Li Lu Leaves the Audience SPEECHLESS - Bloomberg Success Story | CBS 2006【C:L.L Ep.32】

[Transcript]

LI LU: Now, when Bloomberg was introduced, there was Bridge, there was Reuters. Why they succeeded? Why Bloomberg succeeded?

AUDIENCE MEMBER: I think that they are very user friendly and you can perform a lot of different analysis with – (BROKEN AUDIO) – And on top of that they have a lot of information, so you can pretty much track everything.

And the only thing is that they fail a little bit sometimes, so that we have – (BROKEN AUDIO) – So I think that you can do everything in Bloomberg.

LI LU: Good answer. Anybody else can come up with this one? Let's talk about Bloomberg a little bit because this is something everybody use. Any other reasons you can think of?

AUDIENCE MEMBER: Didn't they initially also have a few Merrill Lynch investors at the beginning...

LI LU: What?

AUDIENCE MEMBER: Merrill Lynch invested into Bloomberg so maybe they –

LI LU: Okay.

AUDIENCE MEMBER: – maybe they recruited engineers.

LI LU: Okay, anything else?

AUDIENCE MEMBER: I didn't hear what these guys said on – (inaudible) – you know, I think as they gain size then they were able to spend more money to add few more research. And then so like –

LI LU: What kind of research?

AUDIENCE MEMBER: Like whatever you think with or without right now.

LI LU: Anything else?

AUDIENCE MEMBER: Michael Bloomberg, he was a partner at Solomon Brothers and bond trader department so their analytics were far more detailed and far more –

LI LU: Okay.

AUDIENCE MEMBER: – extensive.

LI LU: Okay.

AUDIENCE MEMBER: High switching cost.

LI LU: Why is high switching cost?

AUDIENCE MEMBER: If the people use machine and have a high opportunity cost of their time – it takes a long time to learn all the functionality of Bloomberg.

LI LU: Of all the answer I heard, this is the best answer. All the things you talk about is true but this is really the most important reason. This is why that there will be moment, there will be in any businesses – I want to raise this example because it’s really – You know, virtually all business you’ve observed, not all of them really went through this dramatic example, but they all went through this similar type of example of transformation.

And sometimes something is just happening in certain industry that if you really went through – (BROKEN AUDIO) – different industries, you can almost tell where that outcome is going to come out. This is why you got to study.

This is a fabulous case study of how you know a company really come from no where, going into an industry that already have a number of established – long established players. And somehow really began to make it little by little and a certain point crossed a milestone point. After that, they become a monopoly.

Where is the Bridge? Where are the Reuters? They're gone.

They're gone. Partially because at a certain point – exactly as you said, at a certain point – anything that is hard to learn, that is highly highly kind of relied upon to do your daily work. Once you learn a damn thing, you do not want to learn that again. And besides everybody else using the same thing.

You have to be able to communicate with your partners, with your colleagues, anybody you collaborate with. (BROKEN AUDIO) – business, the winner takes all. Now, how do you really get to that point is an interesting question.

But supposedly you have an opportunity to observe how this is industry evolve early on. Supposedly you really observe and see at a certain point they have cross that line, maybe it is the time when they really introduced them to every business school.

So that, you know, when you graduated, okay? So you – (BROKEN AUDIO) – Okay, I have this one available cheaply to me, I'll learn this thing, but once I graduated go into the world, I don't to learn that again. And everybody else is using that – whatever is the time, there will be a time that line has been crossed and supposedly there is a public company. Supposedly, you have developed that insight. That insight worth a shit load of money.

That's the kind of insight I was talking about and that is a virtual monopoly business. And you find that again again again in all sorts of different business. This is not alone.

Why Microsoft succeeded brilliantly over Apple? When Apple was 100% of market share at the time when they came in. Little by little they crossed that line so that when you debated between Apple or Microsoft, I say okay, I learned this thing because I have to go to work and all of the company that I want to go, they use [Microsoft], I don't have a choice.

Do you even have a choice today of not using Bloomberg? What is the cost of Bloomberg? What is the cost? Anybody know?

AUDIENCE MEMBER: 18,000 pound?

LI LU: Nothing! You can almost call that zero. They put some cost because they pay themselves very well.

What do they do? Do they do research? They don't do any research, what do they do?

They come to visit you periodically almost every month, and ask you, what do you use on a daily basis? You're a trader, you're 95% of the people. You’re you know superstitious, I mean there's certain numbers work for you, I look at that number all the time, I develop a software for you and only for you.

How many functions Bloomberg has? Tens of thousands!

Does Bloomberg have a menu? Hell no! They don't want to give you a menu.

They want to get you individually hooked on the two three, four, five, six, things and they can charge – (BROKEN AUDIO) – And you use that everyday, you’re in the business, every trade can really means millions of gain or loss so you don't care to pay them $30,000 a year. And if they really charge you 10% every year more, you don't have a choice, you don't have choice.

And they keep coming back to you because they know you’re a trader, you’re going to look for different things. And so they continuously to provide you the service. And therefore, you’re hooked and hooked and hooked, you’re hopeless. (Laughter)

You're absolutely hopeless – beyond repair – meanwhile they will never give you a menu. They will never let you know the cost. It is not a cost-plus model. That's why it is a fabulous business! Fabulous business!

And they make each one of you individually hooked to one product which cost nothing. And to the point they can really dictate and bully their suppliers, they pay them nothing. All they have is a software to get you hooked and who gave them that information? You! They don't even do research, they come to you, what do you need? I give that to you.

Think about switching from that? Think about a competitor coming up with another product? That each individual, you know we’re talking about 100,000 professionals – (BROKEN AUDIO) – individually in a 100,000 different ways. How do you compete? How do you compete? I don't know what you really – why you use that for. I don't know, there’s no menu.

Now supposedly you know that, supposedly it's a public company, supposedly you know the moment of inflection point. Do you want to invest? I would.

That's what I mean by insight. Okay? You study every business, every business I guarantee you. [Every business] they all go through up and down [maybe not as dramatic] in terms of the result as this one. But they all have more or less this type of dynamic.

Your job as a good financial analyst, as an investor, as value investor, as a business owner is to study that business all the time and observe those trends. And once in your life, maybe – (BROKEN AUDIO) – years, you’ll be able to come up with opportunities like that, that’s actually available unlike Bloomberg.

Now, he’s in that position of a selling, Alex, he doesn't want to sell. Why does he ever need to sell?

(BROKEN AUDIO) – always have a huge premium price, they will always be 30 times earnings. But hell he would lose a whole bunch of a lot every time he want to sell. It doesn't need to sell. That's when I really began evolved with my philosophy, from if I don't buy I will sell into something that I just said. When you have things like that, you don't need to sell.

You don't need to sell.

(Source: https://youtu.be/y3c2PKupiu8)

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