Wednesday, July 14, 2010

Bloomberg's Expansion Into Legal Research Business

Last week's Wall Street Journal contained a type of article which I haven't seen in ages. It used to be a staple of the paper, but no longer. Especially not since Murdoch's NewsCorp bought Dow-Jones and turned the WSJ into a set of editorial pages with some shallow business headline stories on the front page.

The piece in question described Bloomberg's entry into the legal research market, challenging Westlaw, LexisNexis and Thomson Reuters.

Citing market share concentrations and sporting a graph arraying revenue growth versus market share, the article did a fabulous job explaining the long shot on which the financial data firm is embarking. By the way, the Big3 share in the industry is over 75%, which alone tells you Bloomberg must be desperate to even attempt entry into this product/market.

The Journal piece quotes Greg Lambert, an apparently well-known blogger in the field and "library and records manager for law firm King & Spalding" as saying that,

"Bloomberg Law will be a flop."

Later, upon being told the service is offered for a flat fee, in contrast to existing competitive services, Lambert upgraded Bloomberg's chances to a "long shot."

Personally, from my own strategy consulting and academic background, I'd go with Lambert's first prediction.

I've seen similar situations in information services business niches before. It's not an uncommon dilemma.

A large, very successful firm has exhausted growth in its original, primary product/market segments. Recall that the firm has branched out into Bloomberg Television and recently bought BusinessWeek from McGraw-Hill.

Such a firm will be faced with a crisis of growth. Total returns typically grow best and longest at growth-oriented firms. Bloomberg isn't in the sorts of businesses which tend to wring out costs and succeed at boosting total returns from low or no revenue growth. For that, think Ruben Mark's old Colgate-Palmolive.

Thus, Bloomberg is turning to product/markets which could leverage one or more of its existing strengths. Electronic distribution is a no-brainer for that, isn't it? They have the database and business management, hardware, software expertise and the pipes.

All they need, so the thinking must have gone, is some new content to pour into their servers, down their pipes, into customer premises.

The firm with which I'm most familiar having done this, and not to great success, was ADP. It's moves out of payroll processing never sustained the firm's original profitable growth.

So, too, will it likely be with Bloomberg.

After all, there are a very few strongly-entrenched, capable existing competitors. The field, law, doesn't really change all that much.

It's an old maxim that to switch buyers from a current vendor with whom they are content or happy, a new entrant typically must offer at least a 15% price/performance improvement. In this case, that's probably going to be heavy on the price aspect. One early customer quoted in the Journal contended that there is at least one performance feature on which the Bloomberg offering is superior- speed of updating docket information. Whether this alone will be sufficient to win significant share remains to be seen.

So Bloomberg is probably going in with lower prices, which will help commoditize the entire sector, and make any victories it achieves that much less profitable.

At best, one senses a Phyrrhic victory for Bloomberg. At worst, an expensive waste of resources.

With existing share concentrations and the nature of the market segment's content, it's a reasonable bet that the truth will be closer to the latter.

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