A classmate of mine, during my ‘Masters’ days, always had the habit of storing his resume, his project work, and anything that is important in a separate folder of his email. He thought it made lot of sense, as he had the flexibility to use it whenever and wherever he wanted. Also, it was free. Replace my friend with a company, and his stuff with software, applications, and data, stored in the Internet accessible through a web browser. It’s called cloud computing. In this case, however, the company pays a rent to the vendor who provides this service.
Going 'Ga ga' over the cloud
Cloud, a metaphor for the Internet, with its terminology borrowed from the telephony, is an inspiration from the symbol that represents Internet in flow charts, and a depiction for work done behind the scene. Some experts call this as 'virtual servers' over the Internet, while others opine that anything that we use outside the firewall should be considered as cloud computing. No matter what the definition is, it seems to be a quintessential CFO's delight. Especially, during a downturn. After all not all companies shut their business during the bad times. With zero upfront costs, little working capital and even lesser management overhead, firms get access to the needed infrastructure and software within minutes. The 'pay-as-you-go' (Microsoft’s Azure charges $0.15 per GB stored per month) feature, no long-term commitment, the service levels (for instance, Amazon's EC2 offers 99.95% uptime) coupled with financial penalties, makes it even more attractive. With a slew of providers including Amazon, Google, Cisco, HP, IBM, and Microsoft, vying for the market share with their versions, and hoards of users including Washington Post, Virgin Atlantic, Harvard Medical School, 3M, VeriSign and Siemens , Cloud computing is here with a vengeance.
What it means to Financial Services Providers
Cloud computing is finally making its presence in the Wall Street, 50 years after John McCorthy wrote that ‘computation may someday be organized as public utility’. Nasdaq Stock Exchange, for instance, uses Amazon’s S3 (Simple Storage Service) to store time-series market data (historical stock prices, trade volumes etc). Several financial services providers are also testing the water with smaller pilots, even as the IT majors scramble to incorporate it as part of their offerings. Does that mean we will soon be seeing a mass scale adoption of Cloud computing in the capital markets? Perhaps not. Several deterrents stand in between:
· A firm may save capital expenditure by opting for this model. However, it will not make fiscal sense, if the savings gets offset by higher operating expenses, especially if the firm is growing rapidly.
· For a large organization with enough capital budgets, this model may not make economic sense. Ditto for a company with relatively small capex requirements. This, however, may change over time, if cloud computing evolves and gets even cheaper over time.
· There don’t seem to be clear guidelines or regulations on the data ownership, data security, privacy, the responsibilities of cloud providers etc. And a FS provider may not be interested in sharing a cloud with another, considering the sensitivity around the client and trading data involved.
· Enough concerns are already been raised by the security experts on the vulnerability of clouds. Last week, a leading cloud provider’s data center had a power outage resulting in clients losing connectivity for more than half hour. Instances, such as this may result in ‘cautiously optimistic’ approach towards public clouds or shift the direction towards the ‘private clouds’.
Gartner, a leading IT research and advisory firm, appears to be cognizant of these. It expects large organizations to continue to have an IT organization, till 2012, which manages and deploys IT resources internally, some of which will be ‘Private clouds’ – scalable and elastic IT enabled capabilities delivered by the company to its internal customers using Internet Technologies. However, it opines that they may also leverage IT sources from external providers for specific services.
My two cents
Most of the cloud providers only provide plain-vanilla standard operating systems (Linux, Windows etc) and software (Databases, web hosting, application development environments, application servers etc.). The financial services providers, however, would require more than just that. For instance, a typical asset manager may want an investment accounting system or a trading platform (without incurring capital costs) hosted in the cloud to lower its cost per transaction. In addition, the success of cloud computing in Wall Street, will hinge on the emergence of potential regulations, and well-addressed data security issues. Till then, this model will befit smaller players, be it bouquet investment banks or ‘Dark pools’ – new trading venues that are invisible even to regulators.
The author, Madhan Gopalan, based out of Hackensack, NJ, is an Associate Vice President with Ness Technologies. The views expressed here are his own and not necessarily that of his employer. He can be reached at madhan.gopalan@gmail.com
