The cloud.
It’s the buzzword that keeps on buzzing. Years after the concept became a hot topic in mainstream circles among all, it is still the subject of many debates within the financial services industry, and everyone, from the vendors hawking transformative solutions to the leeriest buy-side firms, seems to have an opinion.
That’s not to say that nothing has changed, however. A Refinitiv report last fall predicted that the financial services industry will spend 48% of its collective IT budget on cloud services in 2020, up from 41% in 2019. Around the same time, a survey by IHS Markit and WBR revealed that 80% of buy-side respondents will use the cloud for data management by the end of 2020. Those figures are a far cry from the early days of the cloud, in which tepid adoption rates and cautious technologists dominated the conversation.
“Historically, one of the common misconceptions from the buy side with respect to technology strategy is that the perceived risks of the cloud can outweigh the benefits,” said Hoony Youn, CTO at MackeyRMS, a provider of SaaS-delivered research management software for investment managers. “I think that has changed dramatically over the past few years. As the buy side has embraced the cloud, many of the older perceptions, that the cloud is less reliable and less secure, have proven to be quite the opposite.”
This greater understanding has led to a fruitful period for vendors of solutions that leverage the cloud, to the extent that the cloud is now a selling point – it connotes sleekness, modernity and a rejection of legacy technology. But the industry’s education is not complete, and many of the continued misconceptions boil down to a single point: not all cloud systems are created equal.
One of the key divides in how these providers use the cloud is single tenancy versus multitenancy. Conversations with several individuals in the space revealed that this is no minute detail – in fact, it can have dramatic effects on efficiency, security and cost. In order to fully take advantage of rapid innovation, firms must dive deeper and learn what is really under the hood of their cloud solutions, and this is a natural place to start.
Another way to look at the single tenancy versus multitenancy question is: how many different active versions of the software exist? With a single tenant solution, every client has its own independent database and instance of the software; with a multitenant solution, a single instance of the software serves the entire client base.
While there are diverse offerings within these groups, proponents of single-tenant solutions typically tout their security, reliability and controllability, while those in favor of multitenancy point to its cost-effectiveness, efficiency and wider ecosystem.
“Deployment models are becoming quite complex given the importance of the cloud in the capital markets,” said Brad Bailey, Research Director at Celent. “For those most concerned with control, means of access to the cloud and extension of their own infrastructure, single tenancy is often the choice. For those that are looking for maximum cost savings, ease of deploying changes across multiple instances and rapid cycles of updates, multitenancy would likely be the choice.”
So, on one side there is a model that can better align with a firm’s existing technology strategy, while the other offers a number of key efficiencies at the cost of control. In many ways, it is a reincarnation of the old debates over the cloud itself.
And just like those old debates, the topic elicits strong feelings from those in the space. Sean Sullivan, CRO at LiquidityBook, a provider of SaaS-based, multitenant order management solutions, believes that due to their reliance on professional services, single-tenant solutions pose a business risk for vendor and client alike.
“While they are wrapped in the cloud and all the rhetoric that comes with that, single-tenant solutions share a lot of similarities with legacy systems,” said Sullivan. “They ignore the fundamental benefits of the cloud. When every client requires bespoke upgrades, localized customizations and patch releases, processes can become backed up and the product inevitably suffers, and this is especially true during times of disruption. Multitenant systems are far nimbler. Every single new functionality we build is released to the same instance, so our clients don’t have to worry about racking up professional services fees and our ability to service them is never compromised.”
LiquidityBook has ridden its model to significant success in recent years – in 2019, the firm posted a 33% year-over-year improvement in terms of revenues. 2020 is shaping up to be even more successful, says Sullivan, especially with many legacy and single-tenant providers facing hurdles related to the COVID-19 pandemic.
“Our experience with multitenant trading technology has been very positive,” said Ben Searle, CIO at Levin Easterly Partners, a private asset management firm specializing in value investing. “Deploying LiquidityBook’s LBX Buy Side required heavy collaboration and some extensive back-end work at the outset, but very little since then. We now have access to a high-performance product and benefit from regular updates while avoiding legacy processes and servicing fees.”
