Open Season

An ever increasing number of firms are turning to open source software, but the appeal extends far further than the price. By John Beck

The year 2009 was a big, and in some ways surprising, year for open-source software. Some high-profile users in some very high places made the switch from proprietary systems-back in October, the new media team at the White House announced that the whitehouse.gov Web site is now running on open-source content management system Drupal. Similarly, the US Department of Defense said open-source software was almost always equal to commercial alternatives and should by law be considered when looking to make new purchase decisions. Other milestones included the Apache Software Foundation's 10th birthday, and Red Hat replacing bankrupt lender CIT Group in the Standard and Poor's 500 stock index in July.

Even Microsoft got in on the act. In an unexpected move, the software giant released Linux device driver code under General Public License v2.0 in 2009. Later in the year it also unveiled a tool to create bootable USB drives for the Windows 7 operating system, which included open-source code.

In the financial world, the biggest news was surely Oracle's $7.4 billion bid to acquire Sun Microsystems, a move that could make Oracle the world's largest open-source technology provider and hand over control of projects that include Open Solaris, Open Office and MySQL. Elsewhere, Bloomberg announced a data distribution system, called, simply, The Platform, which will be licensed as an open-source software initiative, and built on servers running on Linux. Some form of open-source software is now almost ubiquitous among capital markets firms, according to many industry observers.

So what is behind the increase in popularity? In a world where "doing more with less" has become a cringe-worthy cliché, it might be tempting to assume that withered budgets have led to CIOs turning to open-source software to save money on licensing fees and initial startup costs. However, the bulk of the outlay involved in putting together new systems rarely comes from license fees. "A huge proportion of the expense is people costs, regardless of whether you choose propriety software or not," says Paul Pickup, London-based strategic IT consultant for analyst firm Trading Technology. "Concentrating on the license fees is missing the point."

In fact, the flexibility and merits of the software itself has been central to the decisions. The demands of the latest generation of super-fast traders in particular has driven uptake, Pickup says. "The reason open source has become attractive is that it is usually based on Linux, which is the fastest operating system. Open-source solutions are simply the best engineering with the lowest latency, which is what banks and brokers want at the moment. Open-source products can be tweaked much more to have the kind of performance characteristics you want. That is worth a lot, and many firms are prepared to spend to a lot of effort to make things run a bit faster." Indeed, Chi-X let slip that its Chi-X Core Matching Engine resides on a Linux system, while direct datafeed interface Itch and digital communications protocol Ouch are used by Direct Edge and Bats Trading.

Steering clear of proprietary software also comes in handy for fast-tracking development cycles, adds Adam Honoré, research director with Aite Group. A trend toward shorter, iterative development cycles is driving a move toward using open-source components rather than writing everything, he says.

The number of people with the skills to work with open-source tools and systems is also growing, says Dominic Connor, director at P&D Quantitative Recruitment, and former head of IT at London-based fixed-income brokerage King & Shaxson. "One of the reasons for the upside is that the number of people who actually understand the various systems has grown rapidly. It used to be that if you lost the person who worked with a particular system there might be literally no one around to take their place." Honoré adds that while open source has in the past lacked the expertise critical to capital markets operations, things are now changing, with many firms contributing to open source development and playing an active role in the communities.

Even organizations still firmly entrenched in the "you get what you pay for" mindset may still be utilizing a fair amount of open-source technology whether they intend to or not. "There has been a recent trend for larger organizations to avoid getting involved in low-level technology, bringing in technology vendors instead, many of which base a lot of their stuff on open-source components," says Pickup.

It may also make its way into systems via a slightly different route-downloading what Connor describes as "code snippets" from collaborative online directories or forums and inserting them into a program. "I don't think there is any significant software project at any bank that hasn't scooped some code off the Web and stuck it in their program," he says. "If you did a massive file compare on the source code in a major bank, it would throw up thousands of matches that were obviously cut and pasted in." He says that this could well lead to copyright spats and lawsuits. Honoré says, however, "Engineers have been doing that forever, I don't see much controversy in it at all."

Despite increased usage, open source is not without a downside. Even the oft-trumpeted security advantages come with risks, says Connor. "The biggest security issue with open source is that people believe it is more secure, and that is self-defeating. When people start to believe their own propaganda about a platform being inherently safer than another, they are in trouble." He adds that if things do go wrong there may be no outside party to turn to for help. "You can do anything you are clever enough to think of and program with open-source code, but there is a relatively deep downside that comes with that. If a proprietary system goes wrong you can get the vendor to come in and fix it, but if you modify open source too much, then you may well just be stuck until your programmers work out how to repair the mess."

Nevertheless, it is a trend that looks set to continue, eventually evolving into something new alongside the other existing software paradigms, Honoré says. "We have started seeing vendors playing into this through what I would call a federated source community, where customers can mix internal development with open-source and vendor components, instead of taking vendor solutions in their entirety. That is where I see the market going: a heterogeneous development environment where everyone has options at play."

Blocking the Sun When Oracle announced its $7.4 billion bid for Sun Microsystems, regulatory opinion seemed split. In the US, antitrust regulators cleared the deal back in August, but the European Commission (EC) remained concerned. An antitrust investigation was opened in September and formal objections were raised two months later. Because the proposed deal would see the world's leading proprietary database vendor taking over the world's leading open source database vendor-Sun's MySQL directly competes with Oracle's databases in a number of markets-the specter of higher prices and less choice for customers via reduced support for MySQL was raised. In an environment that requires ever more database usage-thanks to the sheer amount of information to be saved, as well as increased regulatory demands-such a prospect is likely to concern CIOs. "It scares people," says Adam Honoré of Aite Group. "That's the number one concern among capital markets users of Sun products." The key issue for regulators, according to a statement from European Union (EU) spokesperson Jonathan Todd, was "the extent to which open-source software developers would be able to continue to develop products based on the open-source MySQL database." Oracle publicly responded to the objections in November, commenting that "The Commission's Statement of Objections reveals a profound misunderstanding of both database competition and open-source dynamics." The Oracle representative pointed out that because MySQL is open source, it cannot be controlled by anyone. In any case, the way may now be clear for the protracted deal. Last month, Oracle said it had taken part in discussions with the EC and committed to measures that would ensure the future of MySQL "as a competitive force in the database market." These included continuing to improve and develop the database, spending more on research and development than the $24 million spent by Sun in its last fiscal year, and the promise to bankroll a newly created customer advisory board and storage engine vendor advisory board. Moreover, users will be able to obtain a MySQL commercial license without the mandatory purchase of support services from Oracle. The EC welcomed the announcement, and European commissioner for competition, Neelie Kross, said in a statement that she was optimistic that a satisfactory outcome to the case would be reached without impacting competition in the European database market. Honoré says he is confident that the future of MySQL will be secured. "I think the deal may go ahead, but this will continue to be a sticking point. I don't think you will see any blanket assurance without approval around the MySQL product. Regardless, if MySQL did suffer under Oracle, I think you would start to see a new level of competition in the market, such as someone launching a MySQL competitor, which certainly wouldn't be in Oracle's best interests. Also, if they did kill it, it wouldn't serve its continuing M&A activity-they really don't want examples like that next time they go before the EU."