What does the "Rise of the Appliance" mean for financial services?

Bob Evans of Information Week published an article a couple days ago on the Rise of the Appliance, highlighting how a plethora of technology companies are using optimized hardware/software offerings to “change the game” (his words) in enterprise computing. He summarized the appliance plans of each of the big vendors (Oracle, IBM, Teradata, SAP, HP, Microsoft, EMC), and then said:

But one of the great things about the list above — and it’s not by any means a complete list of the players — is that it’s big and getting bigger, which means lots and lots of competition and innovations and better ideas and a huge focus on customer value.

This last point — a huge focus on customer value — hits the nail on the head as far as why appliances are so quickly taking hold in the datacenters of many industries. Companies don’t make the leap to new technology for technology’s sake, they buy it because it delivers significant value in the form of top line growth, lower costs, or both.

This principle is especially true in financial services. Banks, exchanges and hedge funds aren’t choosing appliances because they’re trendy, they are choosing them because they deliver value that’s high on their priority list, and that software on general purpose servers can’t match.

The general appeal of appliances in financial services boils down to:

• Higher performance – Performance may mean lower latency, higher throughput, more consistent behavior, or a combination of the three. Appliances often include specialized hardware that eliminates performance bottlenecks to accelerate repetitive operations.
• Consolidation/cost reduction – Often a single appliance can do the work of many servers running software, resulting in a smaller datacenter footprint, less power consumed, fewer servers and software licenses and ultimately, lower costs. Whether trying to avoid costly colocation facility fees for front office solutions, or simply reducing datacenter costs in the back office, this is a focus of virtually every kind of financial firm.
• Simplified operations – Appliances offer turnkey installations that software cannot, usually shipping with everything installed and ready to work out of the box. With software, you have to install the server, install the operating system, patch the operating system to whatever level is supported by the software license, then install the software, tune and test it. There is a multiplier effect (O/S versions times software versions times server-to-appliance ratio) that can make it 5 to 20 times harder to maintain and operate a scaled software solution than equivalent appliances.

In financial services, the degree to which each of these three areas of value matters to you depends on what problem you’re trying to solve, but generally speaking you can think of the value of appliances in terms of front-office vs. back-office requirements.

Front-Office: The Need for Speed

If you’re building front office applications, time is money, and performance and profits are measured in microseconds. This leads buyers of electronic trading components to obsess about low latency, and just as importantly, consistent latency. The increasing uptake of hardware appliances as a means of accelerating front office operations is well documented with products like the Solace Message Router, TIBCO Messaging Appliance, Exegy Ticker Plant, and XtremeData dBX. And those shops most serious about latency install monitoring appliances (like the Tip-Off product from TS-Associates) so they can effectively monitor all their other hardware accelerated appliances.

Most of the successful front office appliances have embraced specialized hardware such as FPGAs or network processors, because just packaging software on a server and calling it an appliance doesn’t offer a big jump in performance. Specialized hardware also minimizes jitter by eliminating the OS issues that can plague high-volume low-latency software deployments.

Back-Office: Easy Does It

In the back office, buying priorities shift. Of course performance still matters, but back-office applications are generally more about reasonable performance with very high reliability and a guarantee of delivery. In the software world, it takes a lot of effort to achieve horizontal scaling with the redundancy it takes to ensure 24×7 operations. Well designed appliances reduce the number of managed devices, and come with fault-tolerance and failover built in. Appliances often also provide operational visibility that spans both the hardware and software, making it easier to understand behavior and thresholds for operational planning.

In the back office, you will find a wider range of appliances since the application set is so much more diverse. Banking customers are some of the biggest buyers of some of the products mentioned in the Information Week article, such as the Oracle Exadata and IBM Netezza. Beyond that, IBM WebSphere Datapower and Layer7 XML Gateways provide SOA and web services solutions, F5 offers a range of security, storage and load balancing appliances for retail banking, and Solace offers a high-performance guaranteed messaging appliance for accelerated transactions and WAN distribution.

Whatever the appliance, or its role, the key to succeeding in the back office is in reducing costs, improving reliability and making life easy for the operations teams.

Financial Services: Leading the Move to Appliances

As is often the case with technological change, financial firms are leading the charge, but it really is different strokes for different folks. Few industries can match the performance demands of front office trading, and few operations teams have to deal with more complicated operations in the back office. Where the need exists the solutions emerge, and appliances are forging a permanent home within financial services IT landscape.