This process is typical of multitenant solutions – while they often require a lengthy bespoke integration up front, every subsequent upgrade occurs automatically, saving time and resources in the long run. Meanwhile, with every new client the multitenant provider signs, the product is built out and improved, and the existing client base reaps the rewards. It’s all part of what Sullivan calls an “ecosystem of good ideas.”
“With a multitenant solution, clients should expect better ROI via shared resources, databases and applications,” said Tom Pfister, Vice President of Global Product Strategy at Confluence Technologies, which provides a suite of reporting solutions to large asset managers. “Hard costs are shared more efficiently across many tenants. In the same way, clients are effectively sharing their brainpower, making their innovations available to other tenants and driving the entire industry forward.”
Forging the Future
Looking ahead, one thing seems clear: the cloud is here to stay. As firms get smarter on the topic and refine their strategies, multitenant solutions appear likely to continue to gain market share on their single-tenant counterparts.
“Our multitenant model provides a huge range of advantages for our business,” said Pfister. “It greatly simplifies upgrades and client onboarding and reduces the costs of hardware, IT and product delivery. These are passed on to our clients, so everyone involved benefits.”
Youn echoed this sentiment, calling multitenancy “a win-win situation” which “delivers a tremendous amount of operational and cost efficiency.”
Of course, single-tenant solutions are not going anywhere, and many firms that emphasize autonomy or want to have their data completely isolated from other customers will continue to go that route. In some ways, these offerings bridge the gap between monolithic legacy platforms and dynamic multitenant systems, filling an important void in the market.
But no matter what route they choose to go, the bottom line is that firms must do their homework in order to fully realize the benefits of the cloud future. Simply being in the cloud is just the beginning, and exactly how each system leverages the cloud could have a major impact. Every firm’s needs are different, but by educating themselves and asking the right questions, the industry will be better equipped to continue the cloud conversation – no matter how long it lasts.
The following article appeared on Traders Magazine in June 2019
The Cloud Services Providers Next Play?
The times they are a changin’.
Though Bob Dylan originally sang those words in 1964, theyve probably never been truer than they are today, at least when it comes to technology.
Name the industry, and in almost all cases technology-led disruptors have entered and seriously shaken up the status quo. Amazon’s effect on retail is obviously the prime example, but Uber’s impact on the livery industry, Netflix’s impact on content distribution and even Casper’s impact on the mattress industry are others. Perhaps the only major industry to have *not* seen a significant impact due to the entry of new, tech-savy disruptors is the capital markets.
But in the opinion of some, it is only a matter of time before the major global banks – most of whom operate aging, overly-complex technology stacks – will see the same type of competition that other industries have felt.
Complexity Without Cloud
Currently, trying to decipher a problem in a large banks capital markets infrastructure is like an archaeological dig, according to Tony Amicangioli, Founder and CEO of capital markets infrastructure technology provider HPR (formerly known as Hyannis Port Research).
As you cut through the crust of technological layers you might find that in the early 2000s whoever was head of IT thought C++ was the solution to everything. Then they were replaced by a Java devotee and the most recent layers were built by a true believer in Python and their team. Multiply this across different regions – Europe, AsiaPac and the Americas – and again by asset class, with some solutions developed in-house, others by vendors, and it becomes unmanageable. Fixing it seems impossible. How are you going to take all these mission-critical systems off-line and rebuild from scratch? said Amicangioli.
Firms like Amazon, Apple, Google and Microsoft – the cloud natives, if you will – dont have this problem. Their foundational technology leverages the Cloud natively and is built to scale. At their essence, they are very simple. Take Google, which is fundamentally a distributed, de facto operating system. Ten Google apps may do ten very different things, but the underlying technology is highly unified. This efficiency and unification have enabled the rapid ascent of these companies.
