Asset Managers need to reduce their costs – SaaS will help

Date: September 18, 2009

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.