The trouble at Bloomberg

  @FortuneMagazine December 5, 2013: 7:33 AM ET
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When Michael Bloomberg returns to Bloomberg LP after Jan. 1, he'll find an enterprise that has thrived in his absence. Revenues at the data and media powerhouse that he founded have tripled during his 12 years as mayor of New York City. Last year it moved ahead of archrival Thomson Reuters to become the largest financial data provider on earth. Bloomberg is on track for record revenues of $8.3 billion in 2013 and profits of about $2.7 billion, according to Douglas Taylor of Burton-Taylor International Consulting.

By any measure Bloomberg is a staggering success. And yet there's a palpable sense of anxiety inside its gleaming Manhattan headquarters tower. After three decades of full-throttle ascent, sales of its data terminals have flattened, and an organization that has never known anything but maximum velocity is now grappling with what it means to face limits.

The result is a traumatic identity crisis. This is a story about a company that has been so successful with one product -- and with its uniquely dysfunctional way of doing things -- that it has resisted attempts to prepare for the future or modify its methods. Those tensions have emerged in attempts by CEO Dan Doctoroff, who arrived in 2008, to diversify the business and impose professional order on a chaotic enterprise where screaming and infighting have long passed for management. (Says a former high-level company executive of Mike, as he's known inside Bloomberg and as we'll refer to him to avoid confusion: "Mike's management philosophy is five cats in a bag fighting.")

Doctoroff has recharted Bloomberg's strategy. The terminal has always been the company's alpha and omega, a totem fetishized and worshipped, the source of 85% of its revenue -- and virtually all its profits. Almost any spending on ancillary businesses could be justified in the vague but potent name of selling terminals. Doctoroff has endeavored to introduce a discipline that would seem rudimentary in most companies but has been treated as heresy inside Bloomberg. His wild idea? Businesses other than the terminal need to make money.

But as we'll see, even when Doctoroff has had the explicit backing of Mike -- and the mayor speaks to the CEO every week, according to Doctoroff -- he has been subverted by internal resistance and the occasional stumble. As a result, Bloomberg has sunk more than $2 billion into its diversification efforts with little to show for it so far.

That's just the beginning of the recent travails, interviews with 82 current and former Bloomberg executives and journalists reveal. Its giant news service is in retreat from a once-proclaimed goal to become "the world's most influential news organization." Its reputation has been sullied by two episodes that raise questions about Bloomberg's dysfunction and ethics. In one, its reporters acknowledged using the terminal to snoop on customers; in the second, the news division was accused of canceling an article about a Chinese billionaire to avoid antagonizing authorities, a charge the company disputes. (Fortune, it should be noted, is a competitor of Bloomberg News and its magazines. The chief content officer of Time Inc., Fortune's parent, is Norman Pearlstine, who returned to Time Inc. in November after five years at Bloomberg. At that point Pearlstine recused himself from any involvement with this article. For more, see Editor's Desk.)

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