Cloud technology is not just about moving applications to a central providers data center, says Amicangioli. In our view, effectively leveraging the Cloud is about unifying your systems and simplifying your development approaches within a singular and universal computing environment. We see all technology frameworks ultimately destined for this since it almost always represents the most cost-effective, responsive and performant environment.
Amicangioli knows. He was previously CTO of Tower Researchs Lime Brokerage subsidiary, one of the early winners in the race to sponsor HFT providers. Before that he founded one of the first Cloud startups, and early in his career served as an executive at hardware powerhouse Juniper Networks.
“I’ve been in business long enough to watch the likes of Sun Microsystems and Digital Equipment, once giants in the technology industry, vanish,” he said. “At times I get the same uneasy feeling when looking at some of todays largest banks given where their technology is in comparison to the entrants we all know are coming. Without a doubt, there will be winners and losers.”
Trend Toward Simplicity
It’s no secret that the stacks run by virtually all of the tier 1 global banks are in need of a major overhaul, and that is not news to the executives at those firms, either, said a former bank technology executive who asked to remain nameless. I think the failure to act has been driven in part by a belief that the regulatory and capital moats that we have in the capital markets will be sufficient deterrents, but I cant see that being the case for too much longer.
To that point, being in a highly regulated industry is no protection. Consider Oscar, the health insurance startup that last year attracted a $375 million investment from Google parent company Alphabet. Oscars proven that its possible to enter a complex market and gain competitive advantages by building a cloud-native technology stack from the ground up, resulting in better efficiency, better margins and ultimately better service to customers.
That’s not to say that Wall Street has been oblivious to the threat from tech-led competitors, however. JP Morgan CEO Jamie Dimon warned in a 2015 investor letter that Silicon Valley is coming, and two years ago noted that the bank is spending nearly $10B per year on remaining competitive. Other banks have similarly robust technology budgets, but far too much of that spending is to fund finger-in-the-dyke projects, and not nearly enough goes to the strategic ones, says the tech exec.
Some see the capital markets dividing into two camps when it comes to technology: the haves and the have-nots. With the stakes so high, CTOs fear of making mistakes can induce a form of paralysis, ushering their firms into the have-not category through inaction. As cloud adoption becomes the key driver of success, the industry will see these two camps transform into winners and losers, these people say.
“It’s tempting to see the devolution of large financial services firms as inevitable, but really, its not too late – yet,” said Amicangioli. “The bank that locks on to this reality, finding efficiencies through technology, is going to do very well. The potential upside for being the first to truly get this right really can’t be overstated.”
CTO at MackeyRMS, a provider of SaaS-delivered research management software for investment managers. “I think that has changed dramatically over the past few years. As the buy side has embraced the cloud, many of the older perceptions, that the cloud is less reliable and less secure, have proven to be quite the opposite.”
This greater understanding has led to a fruitful period for vendors of solutions that leverage the cloud, to the extent that the cloud is now a selling point – it connotes sleekness, modernity and a rejection of legacy technology. But the industry’s education is not complete, and many of the continued misconceptions boil down to a single point: not all cloud systems are created equal.
One of the key divides in how these providers use the cloud is single tenancy versus multitenancy. Conversations with several individuals in the space revealed that this is no minute detail – in fact, it can have dramatic effects on efficiency, security and cost. In order to fully take advantage of rapid innovation, firms must dive deeper and learn what is really under the hood of their cloud solutions, and this is a natural place to start.
E Pluribus Unum
Another way to look at the single tenancy versus multitenancy question is: how many different active versions of the software exist? With a single tenant solution, every client has its own independent database and instance of the software; with a multitenant solution, a single instance of the software serves the entire client base.
While there are diverse offerings within these groups, proponents of single-tenant solutions typically tout their security, reliability and controllability, while those in favor of multitenancy point to its cost-effectiveness, efficiency and wider ecosystem.
“Deployment models are becoming quite complex given the importance of the cloud in the capital markets,” said Brad Bailey, Research Director at Celent. “For those most concerned with control, means of access to the cloud and extension of their own infrastructure, single tenancy is often the choice. For those that are looking for maximum cost savings, ease of deploying changes across multiple instances and rapid cycles of updates, multitenancy would likely be the choice.”
