Asset Managers need to reduce
their costs – SaaS will help
Why StatPro is evolving its business
model
Time changes everything. What was once state of the art becomes a
cumbersome nuisance at some point. The explosion of activity that
occurred in the 90's when hundreds of small software companies
built applications to sell to asset managers allowed a big increase
in efficiency. Processes that had taken weeks were reduced to hours
or minutes. New processes that were impossible dreams became a
reality. This was all possible because of windows and Visual Basic
and the process was not unique to asset managers but affected every
business sector. By comparison the Dot Com boom did not reach the
business community but was aimed at the retail market and when it
busted prematurely, development slowed.
So today the IT landscape of the Asset management industry is one
where any company of any size has 10 to 20 important systems upon
which they depend for a variety of essential services. The majority
of these systems are all provided as software that is installed on
the company's own servers in their own IT centre. They will
probably have many other applications of less importance that they
run as well. The result is that they have large IT teams, complex
processes and relatively high costs.
Some companies have tried to outsource the whole thing to a third
party such as a custodian or IT services provider. However, there
are many horror stories that warn this is not a simple solution. In
fact the rule of thumb is that if your IT department works well and
efficiently, you can outsource it, but if it is inefficient you
can't. The outsourcer cannot be expected to unravel your
mess.
What has worked however .is selective outsourcing. This typically
means getting the supplier of your system to host their own
application. This makes sense as the supplier ought to know how to
support their own product and if they do this for all their
clients, they can get economies of scale which a generalist
outsourcer cannot hope to achieve.
The other factor is that Web 2.0 has unleashed a new revolution in
IT making it possible for suppliers to provide "Software as a
Service" (SaaS) solutions over the Internet and with relatively low
cost. Incumbent suppliers are reluctant to adopt this new
technology as they fear cannibalisation of their existing business
and because they calculate that such is the complexity of the
processes that surround their embedded systems, clients will be
loathed to move anyway. That leaves the door open for start-ups,
but < this generation have a much bigger battle than the class
of '95 as the standards and functionality they have to match are
significantly higher and the gains in efficiency are less about
time and volume and more about money. Clients want the same for
less rather than more for the same.
This is the thinking behind StatPro's own strategy. We believe that
eventually all our clients will want to access their services over
the web just in the way that we all use email rather than a fax (or
telex, or telegram). Indeed, email is fast being superseded by
instant messaging. However, we also recognise that clients cannot
simply throw everything out and start again, but rather need to
evolve in a sensible direction according to a plan that has been
tried and tested. The last thing anyone wants to do is jeopardise
their business for the sake of saving a relatively small amount of
money.
This means that we have focused on deploying new services and
products that offer quick savings for clients whilst moving them
towards the strategic objective of low-cost web-based
applications.
StatPro has built a solid reputation as a supplier of Data for
valuations and Analytics systems that cover Performance,
Attribution, Risk, Compliance, GIPS and Reporting. Right now, most
of StatPro's clients deploy our software on their own servers. They
feed the software with index data and market data from third
parties and finally with their own data. The result is that the
cost of the software we supply (on a subscription basis) amounts to
less than 10% of their total annual cost of ownership in most
cases. IT costs are about 10%< , data supply will be about 30%
and 50% employee costs although some of those employee costs relate
to managing IT and data.
We are in a position to offer our clients the IT platform and the
third party data and we believe that by doing so we can reduce the
total cost of ownership to 70% or less of what it is despite
charging additional fees for IT and data. This is because we can
offer the IT platform together with the index and market data at a
very low rate.
Apart from saving our clients money, we will also improve their
service as we will have direct access to their system in the event
there is a problem. We will also save our clients further money
because we will not have to charge them to upgrade their software.
The clients will receive upgrades when we are ready, not when their
IT departments are ready. Overall, the complexity of process and
the management time required to follow it all will be slashed so
there will be other hidden savings and benefits. If a client buys
more products from us to replace legacy software we will offer
further discounts and savings.
It is also important to note that it will be easy for the clients
to take this new service as it is a simple matter of us putting
their existing system on to our platform. From there we will
upgrade them progressively and, from their point of view,
painlessly.
The second stage in our strategy is what we call SaaS2 which is a
SaaS product built from scratch. This product takes full advantage
of all the latest technology as well as our accumulated knowledge
about our products. Once the platform is launched however, it will
be relatively easy for us to migrate clients to it from the SaaS1
platform if they wish to use it. This new platform will be released
in beta form during 2009 and go live in 2010.
Many asset managers must be thinking about SaaS as a way to reduce
their costs, but the obstacle they will encounter is the complexity
of getting there and doing so for a wide number of applications. We
believe that our approach offers a strategic shift with clear and
immediate savings whilst laying the groundwork for the final move
to a pure SaaS platform which in turn will allow greater
savings.
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