Cloudy Days, Cloud Macchiatos, and Cloud-Enabled Gamechangers

It was a cloudy, rainy day and I was dropping my daughter off at preschool. In a rush out the door, I forgot to grab my wallet and needed to grab something from the grocery store. I was just about to pass Whole Foods to return home for my wallet when I realized I could use Apple Pay! When I was done shopping, I ordered an Iced Caramel Cloud Macchiato at Starbucks using the Starbucks app.

Driverless cars, phones that work like money, robots that vacuum your house, 2-day shipping on anything you need or want—everyday inconveniences have nearly been eliminated from our lives. But in buy-side asset management, real disruptive digitalization has yet to take a foothold. The one exception being the cloud, which has certainly been at the forefront in recent years.

We wrote about the proliferation of cloud-based technology in the vendor and service provider market in our Outlook 2019. New implementations of locally installed software are almost non-existent, with many vendors starting to eliminate them completely. We frequently get asked about trends we are seeing in the industry and vendor marketplace. One notable trend in cloud-based technology that some vendors are striving toward (and that we are already seeing in place with the first-generation cloud native vendors) is the elimination of major version upgrades for clients. 

This model has been around for a while (think Salesforce) but not in asset management technology. To explain it in the simplest terms, this would be analogous to an iOS update for your iPhone: “A new version is available. Would you like to install now?” Now I don’t expect this to be as easy as simply clicking “install now” but it will be exponentially easier than a traditional application version upgrade. Clients will still want to do some testing on the upgraded functionality and regression testing of existing functionality, especially for core systems. I expect that vendors will have guidelines and test packages they will provide to clients, and clients will need to do some upfront work to document their standard regression tests for every upgrade, especially for downstream interfaces. 

The vendors that can provide this service are going to have a very strong advantage over those who have not invested in eliminating major upgrades. At the risk of sounding like Captain Obvious, lower cost of ownership will be a huge benefit for clients. Given the invasiveness of application upgrades of the past, this concept will eliminate some very expensive, time consuming projects. Further, I think this will increase vendor loyalty. ‘Upgrade time’ can sometimes be a crossroads for an asset manager—we see many asset managers exploring their options when faced with the need to upgrade their current vendor application. Not having to upgrade could increase customer loyalty to their incumbent vendors.

Anyone who has been through an application upgrade understands eliminating major upgrades will be a gamechanger. Keep this in mind next time you are talking to a prospective vendor. Your future self will thank you in 5–7 years.