Bloomberg's money machine (cont.)

By Carol J. Loomis, Fortune editor-at-large

Battle of the business news providers

One sticky fact about the $13 billion or so: Right now it's in the company, not handy if Mike were soon to decide he needed cash for a campaign or philanthropy. So how to create liquidity? The probable answer is debt. Mike may not as yet have taken any on, but a source close to the company says he surely will.

Another way to think about the value of Bloomberg LP is to compare it with what its publicly traded competitors are worth - and there are some shocks in this information. Thomson Corp., the former newspaper chain that transformed itself into an information provider in fields ranging from health to finance, has a market value of $27 billion. Reuters, the company most comparable with Bloomberg in product and revenue size, is down at $11 billion. And Wall Street Journal publisher Dow Jones - ready for this? - is at $3 billion.

The Dow Jones vs. Bloomberg saga is a stunner. In 1982, when Bloomberg the company entered the scene as a gnat, Dow Jones was America's uncontested and proud king of financial information. It had the Journal and the Dow Jones ticker and also a glimmer that the future was technology.

So in the late 1980s, Dow Jones bought a leading electronic product, Telerate, for about $1.6 billion. But Telerate simply supplied financial information to its customers - period. As they say at Bloomberg, "Telerate didn't do anything with the data," never providing the software that would magnify the usefulness of its information. And in 1998, struggling with both Telerate operating losses and shareholders furious about them, Dow Jones sold the company to Bridge Information Systems for $510 million, more than $1 billion less than it paid.

Last year Dow Jones had revenues of $1.9 billion - against Bloomberg's $4.7 billion. Dow Jones's operating profit was $105 million - against Bloomberg's estimated $1.5 billion.

The Wall Street Journal, even after its recent physical downsizing, remains a premier product. But in the annals of business, the fall of Dow Jones from its financial-information throne and the rise of Bloomberg must be counted one of the great competitive turnabouts in history.

The Reuters vs. Bloomberg battle is still being waged. Reuters, based in London, is a journalistic long-timer, having first made its mark in delivering news by using carrier pigeons in 1850 to outrace the trains running between Brussels and Aachen.

Over the 150 years that followed, Reuters struggled commercially, but a pivotal modern moment came when it formed a joint venture with an American computer-terminal company in the 1960s and began sending its customers statistical data about equities. It also exploited the Bretton Woods elimination of fixed exchange rates by making itself the primary facilitator of foreign-currency trading. So just when Mike Bloomberg was starting his company, Reuters was engaged in a technological metamorphosis of its own.

Yet it severely underestimated its new rival. A 2003 book, "Breaking News: How the Wheels Came Off at Reuters," written by two former Reuters journalists, Brian Mooney and Barry Simpson, says the company "failed first to notice and then to head off the challenge." Mike Bloomberg, the book reports, was widely viewed within Reuters as an arrogant trader, devoid of the ability to build a real company.

Reuters was itself sometimes blasé about management, intentionally hoarding some of its best people for the newsroom rather than putting them in the executive suite. Later, at the end of the 1990s, Reuters shuddered in embarrassment when the FBI investigated whether it had stolen Bloomberg trade secrets. The case was ultimately dropped. Its biggest effect, the speculation goes, may have been to dim Reuters' enthusiasm for battling Bloomberg to the wall.

The events of 9/11 and the accompanying business downturn staggered both companies, but Reuters in particular went into a spin that led to painful losses in 2002 and 2003. Today it has a well-regarded American CEO, Tom Glocer, who has been working to fix the company by greatly simplifying its product line and shedding noncore operations.

Meanwhile, the revenue picture is generally one of Bloomberg relentlessly closing the gap. In 2000 Reuters was more than twice the size of Bloomberg, which had revenues of $2.5 billion. In 2006 the two companies were virtually tied, at $4.7 billion.

So just how good a company is Bloomberg? Tellingly, speaking to Fortune, both Reuters' Glocer and the CEO of Thomson Financial, Sharon Rowlands, volunteered their admiration for what Mike Bloomberg has created.

But perhaps the most powerful testimonial comes from current Bloomberg chairman Grauer, who previously headed private equity at Donaldson Lufkin & Jenrette and considers himself "a student of companies." Never mind that he has to be somewhat prejudiced; rarely does one hear a chairman speak of his business in such lofty terms. "I would put us," he says, "as one of the great companies of the world. We have changed the way our customers do business. We have democratized the flow of information and leveled the field for people, particularly the buy side of the business. And I have never seen a company whose people are as acutely aware of working for a global organization. Our customer service around the world is seamless."