Layer Cake: The Rise of Platform-as-a-Service

Jargon occupies a special place in the English language. On the one hand, it allows for organic development, growth and versatility in the face of constantly changing usage, but on the other hand, it can make concepts impenetrable or difficult to analyze. The financial services industry specializes in jargon, its own unique shorthand being notoriously difficult to crack, and technology is no different in this regard.

Take cloud, for instance. As a term and concept, it is fairly easy to understand, but drilling down into its core reveals layer upon layer of different phraseology and applications. The best way to think of it is as a composite phrase describing “as-a-service” components. Software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) are the key constituents here, variations therein such as application-platform-as-a-service notwithstanding.

Often when discussing cloud, people see its immediate applications from a front-end perspective—that is to say, the remote hosting of software that doesn’t require local installation. But that belies the usefulness of other sectors, such as PaaS.

What’s in a Name?
The best way to differentiate as-a-service components is on face value. PaaS, by inference, describes the development, deployment and run-time services for cloud applications. If IaaS is the individual nuts and bolts that power cloud, and SaaS is the user operating it, then PaaS is the current linking the two. In many ways, it encompasses the essence of cloud technology.

“There are a few ways to characterize cloud,” says Amar Banwait, director of trading at Omaha, Neb.-based wealth manager Midwestern Capital. “The first is the commoditization of computing. I’ll use the example of a hotel: You need to stay in a room for a few nights every week—you don’t buy a house, you rent a hotel room. Some nights, you may need four rooms, while on others you may need one. The cloud is the hotel—you only pay for what you use. What you’ve done is made computing into a commodity and you only pay for what you use. Traditionally, with hardware and software, you would need to make a significant investment and some really big decisions when developing infrastructure. With the cloud, it’s already available. You can rent it instantly, and it’s reversible. So tomorrow, if your project fails and you decide to shut down that product or that trading strategy, you just turn off the cloud and you haven’t wasted hundreds of thousands of dollars.”

Test Bed
This process of switching on and off is commonly described as cloudbursting, a practice whereby computing power becomes turnkey and elastic. For financial services firms, particularly on the buy side, it is the ability to scale up according to demand that provides one of the best applications for PaaS.

A number of possibilities are inherent within this, whether it’s piloting programs, testing algorithms, or running unexpected analysis on an as-needed basis, where current computing power is dedicated to the running of day-to-day tasks.

“PaaS has a number of potential applications in the financial services space,” says Jeremy Neal, head of online services at IMGROUP. “The crux of their function here is really scalability, with ‘on-demand’ as a key phrase, whether it be for hybrid cloud platforms to allow the extension of capacity for existing applications, scale-or-fail platforms for new ventures and initiatives, or simply agile on-demand development and testing environments for new applications.”

It is the extraordinary circumstances that see the most benefit, but it is important to distinguish that which is extraordinary and unique versus something that may be unexpected, but is common to the entire market.

“The difficulty in managing peak demands in the financial market is that you have to think of it as a crowd effect,” says Mark Akass, CTO at BT global banking and financial markets. “So if there is a particular surge in one area—it might be that you’re doing something unique that’s separate from the rest of the banks doing the same thing—and you’re reacting to a market condition, then the other players will react at the same time.”

One of the challenges with cloudbursting in that model, Akass says, is that if a firm is bursting and requiring power on tap, and doing it at a point like that, then sharing will typically be done on some form of contended basis, where it is doing so with multiple tenants. “If you reserve a certain amount of compute power, then you may as well do it yourself, unless there’s another benefit,” he says. “The contention is what drives the cost–benefit—if you really need that compute power, and you can guarantee that you need it with no contention, then the business case for doing it is relatively hard to justify from what I’ve seen.”

Cost–Benefit
The idea underpinning cloud is that of shifting from capital expenditure models to operational expenditure through the removal of expensive in-house facilities. If you’re accessing applications on a hosted basis, then the cost burden falls on the provider of those services or applications, and you pay for what you need rather than having a room full of servers that are only fully utilized during market hours. This is no different than a PaaS model.

