Bloomberg and the Law

Synchronicity abounds. On Friday, there was a random email exchange at my company about George Carlin's 7 words you cannot say on television. So far as I know, George Carlin has never before been the subject of a conversation at my company. On Monday, we learned he had died.

Similarly, I've been posting recently about Westlaw and Lexis and their future role in legal research as the constellations shift and the planets realign. In one disruptive scenario, I suggested that Bloomberg might be the most likely publisher to challenge the dominance of Westlaw and Lexis. On Monday, a headline article in The New York Times, entitled "The New Fight for Financial News", ironically cast Thomson Reuters (which owns Westlaw) as the feisty underdog nipping at the heels of Bloomberg in the market for financial information.

The reality is that both companies are finding that growth and new opportunities in traditional domestic markets are slowing dramatically. With the economy likely heading into a recession (and tell anyone on Wall Street that we are not already in a depression), these twin pillars of the market for financial data are increasingly looking abroad for new growth opportunities. With saturated markets and the growing availability of low-cost information services, ranging down to free financial data portals at Google, Yahoo, and MSN, neither company will benefit from street fighting and brutal price wars in the United States.

Is the market for legal information any different?

This may come as a surprise to some people, but Bloomberg actually has a legal publishing product that is in many ways already superior to much of Westlaw and Lexis offer. I saw it several years ago and, frankly, my jaw went slack. The product was so deep in data - court cases, regulatory materials, dislsoure materials, and of course news. It had a clean interface. It integrated perfectly with the rest of the Bloomberg platform. The company had clearly spent a small fortune to build this product and my first thought was, "Whoa Nelly!" If I had been Westlaw or Lexis, I would have been shaking in my boots.

But as I thought more about the idea that Bloomberg might enter the market for legal information, I began to scratch my head. Why in the world would Bloomberg want to get into the law firms? What did they know that I did not know? Or what were they missing that I did know?

For several years, I did not hear much more about the Bloomberg legal product. No law firms mentioned it to us on us sales calls. We did not see their reps at conferences. But in the last six months, Bloomberg terminals have started showing up in law firm libraries. And the librarians like them. The terminals don't get used extensively, but their breadth of data impresses the librarians. Bloomberg representatives, including the most senior members of their legal team, are now also fixtures at the major conferences and training venues.

Here's the problem Bloomberg faces, however. Law firms are not like financial institutions. With some firms pulling in more than $1 million a partner, they can be incredibly lucrative. However, as partnerships, expenses come directly out of the pockets of the partners. And while a large firm may spend 1-2 percent of its budget on research, which can involve sums approaching $10 million annually - much of which goes to Westlaw and Lexis - the firms have also grown used to passing the bulk of these costs on to customers.

In a forthcoming post, I will discuss the history and the future of this onerous practice of client billback for research costs. But for the purposes of this post, the point is that law firms spend an average of several thousand dollars a year per attorney on research costs. The idea that they will shell out $12,000 to $18,000 a year to put a Bloomberg terminal on attorney desks - when they already have a Windows terminal on their desk - is not credible. Some law firms have Bloomberg terminals in common research areas close to attorney offices (which apparently are rarely used). Some might give an attorney a particularly powerful attorney a terminal on an ad hoc basis.

But I would be amazed if Bloomberg is generating more than a small fraction of its revenues from legal research at law firms. And until they provide more open web access to their data - which would undermine their business model - it is difficult to see how they can significantly grow their footprint in law firms unless the firms decide to drop either Westlaw or Lexis (or both).

So it is difficult to see clearly the strategic goal of Bloomberg's investment in legal research materials. As good as their product may be, they face the same thorny issues of high prices, market saturation, and sharp, nimble niche competitors that bedevil Westlaw and Lexis. And Bloomberg, unlike Westlaw and Lexis, prefers to build, not to buy. So unless they change their approach across multiple dimensions of their business, they are not likely to gain significant traction in this market unless they can figure out a way to take significant business away from Westlaw and Lexis. To date, they have not done so, and it is not even clear at this point, that a direct attack on Westlaw and Lexis is their goal.

