Business Lesson 2

Date: September 29, 2011

When we first faced the question of switching to Cloud technology from traditional technology, the biggest question was around the business model. We were keen from the outset to change the model and adapt it to the technology. We ended up deciding to offer all the core functionality of StatPro Revolution to anyone who bought just one portfolio. Why was that?

Well, we thought about the existing model and decided that it didn’t make any sense any more. When you have a very specialized application and only a few very large and demanding clients that need it, it is not economic to sell the application cheaply to attract as many clients as possible. The total to the client is very high as well: We once worked out that a typical client of ours or our competitors spent approximately 10% of their budget on the software and the rest on projects, data, IT, infrastructure and specialists. As a result, some vendors have made a virtue out of the problem and built complicated consulting businesses around their products.

The problem with this is that an awful lot of IT work is “meta” work, or work that creates work. These are the real hidden costs that lurk around every decision to buy your own software and host it yourself. What is more, every quick fix and little integration binds the client into the current version and prevents easy upgrades. The result is that vendors that follow this route regularly increase their consulting revenues and have every motivation to keep on increasing it, but this can’t be in the interests of the client.

Ideally, a client should never have any need of consulting or IT or infrastructure, but instead can just select what services they want from a menu and pay a proportionate price for that service based on their need and usage (just like you buy electricity or telecoms). Because there are so many potential users of StatPro Revolution and because the cost to us is broadly linked to computation time and data consumption, we feel able to amortise the cost across all potential portfolios thus allowing us to offer StatPro Revolution to the smallest and largest asset managers for $100 per month per portfolio. The beauty is that we can now focus better on the service we offer our clients rather than the maintenance of lots of different versions of the product.

Cloud computing is a Technology Revolution that is creating productivity improvements akin to the Industrial Revolution or Digital Revolution. Everything in application development will change as a result. I love it.

Join our debate on the Cloud and portfolio analysis through a free webinar with Investment News and Citisoft next week.

To learn more about 13f-2 watch our webinar replay Part 1: Unpacking the SEC's New Disclosure Rules for Shareholders
Join us for Part 2: Operationalizing the SEC's New Disclosure Rules, for Shareholders on December 12.