Shining Light on the Clouds (TabbForum)

Originally posted on TabbForum.com

Cloud computing has a long way to go before it is widely adopted on Wall Street, but people on Wall Street certainly want to talk about it.  In the last month, I have spoken at two conferences focused on adoption of cloud computing by financial services firms, one hosted by the Wall Street Technology Association (WSTA) and the other by the International Securities Association for Trade Communication (ISITC).

Cutting to the chase, cloud computing usage on Wall Street is minimal, and regulatory/security issues, not technical ones, will severely limit its growth over the next few years.

TABB Group’s 2010 US Equity Technology study showed that only 4% of sell side firms were using cloud computing in their equities businesses.  And in those few cases, they were not using the widely known cloud offerings of Amazon or Google, but instead employed private clouds running within their own firewalls.  Most firms cited security concerns and regulatory requirements surrounding customer and proprietary data that made it nearly impossible to use external cloud offerings despite clear cost efficiencies.

The story is not all bad for clouds, however.  TABB Group sees a slow growth in internal cloud deployments among larger institutions, as these provide considerable cost efficiencies by increasing overall server utilization.  Then there is SaaS (Software as a Service).  This is the model upon which Salesforce.com, Gmail and a large number of web based products are now deployed.  SaaS applications run within a cloud environment by definition, but the infrastructure is even further abstracted by the application layer.  Banks will still be wary of letting proprietary data out of their sight with SaaS, but for established products such as Salesforce.com, continued adoption by buy and sell side firms of all sizes is expected.

So will bulge bracket investment banks ditch their private data centers and move entirely to a Microsoft cloud?  I can say with some certainty that will never happen.  But if regulations can catch up with technology, and cloud security is better understood by Wall Street, more “cloud days” are ahead.

Those interested in my presentation at WSTA can access it here.

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