While one should never underestimate Bloomberg, for now the only conclusion I can draw is that the legal research piece of the Bloomberg platform is a bit like the spiral escalator in the center of their new headquarters - flashy and impressive, but also expensive and frivolous and duplicative.

Next: Passing the Buck - the End of Client Billback.

Welcoming Larry Ribstein to the KM Blogwatch

We are delighted today to welcome Professor Larry Ribstein to the Knowledge Mosaic Blogwatch. Professor Ribstein occupies the Mildred van Voorhis Jones Chair at the University of Illinois College of Law, and is currently Visiting Professor of Law at the New York University School of Law.

Professor Ribstein is widely regarded as the leading authority on partnership law, and is the author of treatises on limited liability companies, partnership law, limited liability partnerships, and business associations. He also is the co-author of The Sarbanes-Oxley Debacle and The Constitution and the Corporation, and more than 100 published articles on corporate, securities, partnership, constitutional, and bankruptcy law.

Professor Ribstein's popular Ideoblog displays his wide-ranging and protean mind, mordant wit, trenchant analysis, and unvarnished commitment to economic analysis as the appropriate underpinning for the theory and practice of the law.

Professor Ribstein is an iconoclastic, no-holds-barred thinker and essayist. We welcome both the punch and playfulness he will bring to the KM Blogwatch and look forward to the intellectual energy his posts will engender.

With KM PolicyWatch, Help is on the Way for Banks and Broker-Dealers

In our travels to New York in the past year, we have learned much about the daunting challenges faced by regulatory compliance managers at banks and broker-dealers. Each month, these managers must: 1) keep track of scores of new rule proposals from dozens of agencies and SROs; 2) make sure their internal policies and procedures manuals properly reflect these changes; and 3) identify the appropriate people to take appropriate actions that these rule changes mandate.

Compliance managers also face additional hurdles, including: 1) agency and SRO audits; 2) internal workflow and communications inefficiencies; and 3) undercurrents of resistance based on the perception within their businesses that their role is to play "Dr. No" to more free-wheeling, danger-embracing "Bonds" in the trading and brokerage units.

The best kind of business start-up in the technology world is one that can ride in on its horse (hopefully not Big Brown) and offer meaningful solutions to significant problems at a reasonable cost. And that is exactly what we have done with our release today of KM PolicyWatch to the banking and broker-dealer communities (press release).

In the process of imagining and then building KM PolicyWatch, we met with dozens of Wall Street compliance mangers and harvested scores of suggestions about the kind of tool that could ease their burden and elevate their confidence in the compliance regime they are responsible for supporting. The stakes are high. We have learned that many banks and broker-dealers are barely able to keep their heads above water when it comes to their regulatory compliance burden. They are underfunded, undersupported, and underloved within their own institutions, and they need help. Thanks to their feedback and interest in KM PolicyWatch, we have build a compliance management platform that we believe can bridge each of those "gaps" for compliance and legal teams at banks and broker-dealers across the nation.

KM PolicyWatch is a platform known as "Software as a Service" (SaaS). The most famous and successful example of a SaaS platform is Software.com. SaaS can provide all of the benefits - and more - of traditional enterprise software, but at a small fraction of the price and with few of the implementation and consulting headaches associated with enterprise software.

KM PolicyWatch is a SaaS platform because we host a thin slice of internal compliance data for each for our customers. This thin slice allows each bank or broker-dealer to create a "map" that associates each rule change from more than 20 SROs and agencies with a particular section of any of their policy manuals. We update the rule changes on a daily basis. Based on the regulatory map for each organization, these rule changes flow through to the appropriate policy section and instantly alert the person responsible for managing that policy section.

Unlike competing compliance management tools, we do not require banks or broker-dealers to actually host each of their manuals on our servers. For this reason, KM PolicyWatch poses almost no security risks. KM PolicyWatch also provides comprehensive audit, reporting, and workflow features - all at a fraction of the cost of more traditional banking and broker-dealer compliance management solutions.

So from our perspective, the dawn has broken for a new day in compliance management. We are enormously excited to announce the launch of KM PolicyWatch because of the satisfaction that comes from building a product that we know can provide immediate and significant benefit to our customers. For more information, please feel free to write me (pschwartz@knowledgemosaic.com) or call us toll-free at 1.866.650.3600.