Examining Cloud Computing in the Investment Industry An Eze Castle Integration ebook
Table of Contents I. What is Cloud Computing? i. Why Use the Cloud? ii. Cost Savings iii. Flexibility/Scalability iv. Maintenance v. Green Benefits vi. Concerns and Challenges of Cloud Computing vii. Oversubscription & IT Support II. Understanding Public, Private and Hybrid Cloud Infrastructures III. Hosted Business Applications: What Hedge Funds Must Consider i. Hosted Apps for Business: An Overview ii. Key Considerations iii. Understanding of Business Requirements iv. Security of Data v. Migration/Future Growth Concerns vi. Other Considerations vii. Final Thought on Hosted Apps IV. A Refresher on Data Center Tiers V. Eze Castle Integration 2
With IT budgets tightened over the past year, many hedge funds and investment firms have had to make changes to their businesses. Personnel changes, budget adjustments, and other tough decisions had to be made along the way. Both staff and systems were often being closely evaluated. Beyond existing firms, new start ups are entering an investor market that expects them to have sophisticated processes and operations day one. More than any other industry, investment firms rely on premier technology for swift trade execution, secure data protection and much more. If it is determined that the IT budget needs to be reduced, the question is how? What is the best way for an investment firm to save on IT costs but without sacrificing efficiency and performance? Alternatively, how can a hedge fund start up have enterprise level technology day one with a small firm operating budget? The answer is cloud computing, and believe it or not, cost isn t the only reason firms are making the switch. What is Cloud Computing? Although cloud computing has become popular in recent years, many businesses and financial firms still do not understand what it is and how it works. Cloud computing is when a service or software application is hosted in a web based repository known as the cloud. The service is hosted by a third party provider who then provides access to that service to users on an on demand basis. In essence, a firm s data and applications are hosted, alleviating that firm from having to purchase and maintain costly infrastructure in house. 3
Why Use the Cloud? Cloud computing can support front, middle and back office functions everything from business applications and client relationship management systems to data management solutions and accounting systems. There are a number of advantages to using this model, notably: Low infrastructure investment Increased flexibility Less maintenance Positive environmental contributions Cost Savings There is no question that migrating to a cloud computing model can render significant cost savings for an investment firm. Rather than purchasing costly infrastructure and relying on multiple servers in a crowded Communications room (comm. room), firms can outsource that infrastructure to a third party and manage all of their data and applications from a simple web address on the Internet. This system is particularly beneficial to start up firms who may not have the upfront capital to invest in their own infrastructure or the staff to maintain and monitor a comm. room. 4
Flexibility/Scalability One of the most beneficial aspects of cloud computing is that firms are only required to pay for the resources and capabilities they need. With traditional infrastructure models, firms must invest in advanced servers and storage devices that generally come at fixed costs. Cloud computing is uniquely flexible and scalable, operating on a utility basis allowing firms to pay as they go and only for the resources they will use. In many cases, firms can take advantage of advanced mobility features through which they can access their hosted applications and data from anywhere at any time, freeing employees from having to remain at their desks during normal business hours. Because the cloud computing solution is virtualized, there are other distinct advantages not offered by traditional infrastructure models. Space, storage, and RAM are quick and easy to add. There is no need to wait for quotes to be drafted and equipment to be ordered and shipped. Instead of taking days, your firm s needs are fulfilled in a matter of hours. Cloud computing also supports a sharing of resources among multiple users also known as multi tenancy which allows for increased utilization and efficiency. Less Maintenance Unlike traditional infrastructure models where the firm is solely responsible for its own IT needs, the cloud computing model puts all of the responsibility on the third party provider. Firms are no longer tasked with managing constant server updates, hardware installs and other computing issues. This allows the firms internal IT staffs to focus on more business critical matters and spend less time on mundane and time consuming maintenance issues. Or in the case of many smaller firms without internal IT staffs, it saves them from having to hire and train additional employees. 5
Green Benefits The idea of using the Internet as a gateway to technology has significant environmental benefits. The resources and energy needed to maintain and manage a dedicated comm. room can be astronomical. Power, cooling, and basic energy supply equipment must be at peak performance at all times in order to facilitate maximum uptime for investment firms. In the case of cloud computing, however, firms don t need to host internal equipment, thereby saving on allaround energy costs. The reduction of overall energy consumption is also multiplied with third party providers utilizing custom data centers specifically designed for better energy efficiency. Additionally, many new computers are now optimized for virtualization, adding another layer of efficiency and using significantly less power for operation. Concerns and Challenges of Cloud Computing Despite its clear advantages, the notion of cloud computing is still meeting a lot of resistance in the financial services industry. Investment firms tend to be concerned with data security and performance. Many firms are reluctant to migrate to virtualized platforms because they don t fully understand the system and its benefits. 6
