Wall Street firms led by Goldman Sachs Group Inc. are close to buying a stake in a chat system from small start-up company Perzo Inc., which will serve as an alternative application to Bloomberg LP. Perzo, based in Palo Alto Calif. is a startup founded by David Gurle.
Banks are looking for ways to cut costs as lethargic trading volumes and higher regulation weigh on firms’ revenues. Bloomberg was been an industry leader on Wall Street for many years, but its application is part of a data-trading and news terminal that costs about $20,000 per year. In order to be a major competitor, Perzo has decided to make all of its applications free. This bold move will steal the thunder from Bloomberg, since companies will not have to pay for this service going forward.
Several banks and asset managers are considering an investment in Perzo, including JPMorgan Chase & Co., Bank of America Corp., Deutsche Bank AG, HSBC Holdings plc, BlackRock Inc. and the hedge fund Maverick Capital, Ltd. This long list of investors shows long-term users of the Bloomberg terminals. If it follows through with adapting Perzo, Bloomberg will lose many of its loyal consumers. The companies received term sheets for the deal and signed non-disclosure agreements in recent days.
Perzo’s application differs from Bloomberg’s in that it is “open-source,” meaning customers can plug it into their systems and alter it as they see fit. Bloomberg’s service differs in that customers have to buy the entire terminal, and cannot just buy the messaging system and adapt it. Clients can tailor Perzo to their needs, as opposed to Bloomberg’s one-size-fits-all system of operation.
Banks have been searching for a new and innovative messaging alternative to Bloomberg’s closed system for years. The main factor that has inhibited the creation of a new service is that so many respected investors use Bloomberg.
Thomson Reuters, which competes with Bloomberg in news, data and analytics, has a chat system with more than 200,000 users in its directory, compared to Bloomberg’s 320,000.
Thomson Reuters has also collaborated with price data provider Markit and banks such as Goldman Sachs to create an open messaging network.
It is unclear what effect a successful new messaging system might have on Goldman Sachs’s orders for Bloomberg terminals or whether Goldman Sachs would use Bloomberg’s messaging system alongside the new application.
“Bloomberg is a very tough ecosystem to break,” Jefferies analyst Dan Dolev said, “People say it is the most expensive social network system in the world.”
Bloomberg’s rise began in the 1980s when it became a prime source for bond data and analytics about bonds.
Messaging applications play a pivotal role in investment banking, and the competition for a new system will be intense. Even though Bloomberg has been an industry leader for years, Perzo will give it a run for its money.