Hosted Business Applications: What Hedge Funds Must Consider

Cloud computing is an emerging technology model that hosts users’ data and applications in a central, web-based repository, allowing for access from any computer or mobile device with connectivity. Information is stored in a “cloud,” which eliminates the need for excessive capital expenditure on IT infrastructure and often allows for an easier ability to add additional IT resources as necessary.  There are many reasons why a hedge fund should consider cloud computing.

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.

This article will outline the key considerations firms (namely hedge funds and investment 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.

Hosted Applications for Hedge Funds – An Overview

Over the last two years, hosted applications for hedge funds 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.

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.

Security 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 security and compliance measures, including email archiving, on a daily basis.

More and more, investment firms are using e-mail as a business-critical application, which means that basic security is not going to suffice. Additionally, as we move into an era of increased transparency and calls for strict compliance regulations, investment firms will require significant security and compliance measures to keep their data protected or archived at all times.

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 time-consuming.

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.

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 impossible 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-to-business 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.”

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.

Conclusion

Hosted applications (aka hedge fund software as a service) 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 Managed Suite, 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 funds's business. 

Be sure to checkout our Eze Cloud infrastructure as well. 

 

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