Privacy and security concerns are common among financial firms given the sensitivity of their data. The idea of hosting this sensitive information on the Internet is not always a comfortable one. Third parties that provide cloud computing services, however, are quick to point out that the system is just as secure as maintaining one s own equipment, with comparable data protection measures, firewalls, security checkpoints and passwords as traditional infrastructure models. Performance concerns, as well, seem to be easily thwarted by third parties, who insist cloud computing is just as efficient and effective as non web hosted systems. Despite concerns, over the last couple of years financial firms have become more comfortable with the idea of cloud computing, particularly given its price point. With the economic climate as it is, the cost effectiveness of cloud computing has proven to be one of its strongest motivators. Technology analyst firm Gartner Inc. concluded that spending on cloud computing and virtualization solutions has increased, despite a decrease in overall IT spending in 2009. According to Gartner, cloud computing revenue is on pace to exceed $56 billion this year, an increase of 21 percent from 2008 (Wall Street Journal, 10/21/09). When considering cloud computing, a firm must rely on its own needs and resources in order to determine which technologies are best for them. There are a number of factors to be considered: cost, efficiency, maintenance, etc. Firms should assess their individual needs and determine the best strategy based on their current resources and requirements. In the following chapter we will look at the differences between public, private and hybrid clouds. 7
Understand Public, Private and Hybrid Cloud Infrastructures As we have discussed in previous chapters, cloud computing offers many advantages for investment firms. Cloud computing technology enables the sharing of resources in a way that dramatically simplifies infrastructure planning. In this section, we will explore various types of cloud computing and the methods in which they are deployed. With cloud computing technology, large pools of resources can be connected via private or public networks, to provide dynamically scalable infrastructure for application, data, and file storage. Additionally, the costs of computation, application hosting, content storage, and delivery can be significantly reduced. Firms can choose to deploy applications on Public, Private, or Hybrid clouds. What are the differences between these three models, and how can you determine the right cloud path for your organization? Here are some fundamentals of each to help with the decision making process. Public Clouds Public clouds are owned and operated by third party service providers. Customers benefit from economies of scale, because infrastructure costs are spread across all users, thus allowing each individual client to operate on a low cost, pay as you go model. Another advantage of public cloud infrastructures is that they are typically larger in scale than an in house enterprise cloud, which provides clients with seamlessly, on demand scalability. It is also important to note that all customers on public clouds share the same infrastructure pool with limited configuration, security protections, and availability variances, as these factors are wholly managed and supported by the service provider. 8
Private Clouds Private clouds are those that are built exclusively for an individual enterprise. They allow the firm to host applications in the cloud, while addressing concerns regarding data security and control, which is often lacking in a public cloud environment. There are two variations of private clouds: 1. On Premise Private Cloud: This format, also known as an Internal Cloud, is hosted within an organization s own data center. It provides a more standardized process and protection, but is often limited in size and scalability. Also, a firm s IT department would incur the capital and operational costs for the physical resources. This model is best used for applications that require complete control and configurability of the infrastructure and security. 2. Externally Hosted Private Cloud: This private cloud model is hosted by an external cloud computing provider. The service provider facilitates an exclusive cloud environment with full guarantee of privacy. This format is recommended for organizations that prefer not to use a public cloud infrastructure due to the risks associated with the sharing of physical resources. 9
Hybrid Clouds Hybrid Clouds combine the advantages of both the public and private cloud models. In a hybrid cloud, a company can leverage third party cloud providers in either a full or partial manner. This increases the flexibility of computing. The hybrid cloud environment is also capable of providing on demand, externally provisioned scalability. Augmenting a traditional private cloud with the resources of a public cloud can be used to manage unexpected surges in workload. At Eze Castle Integration, we have deployed a robust, scalable cloud Infrastructure in multiple Tier III and IV data centers. Our Eze Cloud infrastructure leverages best of breed technologies to deliver cost effective infrastructure as a service powered solutions to the investment industry. Now let s look at application hosting in the cloud and what firms should consider. 10
