However, no one offered him a job, so he decided
to just start his own company called Innovative
[263]
Market Systems, and keep doing what he was
doing at Salomon brothers, which was developing
[267]
a computerized financial system.
[269]
In 1982, Michael hired a couple of computer
programmers and they worked on automating
[274]
the financial markets.
[275]
The goal was to create a computer called the
Market Master Terminal that could provide
[279]
real-time market data and financial calculations
to investors.
[282]
Nowadays, we can get a lot of this information
for free.
[286]
We can just go onto Google and type in whatever
stock we want and itâll tell us the current
[290]
price and various financial calculations like
PE ratios, dividend yields, market caps, and
[294]
so on and so forth.
[296]
Back then though, this process was much more
complicated.
[299]
If you wanted to buy a stock in the 1970s
and 1980s, you had to call up a broker and
[304]
make an offer for a stock.
[305]
Your broker would then turn around and inquire
other brokers to see if thereâs anyone willing
[309]
to sell you the stock at your desired price.
[311]
As you can see, this is an extremely inefficient
system, and your ability to sell or buy stock
[317]
depended on your brokerâs ability to match
you with a seller/buyer.
[320]
Michael wanted to change this using computers;
however, no one seemed to be interested at
[325]
the time except for Merrill Lynch.
[328]
Merrill Lynch agreed to buy 20 terminals from
Michael as long as it met a list of criteria
[331]
within 6 months.
[333]
For instance, the machine had to be capable
of specific government bond calculations.
[337]
Given Michaelâs experience in Wall Street,
matching the requirements of Merrill Lynch
[340]
wasnât too difficult, and he would thoroughly
impress Merrill Lynch.
[343]
In fact, they would be so impressed that they
would order 1000 more terminals on one condition.
[349]
The company couldnât sell the technology
to anyone else for 5 years.
[352]
Given that nobody else even wanted the tech
at the time, Michael agreed.
[356]
Aside from buying 1000 machines, Merrill Lynch
would invest into Innovative Market Systems
[360]
buying up a 30% stake.
[362]
Over the next 2 years, Michael and his team
would continue improving the capabilities
[365]
of their terminal and even create a portable
version.
[368]
Again, this doesnât seem very impressive
today, but in the 1980s, this was cutting
[373]
edge technology, and Merrill Lynch had cleverly
bought exclusivity.
[378]
Realizing the potential of the product, Michael
felt that he had sold himself short by agreeing
[381]
to Merrill's exclusivity deal.
[383]
So, he would go to Merrill Lynch in 1984 and
see if there was any way to renegotiate the
[387]
contract.
[388]
Fortunately for Michael, Merrill actually
had no problem with Michael breaking the contract
[392]
and selling the terminal to competitors now
that they had a 30% stake in the company.
[396]
By this point though, competitors were starting
to enter the scene and offer their own financial
[400]
information services.
[401]
However, none of them offered as in-depth
information as Bloomberg.
[406]
Competitors only provided basic data like
trading volume, stock prices, and bond prices.
[410]
Meanwhile, Bloomberg boasted 40 different
in-depth financial metrics on any bond or
[415]
stock on the market.
[417]
Getting access to this information though
would not be cheap.
[420]
Michael cleverly avoided a one time purchase
model and instead opted for a subscription
[424]
model.
[425]
And he didnât charge $10 or $20 or even
$100 per month.
[429]
He charged $1000 per month per terminal.
[431]
Such a terminal makes no sense for average
retail traders like you and me, but for hedge
[436]
funds and investment banks that are trading
billions of dollars every day, $1000 per month
[441]
is nothing especially when you consider the
value of the information from the terminal.
[445]
Despite this, the terminal didnât take off
right after its release as most of Wall Street
[450]
still didn't quite understand the potential
of the product.
[452]
The companies that did use the terminal, however,
preferred it over everything else on the market.
[457]
In 1988, for instance, the Wall Street Journal
started to use the terminal to get their daily
[461]
bond data instead of the official Federal
Reserve Bank of New York.
[464]
In the meantime, Michael would actually go
ahead and rebrand the company in 1986 renaming
[469]
it from Innovative Market Systems to Bloomberg
LP or Bloomberg Limited Partnership.
[474]
He would also change the name of the terminal
from market master terminal to Bloomberg Professional
[478]
service.
[479]
According to Bloomberg, the original name
sounded like a kitchen product.
[482]
Plus, everyone at Merrill Lynch was already
calling the machines Bloombergs, so it made
[487]
sense to change the official name to Bloomberg
Professional Service.
[490]
No one actually calls it the Bloomberg Professional
Service though, the most popular name for
[494]
the service is the Bloomberg Terminal.
[496]
Anyway, after the rebranding, Michael would
continue to slowly but consistently expand
[501]
across Wall Street.
[502]
By the end of the 1980s, Bloomberg boasted
a total of 5000 customers.
[507]
And though that sounds relatively small, when
you consider that each customer is paying
[510]
$1000 per month, itâs actually massive.
[513]
Moving onto the 1990s, subscribing to a financial
information service transitioned from being
[517]
a luxury to a necessity as more and more investors
adopted the technology.
[523]
This drove significantly more traffic to Bloomberg,
but it still wasnât a breakout moment or
[527]
anything like that.
[528]
By 1992, Bloomberg boasted 14,000 terminals
and by 1994 this number ballooned to 31,000
[534]
terminals worldwide.
[536]
The biggest increase, however, came after
Bloomberg embraced the internet.
[539]
For the longest time, Bloomberg insisted that
the internet was unrelated to their service
[543]
and that the internet could never replace
them.
[546]
However, once Reuters and Dow Jones started
to provide their financial data through the
[550]
internet in 1996, Bloomberg caved in and offered
the Bloomberg terminal as an internet subscription
[555]
as well.
[556]
Itâs a good thing that he didnât let his
ego take the better of him as missing the
[559]
internet could have been deadly.
[561]
Fortunately though, Bloomberg made the right
decision and this allowed the company to thrive
[565]
as we entered the new century.
[567]
Since 2000, Bloomberg has continued to improve
their product and customer base, and today,
[572]
theyâve evolved into being the backbone
of the financial markets.
[575]
Theyâve also increased their price from
$1000 per month to $2000 per month.
[579]
So, even though they only have 325,000 customers
today, that comes out to a solid $7.8 billion
[586]
per year which is about 80% of their entire
annual revenue.
[590]
And thatâs how Michael Bloomberg made $59
billion with only 325,000 customers.
[596]
Did you guys know how Bloomberg made his money?
[598]
Comment that down below.
[600]
Also, drop a like if you thought this video
explained the story of the Bloomberg Terminal
[603]
well.
[604]
And of course, consider joining our discord
community to suggest future video ideas and
[608]
consider subscribing to see more questions
logically answered.
You can go back to the homepage right here: Homepage