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 button-downed executives are accustomed to seeing.
Yet as unlikely as the pairing between the financial industry and this little penguin might at first have seemed, there is now downright excitement. It turns out that Linux can help Wall Street 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 functions like trading and transaction processing.
The wind is at Linuxs back. To name a few recent converts: Credit Suisse First Bostons 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 servers in the North American securities market in 2002, a percentage expected to grow at a compound annual rate of 22 percenteating into the share of Unix and Microsoft NTthrough 2005. Gartner Inc. predicts that by the end of 2005, Linux adoption will reach 40 percent among all financial 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 its natural for them to be leaders in the space.
Executives agree 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 successfulSchwab saw a 3:1 improvement in performance and a 25:1 improvement in hardware coststhat 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 technologiesmiddleware, hardware, toolsare combined to run on Linux; and infrastructure solutions, also a way to centralize systems management, monitoring and maintenance.
Even for firms that choose not to migrate to Linux, its very existence is a plus, since it cuts pricing leverage large vendors traditionally have had on users by closely coupling hardware and operations systems. Gartner recommends that financial services providers use Linux to pressure Microsoft in terms of licensing costs and business practices, writes Furlonger. Several firms have declared that their price/performance ratio using Linux is between 5-to-1 and 10-to-1 times better than with alternative platforms, although most providers are reluctant to reveal details of total costs, including migration, system administration and other indirect costs. And, without evidence, their claims are open to question.
Similarly Shahrawat warns that while licensing fees associated with Linux are undoubtedly a fraction of what they are with proprietary Unix and NT systems, most Linux systems are just 12 to 24 months old. In terms of the overall total cost of ownership, I dont think the final word is out there yet, he says. A big unknown, in Shahrawats opinion, is the support issue. While outfits like Red Hat Software and IBM offer service contracts, users must be very careful about how service contracts are worded, given the many unknowns. Users will need to be savvy. Whats a good deal? How tight should the service level agreement be? It will take a while for service prices to stabilize.
However, none of this would be pursued if Linux had not already proven to be highly reliable and a superior performer. As Sybases Nathan puts it: As much as Wall Street [firms] are trailblazers, they are not gunslingers. They are sane and prudent adopters of technology because they cannot afford to misfire. For three to four years they have been experimenting with this. Case in point: Schwabs Dibble says velocity on Linux has been rock solid.
Another major business driver behind the adoption of Linux is its portability. Linuxs ability to port across different platforms and hardware provides firms with greater flexibility because they can more easily integrate third-party and homegrown applications to their platform of choice. Indeed, thats just what Mellon Financial is considering, porting everything from our biggest most complex business operations to the low end of very simple networking appliances, says Pete Johnson, svp of strategic technology. Were looking to reduce complexity and save money by running Linux on IBM mainframe and consolidating many client/service boxes onto the mainframe.
Shahrawat says Linuxs portability is the main reason why larger firms are ahead of smaller ones in adopting the open source system. Besides having larger IT staffs to carry out an implementation, he says, large brokers have...a high degree of proprietary applications developed on different platforms as well as newer applications that they have acquired from third parties. The ability to port all these applications on a common Linux platform is a major incentive for them to adopt it. Smaller firms have traditionally had a greater proportion of standard vendor applications and thus have had to wait for independent software vendors to begin supporting Linux.
Luckily for those smaller outfits, however, as the large firms move to Linux the ISVs will certainly follow suit, paving the way for further adoption. Oracle, Veritas, BEA Systems and Sybase, for instance, all support Linux, with more jumping in every month. But while the ISVs supporting the securities industry have been moving quickly of late, banking vendors like ADP, Alltel, Fiserv and Bisys have been slower to adopt, and insurance vendors, slower still.
Besides the slow roll out by ISVs, there are several other issues that could put a break on Linux adoption. Given the open source nature of Linux, security is one such issue. Johnson of Mellon says security of Linux on the mainframe might be less of an issue than Linux on servers or PCs, but it is still a factor that must be considered thoroughly. Our biggest concern is security, he says. On the one hand, the code is known by everyone, so it would seem to be much more vulnerable, but when a security vulnerability is present, it can be found and fixed faster. As far as were concerned, the jury is still out.
Also bolstering the proprietary Unix systems like Suns are continuing questions regarding Linuxs heavy lifting capabilities. While Linux is perfect for horizontal integration, Shahrawat says the case isnt as strong for vertical integration, where systems must be seamlessly tied together from front to back with zero margin error.
Indeed, Sun still has a strong following on the Street. But a Goldman Sachs report released in January stated bluntly that of the traditional systems vendors the company most likely to be negatively affected by the emergence of Linux will be Sun, which has only begun to articulate a clear strategy for Linux and whose entire business model has, to date, been built around the sale of premium-priced proprietary Unix/RISC-based servers that Linux will ultimately replace. In a dramatic example of how Linux is affecting tech costs, Sun announced in May it would start making Solaris available on Intel chips.
Yet another drag on the pace of implementation is that companies have developed proprietary systems based on Unix that they may be reluctant to abandon, or they have invested huge amounts of money in Unix systems that they do not wish to write off. Indeed, executives say a huge investment in Linux while simply kicking older assets out the door is not realistic. Johnson says the pace of any implementation will be tied to depreciation schedules. Bringing in new technology is not something we do lightly. The old systems wont go away overnight.
As it happens, however, the demise of OS/2 has many retail banking institutions evaluating their branch networks and considering a move to an open source environment, which could save on everything from teller platforms to ATMs, where costs are high and application life cycles are ending. Says Dibble: IT folks eat, live and breathe Linux. All the innovations are happening outside the mainframe, and that trend will continue.