Hosted Business Applications: What Hedge Funds Must Consider As we discussed in the previous chapter, there are many reasons why a hedge fund should consider cloud computing. Now we will look more closely at one aspect of cloud computing application delivery. Within the cloud model is Software as a Service (SaaS) software that is deployed over a hosted environment and accessed via the Internet. An on demand licensing service, SaaS enables the benefits of a comprehensively licensed application without the need to specifically equip multiple servers and infrastructures with necessary applications. With increased focus on Web 2.0, cloud, and SaaS during the current economic crisis, the emergence of hosted applications has provided firms with an alternative to traditional onsite IT infrastructures. Companies such as Google and Amazon have invaded the application hosting domain and are offering their services at a fraction of the price of most third party IT service providers. While these are low cost, they are not necessarily the best choices for investment firms. The following section will outline the key considerations firms should look at before turning their businesses over to free or low cost hosted services such as those offered by Google or Amazon. Before we introduce these considerations, let s take a look at the business models of these hosted apps providers, particularly Google. 11
Hosted Apps for Business: An Overview Over the last two years, hosted applications have emerged as a powerful and intriguing service. A number of large companies, many not traditionally focused on IT services, have come out of the woodwork looking to offer these services on top of their base business models. Everyone from Cisco and IBM technology focused companies to Google and Amazon has started using the cloud. Google s Business Apps emerged as a front runner early on, led both by an intriguing business model and, of course, the biggest name within the Internet business. Among the key features Google advertises are proven cost savings, a 99.9% uptime guarantee, and 50% more storage than the industry average. Google even offers multiple editions of their apps tailored to specific customer needs. In addition to their Standard Edition, they offer an Education Edition for schools, colleges, and universities and a Premier Edition for businesses of all sizes. Key Considerations While Google s price point is likely the lowest a business will find, the level of service offered at that price must be thoroughly vetted before entering into an agreement, particularly if you are an investment firm operating in today s market. There are a number of specific considerations that should be taken into account beforehand. 12
Understanding of Business Requirements While Google boasts that their various editions are tailored to meet the specific needs of businesses, this is not exactly a fair statement. The description of their Premier Edition lists the services as ideal for businesses of all sizes. But it is not solely a business size that determines their specific needs. For example, a small home grown business in Oklahoma that sells personalized stationery is not going to have the same business needs or support requirements as an investment firm operating on Wall Street. This is where financial firms need to be careful not to jump into a service based solely on cost alone. A firm must carefully consider their every day business and support requirements before migrating to a service like Google s. Compliance of Data One of the foremost concerns when any business puts their data and infrastructure in the hands of a third party is security. Google lists security and compliance as one of the key features of their product, and did eventually bring on e mail security provider Postini to provide additional security services. These services are basic, though, offering tools to eliminate spam, protect against internal information leaks, and retain emails. These tools are sufficient for small mainstream businesses; however, investment firms require increased compliance measures, including email archiving and encryption, on a daily basis. E mail is a business critical application for many firms and basic security is not enough. As we move into an era of increased transparency and calls for strict compliance regulations, firms will require significant security and compliance measures to keep their data protected, encrypted or archived at all times. 13
Migration/Future Growth Concerns Another consideration to keep in mind when determining if hosted applications are a good fit for your firm is your potential for future growth. With Google Apps, there is no easy way to migrate data if a firm decides to move its data off of the hosted app service. As your business grows, you should keep in mind that with that growth will come the need for additional services and requirements. It is highly likely that you will need to integrate with IRM and CRM systems, for instance, which is not possible when using a service like Google. In the event you suddenly require these services, migrating your data off of a Google like platform is going to be complicated and likely timeconsuming. Oversubscription & IT Support A big concern that arises when giant enterprises such as Google offer paid services at a very low price point is oversubscription. Because the service is offered at low cost and to virtually any size business, it is destined to attract tens of thousands of customers, each vying for the maximum server space available. In an attempt to provide these services to this many customers, it is a very real possibility that the service provider will oversubscribe their servers and risk shoddy service as a result. With this number of users, speed of service is likely to be negatively impacted. It could take significantly longer to send or receive an email a delay that those operating in the investment industry cannot afford. If a firm is relying on email for business operations, particularly in a volatile market, when every deal and every dollar can have a significant impact on business, that firm requires real time services that will not put business at risk. 14