So, on one side there is a model that can better align with a firm’s existing technology strategy, while the other offers a number of key efficiencies at the cost of control. In many ways, it is a reincarnation of the old debates over the cloud itself.
And just like those old debates, the topic elicits strong feelings from those in the space. Sean Sullivan, CRO at LiquidityBook, a provider of SaaS-based, multitenant order management solutions to the buy and sell sides, believes that due to their reliance on professional services, single-tenant solutions pose a business risk for vendor and client alike.
“While they are wrapped in the cloud and all the rhetoric that comes with that, single-tenant solutions share a lot of similarities with legacy systems,” said Sullivan. “They ignore the fundamental benefits of the cloud. When every client requires bespoke upgrades, localized customizations and patch releases, processes can become backed up and the product inevitably suffers, and this is especially true during times of disruption. Multitenant systems are far nimbler. Every single new functionality we build is released to the same instance, so our clients don’t have to worry about racking up professional services fees and our ability to service them is never compromised.”
LiquidityBook has ridden its model to significant success in recent years – in 2019, the firm posted a 33% year-over-year improvement in terms of revenues. 2020 is shaping up to be even more successful, says Sullivan, especially with many legacy and single-tenant providers facing hurdles related to the COVID-19 pandemic.
“Our experience with multitenant trading technology has been very positive,” said Ben Searle, CIO at Levin Easterly Partners, a private asset management firm specializing in value investing. “Deploying LiquidityBook’s LBX Buy Side required heavy collaboration and some extensive back-end work at the outset, but very little since then. We now have access to a high-performance product and benefit from regular updates while avoiding legacy processes and servicing fees.”
This process is typical of multitenant solutions – while they often require a lengthy bespoke integration up front, every subsequent upgrade occurs automatically, saving time and resources in the long run. Meanwhile, with every new client the multitenant provider signs, the product is built out and improved, and the existing client base reaps the rewards. It’s all part of what Sullivan calls an “ecosystem of good ideas.”
“With a multitenant solution, clients should expect better ROI via shared resources, databases and applications,” said Tom Pfister, Vice President of Global Product Strategy at Confluence Technologies, which provides a suite of reporting solutions to large asset managers. “Hard costs are shared more efficiently across many tenants. In the same way, clients are effectively sharing their brainpower, making their innovations available to other tenants and driving the entire industry forward.”
Forging the Future
Looking ahead, one thing seems clear: the cloud is here to stay. As firms get smarter on the topic and refine their strategies, multitenant solutions appear likely to continue to gain market share on their single-tenant counterparts.
“Our multitenant model provides a huge range of advantages for our business,” said Pfister. “It greatly simplifies upgrades and client onboarding and reduces the costs of hardware, IT and product delivery. These are passed on to our clients, so everyone involved benefits.”
Youn echoed this sentiment, calling multitenancy “a win-win situation” which “delivers a tremendous amount of operational and cost efficiency.”
Of course, single-tenant solutions are not going anywhere, and many firms that emphasize autonomy or want to have their data completely isolated from other customers will continue to go that route. In some ways, these offerings bridge the gap between monolithic legacy platforms and dynamic multitenant systems, filling an important void in the market.
But no matter what route they choose to go, the bottom line is that firms must do their homework in order to fully realize the benefits of the cloud future. Simply being in the cloud is just the beginning, and exactly how each system leverages the cloud could have a major impact. Every firm’s needs are different, but by educating themselves and asking the right questions, the industry will be better equipped to continue the cloud conversation – no matter how long it lasts.
The following article appeared on Traders Magazine in June 2019
The Cloud Services Providers Next Play?
The times they are a changin’.
Though Bob Dylan originally sang those words in 1964, theyve probably never been truer than they are today, at least when it comes to technology.
