Thinking Out Cloud – To Cloud or Not to Cloud in Financial Services?
First Published Tuesday, 9th March 2010 03:06 pm from Xand : Joel York
The opinions expressed by this blogger and those providing comments are theirs alone, this does not reflect the opinion of Automated Trader or any employee thereof. Automated Trader is not responsible for the accuracy of any of the information supplied by this article.
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Cloud computing has graduated from technical curiosity
to href="http://xignite.web-services-blog.com/2010/01/the-winds-of-change-are-blowing-in-the-clouds-favor/"
target="_blank">technology trend. According to a
recent href="http://www.informationweek.com/blog/main/archives/2010/01/gartner_virtual.html"
target="_blank" rel="nofollow">Gartner survey, cloud
computing and virtualization sit squarely at the top of the list
of 2010 CIO priorities. However, most financial services IT
professionals are still taking a cautious approach to cloud
computing. This is quite understandable given the high
performance, security and compliance requirements of financial
applications. Unlike Twitter, you can't just post the href="http://failwhale.com/" target="_blank"
rel="nofollow">fail whale when a financial
application has an issue, because real money is at stake not just
tweets. So, what financial applications are good candidates for
cloud computing and why? To cloud or not to cloud? That is the
question.
This is the first post in an series
entitled Thinking Out Cloud with the aim of
helping financial services IT and market data professionals
charged with developing cloud computing strategies href="http://chaotic-flow.com/obscured-by-clouds-meaning-vs-marketing/"
target="_blank">separate the cloud buzz from the cloud
reality.
Focus on Competitive
Advantage
src="http://xignite.web-services-blog.com/media/cloud-risk.png"
align="right" style="padding:5px;margin:0px;border:none;" />
Realistically, somewhere between 75% and 95% of the
software used by most businesses today is a commodity. That is,
it offers no competitive advantage because the competition has
access to the exact same capabilities from a plethora of software
vendors, SaaS vendors, open-source projects and home-grown
systems. This means that if your financial services IT department
does everything in-house, pretty much 75%-95% of your IT
department's hard work and budgetary expense offers a competitive
advantage of exactly zero. Only the 5%-25% spent on systems that
help your business stand out from the competition make a real
difference to top line revenue. Yet, I've never seen a financial
services IT department that had extra time on its hands.
Therefore, the first consideration in any analysis of cloud
computing should be to weigh the competitive importance of the
various systems under IT management, and to look for
opportunities to free up resources by pushing systems that do not
offer competitive advantage to the cloud.
Leverage Cloud Computing to Lower Costs
The primary financial benefit of cloud computing is
lower href="http://en.wikipedia.org/wiki/Total_cost_of_ownership"
target="_blank" rel="nofollow">total cost of
ownership created through the economies-of-scale of
shared computing resources. It makes no difference if it is
infrastructure from Amzaon AWS, CRM from Salesforce.com, or
market data from Xignite, the underlying common thread is that
these vendors can do it significantly cheaper by the dozen than
customers can do it in-house one at a time. This cost savings is
then passed onto the customer in the form of an ongoing
usage-based subscription. Conveniently, this prospect of lower
overall costs fits nicely with the idea of outsourcing commodity
systems. Therefore, the next consideration in an analysis of the
benefits of cloud computing for a particular system should be the
relative costs savings. It is critical at this point to
compare the total cost of ownership of
each internal system to a cloud vendor's subscription pricing,
not just the cost of the software and hardware. More often than
not, the largest costs are hidden in the IT staff time that the
systems absorb in the form of ongoing maintenance, upgrade
projects, support and bug fixing, etc. Since these activities are
taken on by the cloud vendor, they should be included to ensure
an apples-to-apples comparison in the on-premise vs. cloud
decision.
Reduce Operational Risk or at Least
Stay Risk Neutral
Risk is easily the biggest
barrier to cloud adoption for financial services applications.
Financial risk, regulatory risk, security risk, performance
risk…risk, risk, risk. The risk implications of cloud
computing often appear so daunting that some financial services
IT professionals would prefer to avoid the cloud entirely-which
is a shame. To be sure, putting customer investment account
information on the cloud is a non-starter. And, even something as
simple as company email entails significant compliance risks.
However, the one mistake most IT departments make when
evaluating the cloud is to equate risk reduction with internal
control. It is often the case that the focused
expertise and scale of a cloud computing vendor provides
significantly lower risk than an in-house system. This gut
reaction can be compared to fear of flying: just because you'd
feel safer if you were flying the plane, doesn't mean
you'd actually be safer. Therefore, it is important to
evaluate the risks of cloud computing as objectively as possible.
Does the vendor publish an SLA and public performance statistics?
Who are its current customers and what do they say about the
vendor? What are the vendor's security and disaster recovery
policies? What kind of support is available? All these questions
should be asked of a cloud vendor. And, all of these questions
should be asked of the comparable internal IT operation. If
you're not a pilot, you might just be better off taking a
commercial flight.
Market Data: To Cloud or
Not to Cloud?
There are two important aspects
of market data systems to consider when evaluating the potential
for moving them to the cloud. The first is to recognize that it
is not the data that is being outsourced with cloud computing,
but the data management infrastructure. In most cases, the data
is already outsourced in the form of a href="http://www.xignite.com/Products/" target="_blank"
rel="nofollow">traditional data feed, so the
on-premise vs. cloud comparison actually centers around the
internal software, hardware, databases, development and
administrative IT staff required to maintain the internal data
management infrastructure that shuffles the data from a feed to a
final application. The second aspect is that unlike investment
account data, market data is not about the company or its
customers, and thereby sidesteps the number one barrier to cloud
computing adoption in financial services: data security. But, it
doesn't make it a slam dunk. It is still important to carry out a
full evaluation along the dimensions of competitive advantage
focus, cost reduction and risk reduction. Does the data
management system in question create competitive advantage or
simply maintain competitive parity? Does the cloud offer
significant cost reduction over the total cost of internal data
management systems? And finally, does the cloud offer neutral to
lower risk given the nature of the market data and the relative
sophistication of the cloud vendor's platform vis-a-vis
on-premise operations.
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