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Breaking the Sales Model in the Cloud?

Cloud-based on-demand services may offer a way to reduce bloated infrastructure and data center spending.

WS&T July 2010 Digital Issue

Financial services companies know they are in a technology arms race, but they will struggle to meet clients' needs if they continue to spend only a small fraction of their technology budgets on new development. Generally, financial firms spend 24 percent of their overall IT budgets on new technology, with the remainder dedicated to maintaining aging systems, infrastructure and data centers, according to a recent HP study, "Innovation Gridlock in Financial Services."

To break the gridlock, some Wall Street firms are looking to cloud computing to reduce data center and infrastructure spending, freeing resources for more innovative pursuits.

Deutsche Bank and Commonwealth Bank of Australia (CBA) recently helped form the Enterprise Cloud Leadership Council (ECLC), a group dedicated to promoting cloud computing standards to accelerate its adoption. Sean Kelley, global CIO for Deutsche Asset Management, the asset management arm of Deutsche Bank, was named chair of the ECLC in late May. The ECLC is part of the Cloud Services Initiative from the TM Forum, an industry association that promotes the adoption of technologies through the use of standards.

Cloud computing faces a number of obstacles, including security and compliance concerns, admits Kelley. "What we are trying to do is remove the 'nays' from the cloud discussion," he says. "Security is a valid concern, but in some cases cloud has a security level around it that is just as good or even better than what some banks have in place."

The ECLC and its members, including CBA's Michael Harte, CIO and group executive for enterprise services, say moving to cloud-based services may be the only way financial firms can break the cycle of spending most of their resources on existing operations and maintenance. "If we don't take the money out of the infrastructure, we are holding back productivity," insists Harte.

"Customers are demanding more dynamic and real-time service. The only way to deliver the service is to use new technologies to take capital expense out of the industrial compute [backbone]," he continues. "We want to get out of spending half of our IT budget on architecture. We want to spend more on better applications, and build them in component form. Cloud can help us reduce the cost of infrastructure and move it into higher-value IT."

Ramp It Up

By enabling firms to ramp up (or down) projects quickly and pay only for what they actually use, the cloud can change the way firms use and buy technology, Harte and Kelley believe. "The ECLC wants to be clear on how buyers wish to engage," Kelley says. "Suppliers want to sell tightly integrated offerings, but this often leads to vendor lock-in. ECLC has communicated that their standards are best-of-breed in nature and thus avoid lock-in wherever possible. ... Suppliers will eventually realize their offerings do not have to have lock-in strategies to be competitive but rather the offering should be competitive in and of itself."

Harte adds, "From a software point of view, we have been subject to buying functionality in bundles and we usually don't consume all of the functionality," Harte says. "So we are paying for things we don't need and won't use. We need to break that cycle. We also view most maintenance provisions as unfair. Unbundling is attractive."

The ECLC, while helping buyers such as CBA and Deutsche Bank set guidelines and standards, also will help suppliers fine-tune their cloud offerings. "Left to their own devices, cloud suppliers would likely end up in a 'Field of Dreams' scenario where products that don't necessarily fit the enterprise profile would be pushed on consumers. The ECLC wants to help avoid this situation and make life easier for both buyers and sellers," says Kelley.

Investing in Innovation

But Harte and Kelley are clear that this is not about cost savings, nor is it a cost squeeze on technology providers. Rather, the move to unbundle technology by relying on cloud services will move technology spending from infrastructure and maintenance, they assert, to areas that will provide competitive advantage.

"Banks are constrained," says Harte. "The counteroffer we have made to our strategic partners is: If you help us move out of allocating capital to the infrastructure, we will commit to spend more on applications [development]. ... If you spend more on front-end technology, the technology partners will benefit as well."

Already, the ECLC has helped the Cloud Services Initiative develop standards and tools for the industry. "We are trying to not be academic," Kelley says. "We are being pragmatic about it. We are trying to back up the standards with referenceable implementations. We are not only putting the specs on paper; we are putting real-life examples behind them."

For instance, according to CBA's Harte, the CBA has developed a database-as-a-service standard that allows a firm to provision a database on a public cloud, but it has private cloud security. "This database can be provisioned in minutes," Harte contends. "Normally, it would take weeks or months to do this. This provides speed to market, cost efficiency and the user only pays for the services they consume."

Harte says CBA has also helped develop a virtual machine that can be set up in minutes in the cloud, adding that the company is working with external cloud providers such as Savvis and ServiceMesh to deliver the capabilities. CBA also has had discussions with Amazon and Google to provide industry-specific services as well.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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