Our team just returned from Wall Street and a battlefield tour of our current market travails. What became clear to me, through our discussions with customers, prospects, analysts and press, is that the current market volatility will accelerate the industry’s adoption of open source software.
Financial institutions have a deep and abiding frustration with incumbent proprietary vendors. Hedge fund IT departments labor mightily to implement new trading strategies and add analytics so they can beat their competition. Unfortunately, proprietary software vendors have them in a stranglehold with products that inhibit them from acting quickly or making changes easily. New trading strategies are delayed because the different parts of the system don’t communicate easily with one another.
This is, of course, a structural problem. Proprietary vendors hide their code because they want to capture as much “share-of-wallet” as possible. After all, if your code-base is highly secretive, you have an excuse for not integrating with other vendors in the ecosystem and you can line your pockets by selling solutions to that problem while you’re at it. It’s as if your General Practitioner also wants to be your surgeon, so he refuses to release x-rays of your appendix to the person cutting you open.
Open source software, however, is motivated by exactly the opposite imperative. Open up the code so you can have flexibility, fast implementations and ease-of-use. Offer all the necessary APIs so your open source software can fit into existing ecosystems and can be modified or extended easily. Then, when customers like what they see, let them come to you for more.
Of course, open source software isn’t new. It infiltrated IT departments at the operating system level over 15 years ago. As Wall Street recovers from its current state, open source will proliferate at the application level to bring competitive advantage to trading firms at a much lower cost. The benefits will not only be found in customization and savings, but also in the speed of implementation which will allow traders to achieve Alpha more quickly.