An “Open” Dialogue on Financial Services

http://www.guardian.co.uk/business/2008/sep/21/technology.banking

…Wall Street banks have become insatiable consumers of IT services and some of the fallen giants had built up formidable computational resources, which were viewed by their purchasers as virtually the only non-toxic assets that they possessed. According to specialist website Datacenterknowledge.com, Lehman Brothers’ two data centres were central to the deal in which Barclays paid $1.75bn to acquire most of Lehman’s North American operations. The data centres and Lehman’s headquarters building ‘accounted for $1.5bn of the deal’s value, with the British bank paying just $250m in cash for Lehman’s North American investment banking and capital markets businesses,’ it said.

The breakneck consolidation of the banking sector is going to have a major impact on industries that supply banks with IT products and services. Within institutions, the imperative will be to minimise avoidable turmoil in the infrastructure. That means, for example, planned upgrades to Vista suddenly become non-starters – which implies that the related purchase of higher-specification PCs may also be postponed. So the crash will affect Microsoft (which is refusing to reveal data about how many Vista licences have actually been activated) and hardware vendors such as Dell, Lenovo and HP.

There will be pressure on IT departments to reduce headcount and budget. There are, of course, some areas where economising isn’t an option: banks running trading systems with millisecond response times will still need very expensive, on-site technical support. But managers will be searching for ways of trimming the costs of supporting more routine office functions.

In those circumstances, options like ‘grid computing’ and web services – where IT services are supplied by servers over the internet – may suddenly begin to look more attractive. Harassed managers may also start to look at open-source software as a way of avoiding expensive licensing deals for proprietary applications.

The waves generated by Wall Street Crash 2.0 will also wash up on very distant shores. Expect to see them in Bangalore, for example, and other Indian centres that have ridden the boom in outsourcing of IT support. As Western institutions disappear or merge, there will be a need to liquidate or consolidate the service contracts they have with Indian companies. So service businesses that looked rock-solid six months ago are in for a turbulent time.

Certainly, the effects of a consolidating financial services market will go beyond Vista. As the article reads, decisions, investments, and deployments will be postponed or canceled to avoid “turmoil” — we often see communication blackouts and budget freezes in the immediate wake of consolidation.  For the enterprise solutions market, the effects may be quite significant — a new $300k+ platform is much more visible that an optical mouse or a copy of Office 07, the latter of which trivially adds to an already-existing line item for large organizations.

To put these effects in context, one must consider that the largest ECM vendors all cater (and to some degree, rely on) financial services customers. As we conduct our sizing exercises, it’s not surprising to see the top 5 market share holders with low, but double-digit revenue percentages coming from the financial vertical. Many of these are also large projects in excess of $1M USD. Although the lack of credit and budget tightening across all verticals will affect investment in enterprise solutions, financial services represents a much more direct and dire variable in our forecast.

As organizations look to ways for “trimming the costs of supporting more routine office functions,” ECM should ideally become more attractive. Like ERP solutions for structured content processes, ECM supports the streamlining of unstructured processes such as contract management or customer communication (p.s. unstructured content makes up more than 2/3 of all enterprise information). The reality (in this analyst’s opinion) is that there is still not a great enough acceptance of benefits, however. Many of the planning-stage projects will get tabled; decisions will most certainly get postponed until a ‘consolidated’ infrastructure (ehhmmm… and budget) can be agreed upon; and investment in existing projects that don’t present significant short-term returns may become anemic. These aren’t the kind of solutions you can charge to your Best Buy card and ask the Geek Squad to install.

The complaints of innovation-deprived IT millenials will be heard. Some good news, though — a few CIOs will ‘get it’ and continue funding the most important projects (HR advice – hire them!). But what are the most important projects?

Following up on my last post, the recent consolidation in financial services exemplifies a significant point — the modern IT infrastructure will continue evolving through line-of-business purchases, M&A, and other factors… and there’s not a #$%^& thing you can do about it. Well, there is one thing, and I appreciate The Guardian’s thoughts on this: you can invest in “open” technologies.

That’s not open-source, by the way (so don’t regrow the dreadlocks just yet). We’re talking about web services, services-oriented architecture, standard APIs, the foundation for mash ups, and the “loosely coupled, highly integrated” infrastructure that Tim O’Reilly hinted at a few years ago. These technologies will allow large platforms to interact with smaller, best-of-breed solutions. And they will provide IT with more liquidity in deploying, managing, updating, outsourcing, and — most importantly — innovating the infrastructure. Speaking with attendees of the “Web Services / SOA on Wall Street 2007″ event — well before the financial crisis — it didn’t seem like we were very close, though.  It will be interesting to see if the recent consolidation in financial services squeezes out a few champions.od.

No Comments

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a comment

You must be logged in to post a comment.