March 21, 2006

Open source software steadily has been permeating financial services as firms take advantage of the opportunity to tap tried and tested applications free of charge. Easily downloadable, open source code is just that: open -- users can look at it for themselves and have the opportunity to customize and change it. Nonetheless, along with the benefits, there are some potential risks and costs that may show up down the line.

"Open source is one of those odd phenomena that crops up from time to time that is good for everybody," says Steve Howe, director and head of open source initiatives at Dresdner Kleinwort Wasserstein (DrKW). "The software is invariably good quality, and it's free, so it's ideal for any area that does not convey a competitive advantage."

One of the benefits of open source is that there are development communities forming around it. "You have lots of people from around the world contributing new features to it, testing it, fixing bugs in it -- it's really a community of developers interested in the software and making the software better," says Byron Sebastian, CEO of SourceLabs, a provider of enterprise support subscriptions for open source systems.

By leveraging open source, individual companies don't have to spend tons of money developing software that doesn't really give them a competitive advantage. Instead, they can collaborate and share all the resources necessary to develop and evolve the software, Sebastian suggests. The benefit of working in this manner is that everyone involved in the process can reduce their costs, with the result being good quality software -- that's free.

In recent years, open source software, especially in the form of the Linux operating system, has made tremendous inroads into large enterprises and has been deployed successfully at most major financial services firms as a way to further drive down costs, Sebastian contends. "We see pretty aggressive adoption both of Linux, as well as open source Java in financial services firms, starting with Wall Street and the trading firms, but also into some of the commercial banks," he states.