To RTB Or Not To Be?

Bloomberg can counteract stagnant terminal growth by expanding into the Real Time Bidding advertising market

Over the past 33 years, Bloomberg L.P. has achieved tremendous success and has become a symbol of Wall Street and capital markets. However, the company’s attempts to fuel growth through price increases, acquisitions, and horizontal integration have done little to help the bottom line. Bloomberg’s struggle with profitability for their non-terminal business has been a source of conflict between founder, Michael Bloomberg, and former CEO, Daniel Doctoroff. With changes in management, lack of innovation, and inability to diversify profitably, Bloomberg risks losing its long-term dominance and future growth.

Although Bloomberg has reported a 7.2% revenue CAGR since 2010, its topline growth is primarily attributable to product developments, acquisitions, and increases in terminal subscription prices rather subscription growth in its core terminal business. Furthermore, approximately 85% of its revenue comes from existing terminal subscriptions, which only grew by 1.6% in 2014. Bloomberg’s terminal users are concentrated in a handful of industries, exposing terminal-based revenue to specific sector performance. These risks were made evident during the 2008 financial crisis when the subscriber base declined. For example, the collapse of the Lehman Brothers resulted in a loss of 4000 terminal subscriptions causing $2.2 billion of damage in lifetime value to Bloomberg. To counteract stagnant terminal growth and the associated risks, the company must innovate and diversify its service offerings. Specifically, Bloomberg should utilize its technological and service expertise to diversify into real time bidding (RTB) for online advertisements.

quote1Programmatic Ad Buying

As the speed and reach of web connectivity increases, so does the exposure of individual users to digital advertising. Consumers have become increasingly desensitized to traditional display advertising due to the overwhelming amount of irrelevant ads. As a result, average click-through rates have declined 20% since 2007. Historically, marketers negotiated for media space with suppliers, often arbitrarily deciding a pricing that did not correctly value the audience reached. The typical process involves multiple intermediaries connecting different ad networks, and diluting the value to both the seller and the buyer. However, since 2011, an increased technological capability in programmatic ad buying has allowed buyers to purchase ads based on real-time individual impressions. When a user visits a webpage, an offer associated with the user demographic and behavior information are triggered. Advertisers create algorithms that automatically bid on the offer, and the highest bidder’s ad is shown on the user’s screen. The entire RTB process, which takes between 80- 100 milliseconds, has allowed for appropriate pricing of media inventory and has created a single point of contact for buyers.

Despite the industries infancy, thousands of clients of large technology companies and advertising firms have gained access to this function, resulting in fast growth within the segment by volume. The RTB segment is expected to grow by approximately 380% and reach $20.4B in annual U.S. spending by 2016. However, this growth does not mean that media dollars are spent efficiently. Many firms spend their budget on programmatic buying, but lack technological expertise to employ appropriate media buying strategies. Bloomberg has the opportunity to capitalize on their existing terminal infrastructure and proprietary speed to dominate this lucrative market. By utilizing its core competencies in technology, Bloomberg can enter into the RTB segment and capitalize on converting passive programmatic media buyers into active ones. This could increase additional revenue contribution and augment Bloomberg’s currently stagnant terminal subscriptions revenue.

Why Bloomberg?

Successful traditional advertisers are not necessarily successful programmatic ad buyers. The best traditional advertisers focus on service-based revenue generation, competing on creativity and customer service. RTB players, in both sell and buy-side roles, succeed by developing superior products and competing on user interface, connectivity speed, tracking and reporting capabilities, and the quantity of available tools. Traditional advertisers realize their misalignment and have acquired companies across the value chain to compensate. The three largest advertisers (WPP, Omnicom, and Publicis) have acquired Xaxis, Accuen, and Vivaki respectively; however, only Publicis’ platform acts as an ad exchange and exists across the value chain. Publicis allows its clients to get access not only to demand-side solutions, but also to services that match buyers and sellers. However, the initiatives stem from Publicis’ strategic initiatives as an advertising company focusing on client acquisition and services offerings rather than the quality of technology offered.

Bloomberg is in an advantageous position as it has both product and service expertise. Bloomberg currently provides thousands of traders direct market access to buy and sell securities through its terminals. Brokers use Bloomberg’s software and network capabilities to make buying decisions and submit bids to capital markets exchanges. This process is further supported by news, research data, and auxiliary services provided by Bloomberg. This core part of Bloomberg’s business model works remarkably similarly to the RTB market. Upon entering, Bloomberg could offer software, data, and service solutions to ad clients when they submit their bids to ad exchanges.

