Disruptive technologies are everywhere. This fact should not be news to any readers of this blog post. Technology has dramatically lowered the barriers to entry and accelerated the pace of change in almost every market globally. The business headlines seem often saturated with new models that are shaking up the status quo: iTunes to the music industry; Spotify to iTunes; Netflix to Blockbuster; Amazon to everything retail; Android to Symbian, iOS and Blackberry. Implications for these market disruptions are far and wide, often to the betterment of prosumers and consumers, while devastating those on the wrong side of the deal. The future promises to present more disruptive technologies, not less.
One group of business models that have been gaining momentum of late is that of Open-Sourced Software (OSS). The success of RedHat, SugarCRM, Android and more recently Cloudera (Hadoop) have turned conventional approaches to IP and development on their head. OSS allow firms to engage the vast scope of the international development community, on a scale that would be challenging with traditional close-sourced approaches. Many major Tech players such as Oracle and Google have begun to fund their own open-source projects; even Apple has been making a significant effort to harness the power of the crowd for different parts of their OS code. Reasons for these strategic forays will always be subject to speculation, but the clear disruption to traditional closed-sourced players such as Microsoft is tangible. Apache's total domination of the web server market, at 70%, shows how much open-source has impacted the modern tech sector.
We all know that technology can be a source of competitive advantage for businesses in the financial services industry. However, is all of the technology a genuine source of competitive advantage? Probably not. Yet we still find many firms pouring countless resources into constantly rebuilding and reshaping the same legacy software code as their competitors, despite this not providing tangible strategic advantage. One solution to this on-going challenge is for firms to use and contribute to open-source software for these non-competitive components. This is more than simply using open-source software (e.g. Linux, Apache Web Server, Hadoop etc), it is engaging in the process of opening up the broader technology stack and working collaboratively with industry peers to build it.
In recent memory, there have been attempts to promote this type of activity in the Financial Services sector: Morgan Stanley's A+ language, Dresdner Kleinwort with OpenAdapter, and Deutsche Bank's Lodestone initiative. Occasionally, the industry has pushed back against such approaches. IT leaders often felt that open-source projects lack sufficient support, pose unquantified security risks and have opaque licensing structures. While valid, these objections haven't slowed the increasing rate of OSS adoption as firm's see the cost advantage of this model.
To that end, the disruption we may expect to see on the horizon is for firms to move from mere consumers of OSS to major co-developers, like their silicon valley counterparts. This would enable organizations to direct most of their attention and budget on developing their "secret sauce" for competitive advantage. The continued shake-up of the financial services sector through regulation, technology and new models of competition could bring this change to the forefront. One organization leading the pack is OpenGamma, an open-source risk and analytics platform that is gaining traction. The high-profile funding they have received from industry leaders shows how far we have come in embracing open-source as a viable approach.
OpenGamma's success may reveal the way forward for the industry. As is often the case, it is the entrepreneurs and not the incumbents who push the market with disruption. What parts of the technology stack are likely targets for an open-source approach? Our guess is that the FinTech startup community will show us the way.