In addition to concerns about the service provider oversubscribing servers, firms might also want to consider the possibility that their employees will likely be spending a significant amount of time learning how to use a hosted application service. For example, if a firm signs on to use Google Business Apps, they will need to train all employees to use that service and likely train internal IT employees to become well versed on the service in the event of application issues. Though Google boasts that it offers 24x7 customer support for its apps service, it is far from a typical helpdesk. Customer support through an entity like Google is often challenging to navigate and time consuming to get another human being on the opposite end of the phone. In the event of a serious IT issue, end users employees will need to have an extensive understanding of the hosted service in order to provide adequate support. Alternatively, if a firm does not have IT staff, other employees will need to learn to solve problems on their own, which can interrupt the time they are spending on their daily business tasks. In a CNN Money article, Founder Jonathan Blum of Blumsday LLC, a business tobusiness tech content company, wrote about how Google Apps wasn t working for his company. Blum said he and his employees were spending too much time each day resolving issues. You re paying people while they struggle through this cultural shift to Web based applications and that can be very costly. 15
Other Considerations Blum also highlighted another issue he encountered when he relied on Google Apps for his business services: identity concerns. Because Google is entirely web based and allows for multiple email accounts through its service, it can lead to identity confusion. There can be easy confusion between corporate and personal Gmail accounts. Also, if employees share computers, they will need to be extra cautious and careful not to save their account logins and passwords on shared portals. Investment firms should also be thinking about the kind of best practices they are employing. Business continuity and disaster recovery plans are becoming near requisites for most investors. Mass marketed hosted applications typically do not include such services. Firms would, therefore, have to work with two separate third parties to accommodate this desired outcome. Final Thought on Hosted Apps Hosted applications will surely continue to improve and adjust to the changes in the business landscape, but while there is value in their services, investment firms have very specific needs and requirements and should work with technology providers with financial expertise and experience. These traditional third party IT providers are better equipped to service the needs of financial firms and adapt to the continuous changes within the industry. Our hosted IT solution, Eze Virtual Office, for example, offers hedge funds the capabilities of a fully managed infrastructure and key business applications that are 24x7x365 by IT professionals that understand a hedge fund's business. Now let s explore what s behind cloud computing Data Centers. 16
A Refresher on Data Center Tiers In the previous chapters we examined the pros and cons of cloud computing. In this section we ll explore what s behind the cloud the data center that is. At Eze Castle Integration we often reference data center tiers (i.e. Tier III and Tier IV) in our written materials and assume readers will automatically understand the value of these distinctions. In some cases this might be a safe assumption, but you know what they say about assuming. Data center tiers Tier I to IV represent a standardized method to define the uptime of a data center. The tiers are useful in measuring: Data center performance Investment Return on investment (ROI) The four tiers, as classified by The Uptime Institute include the following: Tier 1: composed of a single path for power and cooling distribution, without redundant components, providing 99.671% availability. This is the simplest and typically used by small businesses. Tier II: composed of a single path for power and cooling distribution, with redundant components, providing 99.741% availability. Tier III: composed of multiple active power and cooling distribution paths, but only one path active, has redundant components, and is concurrently maintainable, providing 99.982% availability. Tier IV: composed of multiple active power and cooling distribution paths, has redundant components, and is fault tolerant, providing 99.995% availability. 17
Data center tiers are becoming increasingly important as hedge fund and investment firms look to cloud computing infrastructures to increase agility, reduce operating costs, and simplify IT infrastructure and application management. Our Eze Cloud infrastructure is built across multiple Tier III data centers to deliver the availability and performance investment firms require. As a hedge fund evaluates its data center options for colocation or explores why cloud computing may be right for the hedge fund it is essential to understand the differences between each tiers. 18 Image Credits: Greybar
Eze Castle Integration's Cloud Computing & Hosting Infrastructure for Hedge Funds Eze Castle Integration has deployed a robust, scalable Cloud Infrastructure in multiple Tier III data centers. Our Eze Cloud infrastructure leverages best of breed technologies from Cisco, NetApp, and VMware as well as monthly software leasing services from VMware, Microsoft, CA, and Citrix to deliver cost effective managed product offerings and custom solutions to our hedge fund clients. Eze Castle s cloud offerings allow our clients to deploy state of the art technologies through a monthly recurring cost model rather than facing the challenge of major capital expenditures and budgeting for hardware and software upgrade lifecycles. A few of the primary benefits of the Eze Cloud infrastructure include: Redundancy Secure Multi Tenancy Resource Provisioning Expandability Professional Management For more information on our Eze Cloud Infrastructure, please visit http://www.eci.com/solutions/infrastructure/ cloud.html. 19
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