As asset managers face challenges around fee compression and growth in passive funds the focus is now on managing operational expenses to reduce costs. Cost pressures are also a driving factor in the movement towards consolidation in the investment industry where scalable platform(s) are consolidated to gain scale and enable growth.
Legacy systems pose a key challenge in this fight to contain costs as keeping them operational can be a significant expense.
If firms can adopt a business model where increased operational costs are incurred only if volume increases then this can be a key competitive differentiator from the current state.
This dynamic cost model is the new ‘Pay per Use’ model applied to the cloud services today by firms such as #snowflakedb.
The new model can be enabled by having a roadmap to build applications that use cloud native architecture.
Key features of this model as it relates to ‘Applications Software’ are :
a. Software licensing costs – fixed/tiered
b. Storage costs – dynamic
c. Compute (CPU/memory) costs – dynamic
Adopting the ‘Pay Per Use’ model will allow firms to make operational costs ‘elastic’ which can be key to stay competitive in this dynamic market.