Name the industry, and in almost all cases technology-led disruptors have entered and seriously shaken up the status quo. Amazon’s effect on retail is obviously the prime example, but Uber’s impact on the livery industry, Netflix’s impact on content distribution and even Casper’s impact on the mattress industry are others. Perhaps the only major industry to have *not* seen a significant impact due to the entry of new, tech-savy disruptors is the capital markets.
But in the opinion of some, it is only a matter of time before the major global banks – most of whom operate aging, overly-complex technology stacks – will see the same type of competition that other industries have felt.
Complexity Without Cloud
Currently, trying to decipher a problem in a large banks capital markets infrastructure is like an archaeological dig, according to Tony Amicangioli, Founder and CEO of capital markets infrastructure technology provider HPR (formerly known as Hyannis Port Research).
As you cut through the crust of technological layers you might find that in the early 2000s whoever was head of IT thought C++ was the solution to everything. Then they were replaced by a Java devotee and the most recent layers were built by a true believer in Python and their team. Multiply this across different regions – Europe, AsiaPac and the Americas – and again by asset class, with some solutions developed in-house, others by vendors, and it becomes unmanageable. Fixing it seems impossible. How are you going to take all these mission-critical systems off-line and rebuild from scratch? said Amicangioli.
Firms like Amazon, Apple, Google and Microsoft – the cloud natives, if you will – dont have this problem. Their foundational technology leverages the Cloud natively and is built to scale. At their essence, they are very simple. Take Google, which is fundamentally a distributed, de facto operating system. Ten Google apps may do ten very different things, but the underlying technology is highly unified. This efficiency and unification have enabled the rapid ascent of these companies.
Cloud technology is not just about moving applications to a central providers data center, says Amicangioli. In our view, effectively leveraging the Cloud is about unifying your systems and simplifying your development approaches within a singular and universal computing environment. We see all technology frameworks ultimately destined for this since it almost always represents the most cost-effective, responsive and performant environment.
Amicangioli knows. He was previously CTO of Tower Researchs Lime Brokerage subsidiary, one of the early winners in the race to sponsor HFT providers. Before that he founded one of the first Cloud startups, and early in his career served as an executive at hardware powerhouse Juniper Networks.
“I’ve been in business long enough to watch the likes of Sun Microsystems and Digital Equipment, once giants in the technology industry, vanish,” he said. “At times I get the same uneasy feeling when looking at some of todays largest banks given where their technology is in comparison to the entrants we all know are coming. Without a doubt, there will be winners and losers.”
Trend Toward Simplicity
It’s no secret that the stacks run by virtually all of the tier 1 global banks are in need of a major overhaul, and that is not news to the executives at those firms, either, said a former bank technology executive who asked to remain nameless. I think the failure to act has been driven in part by a belief that the regulatory and capital moats that we have in the capital markets will be sufficient deterrents, but I cant see that being the case for too much longer.
To that point, being in a highly regulated industry is no protection. Consider Oscar, the health insurance startup that last year attracted a $375 million investment from Google parent company Alphabet. Oscars proven that its possible to enter a complex market and gain competitive advantages by building a cloud-native technology stack from the ground up, resulting in better efficiency, better margins and ultimately better service to customers.
That’s not to say that Wall Street has been oblivious to the threat from tech-led competitors, however. JP Morgan CEO Jamie Dimon warned in a 2015 investor letter that Silicon Valley is coming, and two years ago noted that the bank is spending nearly $10B per year on remaining competitive. Other banks have similarly robust technology budgets, but far too much of that spending is to fund finger-in-the-dyke projects, and not nearly enough goes to the strategic ones, says the tech exec.
Some see the capital markets dividing into two camps when it comes to technology: the haves and the have-nots. With the stakes so high, CTOs fear of making mistakes can induce a form of paralysis, ushering their firms into the have-not category through inaction. As cloud adoption becomes the key driver of success, the industry will see these two camps transform into winners and losers, these people say.
“It’s tempting to see the devolution of large financial services firms as inevitable, but really, its not too late – yet,” said Amicangioli. “The bank that locks on to this reality, finding efficiencies through technology, is going to do very well. The potential upside for being the first to truly get this right really can’t be overstated.”
