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Cover Story

Linux Woos Wall St.

It is fair to say that wall street is neither a place given to bouts of whimsy, nor one inclined to tolerate that trait in others. But when executives began first learning about Linux, an operating system with an open-source code created in the early 1990s, they had no choice but to face the Linux mascot: a youngish penguin sitting unceremoniously splay-legged on his behind, with the blank, food-coma expression of a bird that has gorged itself on one too many herrings. A well-dressed mascot for sure, but still not the kind of image the button-downed executives were accustomed to seeing.

Yet as unlikely as the pairing between the financial services industry and this little penguin might at first have seemed, there is now downright excitement. It turns out that Linux can help Wall firms accomplish a task it prizes above almost all else: cutting costs. Indeed, the Street has been swept up in a flurry of Linux studies and implementations in the last year, pondering whether Linux, which emerged as a platform for non-mission-critical functions like e-mail, file, and print servers, can become a force for critical business functions like trading and transaction processing.

The wind is at Linux’s back. To name a few recent converts: Credit Suisse First Boston’s Agora Trading System runs on Linux; Morgan Stanley runs 1,000 servers on the platform; Lehman Brothers’ trading and risk analytics run on Linux; Goldman Sachs has multiple proprietary software applications supporting trading on the platform; Dresdner Bank runs risk applications on it; and Charles Schwab converted Schwab.com to Linux in June. That momentum is expected to build. TowerGroup estimates Linux was deployed on about 14 percent of all servers in the North American securities market in 2002, a percentage expected to grow at a compound annual rate of 22 percent—eating into the share of Unix and Microsoft NT—through 2005. Gartner Inc. predicts that by the end of 2005, Linux adoption will reach 40 percent among all financial services firms.

“Wall Street has always been at the forefront of the adoption of technologies,” says Raj Nathan, svp and general manager of the infrastructure platform group at Sybase, which in July opened a Linux Competency Center in New York that will house a state-of-the-art enterprise-solutions development center. “Given their large volume and size, Wall Street firms have been much more motivated, historically, to focus on costs because of scale issues. And they have the skill set to handle these new technologies. So it’s natural for them to be leaders in the space.”

Executives agree that the No. 1 driver behind Linux adoption is cost savings, or, more specifically, an extremely difficult economy and competitive environment in which cutting costs and gaining efficiencies are absolutely paramount. By combining open-source code, the ability to run on low-cost Intel chips, and performance, scalability and reliability that rival many Unix servers, Linux offers firms a way to dramatically lower their total cost of ownership by avoiding the more expensive servers with proprietary chips, like Sun Microsystems’ Unix servers that run on SPARC chips. “The cost savings is the obvious driver,” says David Furlonger, an analyst at Gartner. “You can do much more with much less on much cheaper servers with no licensing costs.”

Take, for instance, Schwab, which migrated its Velocity offering for active traders to Linux in four stages beginning last fall and ending earlier this year. The results were so successful—Schwab saw a 3:1 improvement in performance and a 25:1 improvement in hardware costs—that in June the company moved its entire Schwab.com platform to Linux, which was running on hundreds of very large IBM servers using AIX. “In the past year, Schwab has surpassed many in the scope of implementation,” says David Dibble, evp of Schwab technology services. “The business climate has made us rethink the total cost of ownership. That, in a perverse way, may be a good thing, since it forces us to think out of the box, making us maybe even less risk-averse than in flush times.”

Dushyant Shahrawat of TowerGroup cites five ways securities firms are deploying Linux: workload consolidation, where workloads spread over several machines move onto a single Linux machine; clustering, where multiple processors are linked to a single server or multiple servers are managed by a single machine; distributed enterprise, where there is a need to coordinate and centrally manage applications deployed across multiple locations; applications solutions, where different types of technologies—middleware, hardware, tools—are combined to run on Linux; and infrastructure solutions, also a way to centralize systems management, monitoring and maintenance.