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Sunday Reads and Listens...The Next Vanguard, Bloomberg, CNBC and Goldman Sachs Never Happened...Will They Ever?
Howard Lindzon
May 26, 2024
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Happy Sunday everyone…
I have been very busy with my partners the last 18 months thinking through and investing in the next era of financial services and wealth management.
Back in 2006 at the launch of Web 2.0, I was smart/dumb enough to believe a new Vanguard, Bloomberg, Etrade, CNBC and Goldman Sachs would be created.
Here we are in 2024 and Goldman Sachs is at all-time highs, Vanguard is still very dominant, people watch CNBC and Bloomberg competitors have not broken through.
For the most part, Social Leverage focused on the retail investor so our seed investments in Robinhood, Etoro, Alpaca, YCharts (acquired), Chartiq (acquired), FREC and Stocktwits to name a few, have done very well. I started Wallstrip in 2006 with the vision of building a CNBC on YouTube but CBS made me a great offer and acquired the show.
In 2012 we did make one more ‘institutional’ financial investment in Street Contxt which has been gaining more and more traction over the years.
Blair Livingston, the founder wrote an interesting piece last month titled ‘Does The Bloomberg Killer End Up Being….Economics’…the gist…
The assumption has always been that a Bloomberg ‘killer’ would do two things well: build a new network, and get the industry to use it by getting the buy side to adopt it first. These are two important (and historically unchallenged) ideas. The first point was that there would be a new network. Bloomberg is a historically closed network, so while some of the challengers have offered a quasi open network, for the most part they have been similar to Bloomberg in the sense that they wanted to build their own (closed) network. The second point is that the sell side has to go wherever the buy side is: if they are on Bloomberg, then the sell side has no choice. The buy side decides the venue.
The interesting thing is that this recent evolution challenges both of those items: the information is flowing back to an open network that no one ‘owns’ (email), and the changes are coming from the sell side first (due to cost constraints).
It’s easy to see how these first few snowballs slowly turn into an avalanche. If the junior salespeople on the sell side, who have since been banished from IB, start reaching out via email, they will get in front of more junior people on the buy side via email. This will have people spending more time in their inbox, and less time on IB. As the number of conversations on IB dwindle vs. those happening on the inbox, the ‘cost per relationship’ of IB will increase. At some point, the buy side will also decide their junior people don’t need Bloomberg, and the same process will start on the other side of the street. Individuals rely more and more on email (which in addition to chat, also manages their calendar, contacts, documents, etc.).
The final advantage is that email isn’t a closed system with a ‘cold start’ problem. Everyone is already using email, it’s just a matter of degree of usage. Everyone who has a Bloomberg terminal has a corporate email address, but not everyone with a corporate email address has a Bloomberg terminal.
Bloomberg might be unintentionally training the entire industry to move away from IB and reform their muscle memory around email.
Stepping back to the reality on the ground today, I expect to see the trend continue. Sell side firms will move more junior people off of Bloomberg for no other reason than to manage costs, and that trend will occur across the industry, globally. As they do that, there will be fewer participants in the IB ecosystem, as more communication moves to other channels, such as email. As more participants move to email (given its essentially free and universal), the value of the closed ecosystem will go down. That could start a feedback loop leading to end users separating out what they need in terms of data (and looking at other products) and what they need for communication (defaulting back to email). That unbundling would be bad news for the dominant bundled platform in the industry.
It turns out that the real Bloomberg killer might not be a product at all: it may just be changing industry economics.
While Bloomberg is not going anywhere soon, Blair does make an interesting argument for basic economics slowly doing their thing.
Like Blair, Social Leverage does see email increasing in importance as the killer app. Our fund 4 investments in Beehiiv and Punchup are directly focused on email.
We (Social Leverage) believe AI will play a part in how portfolios are constructed and stocks researched (we are investors in Koyfin.com and Finchat.io), but the ‘degenerate economy’ has not yet showed great interest in modern ‘research’ tools.
Indexing is not broken and ETF’s are still on the rise so Vanguard is not going anywhere. It turns out that founders and venture capital could not produce a 10x better product (yet) despite ZIRP.
While Robinhood, Etoro, Alpaca and Coinbase have now solidified their wedge into the world of brokerage and crypto, the capital markets are still run by Goldman Sachs. They may be stronger than ever as interest rates rise, a commodity cycle continues to expand and global tensions increase. Same for Robinhood and Coinbase, while they may not be exactly what we wanted or hoped for, their dominance is solidified by the changing macro world of high interest rates and expensive customer acquisition costs.
The tools and services that help investors invest and succeed amongst these giants will continue to get better and better. The founders that quickly build capital efficient businesses around these tools and services will be greatly rewarded. Social Leverage made two recent investments in Archive Intel and 11th Estate which fit this criteria.
As for CNBC, I just don’t care anymore. Let people watch it. I have not suffered from turning It off in 2008 so I do not have the domain experience to even try to disrupt it.
BUT, I do believe CNBC will be disrupted and not by Reddit, Twitter, Stocktwits or any combination of companies you think.
I believe Netflix will eventually move to live programming in the major verticals like business/finance and sports.
While CNBC numbers are small relative to other verticals on cable, investing in US stocks and all things crypto is a global phenomenon. As I have been saying here for years, ‘Speculation IS Entertainment’ and ‘The Degenerate Economy’ is expanding and accelerating. Our portfolio company Alpaca just released an ‘options API’ that will allow all of their 170 plus global brokerage partners to offer options trading around the world on US stocks, just like Robinhood.
If you think crying Bill Ackman or Jim Cramer banging buttons moved stocks, imagine a Netflix squawkbox talking about stocks and options.
Stock prices are an international language (up/down, green/red) and so is fear and greed. No subtitles necessary!
Have a great Sunday…
PS - Sorry about the lack of links this week but let me leave you with a few…
Jeff Brown breaks down the money behind Nvidia’s earnings.
Ed Zitron, a fave read of mine in an era of shitty accountability to our tech overlords by everyone in media, has the real take on Sam Altman…Sam Altman Is Full Of Shit’.
Michael Batnick explains why we feel helpless right now explaining ‘How Lies Spread’.
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