Bloomberg’s core competency in data vending is extremely valuable in the long-term. Currently, many cloud RTB players operate at speeds too low to deliver customer orders within a short timeframe. Bloomberg’s existing network allows direct hardware-to-hardware connections that ensures faster speeds and reliable large scale bid submissions. When advertisers bid on media inventory, the bid algorithms can include hundreds of parameters, thus increasing the number of data points per bid. The ability to move large amounts of data efficiently can provide Bloomberg users an opportunity to perform more data analysis per unit of time. This speed increase makes Bloomberg’s offering a more attractive opportunity to advertising agencies that win customers based on clicks and conversions generated. Additionally, the ability to move large amounts of data efficiently can provide Bloomberg users an opportunity to perform more data analysis per unit of time. Larger volume of analysis done via RTB and Bloomberg specifically can result in more targeted advertising campaigns.


Bloomberg has achieved such high adoption of its terminals because of its excellent relationship-building and customer support skills. Unlike its competitors, Bloomberg has mastered client relationships and support with its 24/7 help service, an asset which will help Bloomberg to become a successful product-service bundle player. Given RTB buying complexity and the opacity of the market, service bundling is extremely important. Advertising agencies lack the product expertise, while technology players lack the service expertise. Through offering a bundled service, Bloomberg will easily be able to gain market share and revenue at the expense of competitors.

Bloomberg’s Media Business

Although Bloomberg’s media business does not contribute significantly to its financial performance, its media outlets are a significant advantage in the RTB business. Bloomberg is able to offer its own inventory at a discount and still make significant margins on each ad sold, instead of allowing exchanges and other data intermediaries to increase the cost of advertising. Additionally, Bloomberg’s primary audience consumes financial information, making these consumers the highest premium market in the digital advertising industry.

Bloomberg’s Best Bet

Bloomberg has operational strengths that can allow the company to launch RTB offerings faster and more efficiently than competitors. This expansion will occur in three stages.

Phase 1: Fill in the White Spaces

Despite Bloomberg’s strong development and deployment capabilities, it is costly and time-consuming to develop advertising technology solutions. It is easier to use Bloomberg’s development capacity and channel it through an existing player.

The development should start through several acquisitions in order to obtain intellectual property rights and human capital. Bloomberg should acquire a small existing demand side player, and a data management player. To obtain a competitive price advantage, Bloomberg should also acquire an ad exchange to be able to sell its media inventory. The company will be able to utilize its M&A experience through Bloomberg Beta, a venture capital fund backed by the company, to drive these acquisitions. Afterwards, Bloomberg can use those acquisitions and build a programmatic ad buying platform in-house and then use its platform to buy and sell advertising space for clients.

Phase 2: Focus at Home

Bloomberg can pilot this offering with its existing financial services client base. With Bloomberg’s RTB price advantage relative to the ~7% margin charged by ad exchanges and access to financial buyers, the company’s logical first customers would be the marketing departments of financial institutions. Given the presence of Bloomberg terminals at all major financial institutions, the terminals can be used as a quick and cost-efficient distribution for the new service offering. Alternatively, prior relationships may allow for the sale of additional terminals to marketing departments with RTB and other analytic capabilities.

Phase 3: Everyone’s Advertiser

Bloomberg should sell its programmatic ad buying service to advertising agencies and large corporations as a substitute for an in-house approach. service_comparisonThis option would work similar to the subscription model used to sell its terminal services. The company acts as the Agency Trading desk, Demand Side Platform, and Data Management Platform, essentially offering an all-inclusive offering that purchases advertising programmatically. Bloomberg has an opportunity to generate revenue from the subscription sale of its product offerings and through transaction fees.

Ad-ing it All Together

With approximately 85% of its revenue coming from existing terminal subscriptions, Bloomberg remains highly exposed to both disruption and economic risk. Pursuing an RTB strategy in the programmatic advertising segment will diversify Bloomberg’s product offerings and lead to increased revenue growth for the firm. This strategy will utilize the firm’s core competencies in data analytics, media, and product service bundling, allowing Bloomberg to obtain a strong position in this young, fragmented market and ensure future growth. Pursuing this strategy should produce a base internal rate of return of 30% for Bloomberg, thereby ensuring that the firm continues to remain a profitable market leader for years to come. A shift to RTB, like Bloomberg’s core business, will ensure the company be ‘neither a borrower nor a lender’, yet will have a strong involvement in every transaction.