Rethinking The Financial Services Data Center
The great boom in building financial services datacenters is over. In fact, it ended a few years ago.
Although it hasn't been that long since financial firms were opening vast new facilities with green technology and the latest datacenter design ideas to improve efficiency, the market has changed. For example, as recently as 2010, NYSE Euronext opened two 400,000-square-foot datacenters, which were preceded by Citi's opening a 232,000-square-foot facility in 2009. Numerous other financial services facilities were opened around the world in the late 2000s, as financial firms expected compute demand and revenues to continue to increase.
Since 2009 financial revenues have dropped, most financial services organizations have different demands for computing power, and the available technologies in the marketplace have matured.
We are in the beginning of a 10-year transition cycle. We are seeing the traditional enterprise move to a digital enterprise."
-- Tony Bishop, The 451 Group
"Things are changing in the corporate datacenter, especially in financial services," says Dr. Howard Rubin, founder and CEO of Rubin Worldwide and a Gartner senior adviser. "There are a couple of big patterns. With the change in the business world and the decline in revenue in financial services, the equation for owning and running your own datacenter has changed. There was a time when you could predict the increasing demand for capacity, but not anymore."
As a result, many of the vast new facilities aren't being used to capacity. The lack of utilization is costly, as the economics behind running a large datacenter generally depends on the building being used to maximum capacity. "The datacenter is becoming a home of IT empty nesters," Rubin says, as many datacenters have costly empty space that becomes a drain on IT, real estate, and operational costs.
The drastic shift in revenues from financial services business units is forcing leaders to take a new look at the way firms run their critical infrastructure. For decades, banks ran their own datacenters because of regulatory constraints around customer data and because banks were large enough consumers of computing power that maintaining their own facilities made strategic and economic sense. In the current market, that thinking has changed. "Profits and margins are down," says Roji Oommen, senior director of financial services solutions at Savvis, a provider of colocation, managed hosting, and cloud services. "The overwhelming majority of financial firms are starting to outsource IT infrastructure. Today, it is very hard to differentiate from peers by investing in infrastructure."
Moving computing needs to a third-party provider is something that financial firms would have never considered just a few years ago, which is one reason the industry spent heavily on building its own facilities. "We are in the beginning of a 10-year transition cycle," says Tony Bishop, chief strategy officer for The 451 Group and co-head of 451 Advisors. "We are seeing the traditional enterprise move to a digital enterprise."
[To hear about how financial firms managing their complex data architecture, attend the Future of the Financial Services Data Center panel at Interop 2014.]
It will take a decade to complete the move to a digital enterprise, especially in financial services, because of the complexity of software and existing IT architecture. "Legacy data and applications are hard to move" to a third party, Bishop says, adding that a single application may touch and interact with numerous other applications. Removing one system from a datacenter may disrupt the entire ecosystem.
Also slowing the transition is the fact that large financial institutions have invested hundreds of millions of dollars in datacenters. These organizations may also be reluctant to abandon their facilities. "There is definitely a lack of appetite from large firms to sell their datacenters at a loss," which is what they will have to do if they sell their facilities on the open market, Bishop adds.
Another factor slowing the move to rationalizing or consolidating datacenters in financial services is a lack of newer skills. Firms have the skills to run their own infrastructure and facilities, but working with an outside provider requires a different skill set. "This is about managing the IT supply chain outside of the company," Rubin says. "When you bring someone in from outside the company, you have to make decisions about what stays in [your datacenter] and what goes" to the partner. This is a completely different way of managing technology, and many firms do not have experience handing over datacenter responsibilities to a third party.
Increasing Flexibility
Another drawback of a bank running its own datacenter is a lack of flexibility. "When the industry was flush with cash, it built palaces for its computing. But times have changed and there is a risk with building large datacenters for the future," Rubin contends. Building a new datacenter takes a few years from start to finish. Given the cost of building a facility, most enterprises build their datacenters with room to grow."But what happens when the business drops off 25%?" asks Rubin. "You need to retune your capacity because you don't need all of it. That is very hard to do. The entire business needs to be resized. If you go across every financial services firm, there is a need to fine-tune the datacenter."
The entire business needs to be resized. If you go across every financial services firm, there is a need to fine-tune the datacenter."
-- Dr. Howard Rubin, Rubin Worldwide
At Savvis, where one-third of global revenues come from financial services, Oommen says that flexibility is one of the benefits of going to a third-party hosting provider. "Our infrastructure-as-a-service gives firms a lot of flexibility," he says, noting that firms can scale up or down much faster at a provider than they can if they run their own facilities.
451 Group's Bishop says the financial industry is in the process of trying to become more flexible when it comes to IT resources and is moving in the right direction. Most firms now have 100% "fixed capacity" in their own facilities. This means that whether the firm is using the compute capacity or not, it's still running and maintaining the technology in its datacenter. If the firm is at capacity and needs more, it traditionally has embarked on building more capacity in a new datacenter facility or squeezed more compute resources per square foot from existing facilities. Either of those options takes a long time.
The industry is moving to a model where one-third of capacity will be "on-demand," one-third will be controlled by the bank in its own facility, and one-third through colocation facilities or connectivity hubs, according to Bishop.
"This is a radical change," Bishop says. "However, the biggest thing is the datacenter is not going away. First it will right size and rationalize. Then it is going to be all about managing the supply chain of data services. It is evolving quickly." Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio
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