By Dr Manzoor Mohammed, Co-Founder and CINO, Capacitas
Microsoft is to acquire a 4% stake in the London Stock Exchange Group (LSEG), This stake is part of a larger 10-year partnership which also incorporates a commitment for LSEG to spend a minimum of £2.3 billion on cloud computing services over the contract period. It is a big move.
Historically, trading platforms like LSEG stayed away from the cloud as it compromised overall performance and security. That hesitancy has now largely evaporated, especially now that even Government, in all its shades, is moving more strongly towards cloud adoption.
This latest partnership between LSEG and Microsoft shows just how financial services firms’ thinking around cloud has changed, with banks increasingly focused on how they can save money by migrating away from expensive, managed legacy systems into the cloud. Their whole way of working has shifted and it is a shift that has been going on for some time.
It’s a clear sign that cloud is where financial institutions should be looking, despite some previous hesitation. The future plans to combine Microsoft’s cloud-based machine learning smarts with LSEG’s analytics is yet another indication financial institutions are shaking up the status quo.
Making a commitment
The minimum commitment is a significant figure, however, putting its capacity requirements in the realm of Airbnb and Netflix. While the partnership announcement indicates this will be used to develop new products and services, and therefore revenue streams, all organisations must be careful when agreeing to a minimum commitment.
After all, where is the incentive to find efficiency -especially with cloud costs dropping between 10-15% per year? Over the 10 years, LSEG may find itself either paying for more capacity than it needs, or using more capacity than it requires due to poor efficiencies.
Buying into this kind of spending over a protracted period represents a major commitment, especially in the current uncertain times. If a minimum figure is in place, the organisation has little to no flexibility in reducing its obligation over time or have any opportunities to make further savings. There is the possibility too that such contracts will encourage waste and also prevent the organisation concerned investing in other areas related to their core business.
Opportunities and challenges
Really the big opportunity here will be around removing waste. Normally, the level of waste in the cloud is around 30-35%, so the big opportunity in such deals is removing the waste from cloud services. But often companies will instead take one-off discounts at much lower levels because a pure focus on reducing waste seems like it will require a much greater effort to attain. That is, however, likely to be a short-sighted view.
After all, despite the great potential the cloud offers to support growth that potential is too often not realised. Too often, financial services companies come to realise that costs grow faster than the business, availability becomes a problem and performance fails to deliver a great user experience.
All these factors grind away at profitability and potential from within. Organisations end up in a running battle with Opex costs and internal tensions mount. This year’s Flexera State of Cloud Report found 66 per cent of respondents have higher-than-expected cloud usage, while on average organisations said they waste 32 per cent of their cloud expenditure.
Reality and perception in opposition
Reality and perception are therefore often in opposition here. Businesses can often save much more money from optimising what they are using instead of over-consuming. Often, it is more cost-effective to reduce usage and waste and it also likely to be a far greener and more sustainable option. By optimising cloud usage, businesses have the opportunity to reduce their carbon footprint.
On the downside, businesses may perceive all this as harder work. That is in fact a misguided perception. Putting in the effort to get the right approach pinned down from the beginning will save time and money over the long-term.
There is an opportunity here for businesses to really do their homework, gauge their level of waste and work out in what ways it can most easily reduced, and what measures, even if harder to implement, can also be delivered – and then come up with a number that they think is realistic to commit to, as well as taking into account a duration for the whole process.
In the same way financial services companies recommend consumers get independent expert advice, large enterprises should get independent cloud cost and performance expertise before making large commitments. For many financial services companies, cloud has failed to live up to the hype. Costs are climbing while the speed, agility, flexibility, performance, stability and scalability benefits that these organisations typically look for often fail to materialise. In this context, they need to call on the knowledge of experts who can help the firm concerned optimise performance, manage capacity, keep a lid on costs and reduce wastage. That way they can help ensure that financial services firms’ positive perception of cloud becomes a reality.