“SaaS or PaaS creates a great advantage in that the fund manager doesn’t have to do anything other than have a browser,” says Justin Wheatley, CEO at buy-side technology and services provider StatPro. “They can buy an Apple MacBook laptop from a shop, and within three minutes, be accessing a service on a browser, via a wireless internet connection. Before, it was impossible to imagine this. The servers, the infrastructure, and everything that connects it together, even the payment system, are being abstracted and taken off the hands of the user. As a consequence, the total cost of acquisition has dropped dramatically.”

However, various factors create difficulties in making the business case. Full adoption of a PaaS or cloud model isn’t the norm. Hybrid systems, where in-house-deployed applications and hosted ones are fused, are gaining traction, but this seems to defeat the object of having cloud.

“We need to distinguish between public and private clouds, two terms that are thrown around a lot,” says Midwestern’s Banwait. “The definition of a private cloud is one where, say you’re an investment bank and you run a miniature cloud underground or in your datacenter, so it’s private. But does private fit the definition of cloud? Well, no. Simply because to develop a private cloud, you have to invest in hardware, so you’re paying for resources that you’re not using in the middle of the night. You’re buying new hardware for new demand. You have to manage the hardware and software yourself. With resilience, what happens if your private network goes down? Do you have a second cloud running? If you look at those definitions, a private cloud is not really a cloud in the traditional sense.”

Industry Standard
Not everyone is ready to jump completely onto the public cloud bandwagon. Concerns about regulations regarding the physical location of data, client protection, and security remain prominent within financial services, and it’s telling that there haven’t been many institutions, governmental or private, that have fully embraced cloud. Exceptions exist, of course—London-based Majedie Asset Management, for example, operates a no-tech business—but these are rare.

“I’d say there’s a degree of cautious experimentation going on at the moment,” says BT’s Akass. “People aren’t aggressively deploying into this environment from what I can see, but they’re looking to do pilots. The long-term business benefits of using shared platforms and PaaS, if we look at where we are today to where we might be in five years, are potentially quite strong. My view is that it will become more prevalent, but that it will also remain in a hybrid model, so that there will be a mix of private and PaaS models out there for some time. I don’t see many moving everything across, but the business benefits could be quite material for some of these large organizations. As an industry, I think there’s a level of maturity to complete before it’s out there as a full solution.”

However, as important as issues of security are to some, there are a growing number of people who discount the concerns. Vendors who provide these services claim that PaaS can in fact be more secure than in-house-run technologies.

“Some people are concerned about the level of security on the cloud, but I think that cloud computing is, by its very definition, a better and more secure approach,” says StatPro’s Wheatley. “In a centralized system, users are given access to come in and look, but they can’t take the data away or send it down a wire. The information isn’t going anywhere—it’s staying in one place. Structurally, it’s a more secure concept than the one of sending information all over the place.”

Specialized Services
The advent of industry-specific cloud services, such as the NYSE Technologies Capital Markets Community Platform, or those offered by vendors like BT Radianz and Eze Castle Integration, are designed to attenuate concerns over the idiosyncrasies pursuant to financial services.

“This is where the future is going to be for buy-side firms and investment banks, because it’s an industry-specific cloud vendor,” says Banwait. “They’ve looked at the Microsoft and Amazon models, which are running public stuff like Facebook and Twitter searches. What NYSE has done is built its own datacenters in Basildon in the UK, and New Jersey in the US, making it industry-specific. Security and regulatory issues—where customer data is, and where trades are placed—have been dealt with.”

Others cite the particularity with which the industry picks and chooses its technology, and the size of the companies beginning to operate these services.

“It is very encouraging that the largest stock exchange in the world is convinced that cloud computing is a safe way to do business,” says IMGROUP’s Neal, referring to NYSE Euronext’s platform. “With security and dependability being of principal importance in the banking and capital market industries, this technology adoption is remarkable, especially as these industries are so particular with the technology they use.”

Overspill
While it is clear that PaaS is gaining ground, it is still viewed as a specialized tool to be played with, rather than one to be fully implemented. Some organizations, such as Midwestern, will use cloudbursting and turnkey computing. The firm claims it can activate a new server within 15 seconds if needed, although for regular intra-day activities, cloud is still held at arm’s length.

The benefits are material, and plain to see. As more companies move into the hosted space, custodial banks offer comprehensive platforms that tie in vendor products, and the technology is proven over time, it appears that, at least in a hybrid sense, PaaS is here to stay.