First Published: Best Execution/April 2020
Over the past decade, businesses and consumers have undergone a seismic shift in the way that they transact with one another. It’s actually a change so fundamental that it is impacting the very way in which we as individuals think about and relate to the concept of ownership and possessions. It has the potential to completely revolutionize the way that businesses operate, and upends traditional thinking around permanent fixed costs in critical infrastructure. Firms that fully embrace this change can totally transform their approach to innovation and to delivering customer value. It’s the subscription economy – and it’s going to be your company’s future.
The way we were…
As recently as ten years ago, if you or the CTO / CIO of your firm needed access to a certain software application in order to run your business, you would buy as many licenses as you needed. These would be valid for a specific version of the software. When the software required upgrading, you’d be notified, and required to pay an upgrade fee or – in the worst case – to purchase a new license. The new software would need to be downloaded and installed, and then retroactively tested against all of your existing core systems and applications. Inevitably, there would be compatibility issues, with key features your systems had long depended upon being dropped from the latest iteration, or else certain new features not being “backward compatible”.
New and expensive hardware and servers would be required to support the “enhanced features” used by the supplier to justify higher fees. Your in-house systems would need to be migrated across to the new servers as well. The entire undertaking could require mobilization and deployment of huge teams of consultants with all their attendant cost overheads. New business initiatives could be put on hold for months, pending completion of the upgrade, and costing you valuable time to market and customer satisfaction. And all this, just to end up pretty much where you had been at the beginning but running on the latest version and with new bugs to patch and fix along the way.
I don’t need to spell out the many ways in which this expensive cycle spelled disaster for agile financial markets participants with forward-thinking approaches to innovation and market access. This is self-evident.
A paradigm shift in service consumption
Fast forward to 2020, and let’s take the case study of an innovative challenger – a market maker, for example – wanting to come to market. The CTO / CIO’s first action will be to identify the set of hosted infrastructure providers that they will use. This could be a combination of cloud providers, such as AWS, Microsoft Azure and Google Cloud. They will start off using the minimum resources possible, secure in the knowledge that, as they grow, they can easily and cost-effectively scale their resource requirements upwards on the cloud. There’s no need to know upfront what their maximum capacity will be; in this way, they can grow without limit.
They will also want to on-board to a networked community through which they can easily connect to and access other market participants – whether they be clients, counterparties, market data providers, trading platforms, exchanges… the list goes on. For their in-house toolset to support operational functions, such as CRM, they’ll choose Software-as-a-Service (SaaS) offerings off the shelf. Again, they can scale up and down as they need to. When the time comes for these SaaS packages to be upgraded, the experience will be seamless. As nothing is locally installed, it’s the SaaS provider’s responsibility to ensure that all data is migrated and that all required functionality is backward compatible.
This even extends to office space and office equipment. Rather than making an initial outlay on an expensive multi-year lease, uncertain of longer-term capacity requirements, our challenger can take flexible office space from one of the many suppliers on the market. These will come with the basic amenities and equipment that they need – nobody needs to waste their time managing the printer and water cooler leases any longer!
What does this mean for our challenger? It means that their barriers to entry are drastically lowered, along with their set-up costs and time to market. Their focus can be on their core business, and on hiring and retaining the right people to drive that core business forward, without the distractions of managing non-core systems. They can scale up and down flexibly on demand and have shorter innovation cycles, with new features launching more quickly and inexpensively. They have an enormous and extraordinary advantage over their incumbent counterparts. This is the future, and we all need to embrace it.
Ownership is a great model for assets that appreciate in value over time. In the case of technology, whether it be hardware or software, these are assets that depreciate in value over time. Subscribing to these as a service therefore eliminates exposure to the downside of depreciation and gives all the upside of continuous improvement. The subscription economy – of which SaaS, PaaS, IaaS and cloud are all enablers – is transforming the way in which we consume services. The benefits that it brings to subscribers cannot be understated.
What can IPC offer?
At IPC, we understand that, in the brave new subscription economy, the key differentiators for providers are the strength of our relationships with our clients, and the quality and responsiveness of our services. Our customer-focussed culture means that we are continuously seeking opportunities to improve our offerings. We recognise the importance our clients place on market access and speed to market. We combine the power of a subscription-based model with an ever-growing and evolving networked community of global financial markets participants, to create a powerful and market-leading value proposition for our clients.