InformationWeek

Why not hire a technology company to run the proprietary market for you?

In the rush to compete in the hot market for hosting software over the Internet, a number of financial-services and capital-markets software companies are declaring themselves application service providers. "We see the trend as explosive," says Carl Carrie, CEO of TheBeast.com Inc., which last month launched TheBeast Online, an ASP for capital markets. "We see most software vendors transforming themselves into ASPs."

Financial-industry-specific ASPs focus on deploying vertical applications such as proprietary trading, portfolio accounting, and customer-relationship management for institutional sales and trading. Within this group are financial and capital-markets software companies retrofitting their products to run across the Internet, and companies born specifically to host software for financial firms.

Those joining the ASP frenzy include old-economy vendors Infinity, Princeton Financial Systems, and SS&C Technologies. "The investment-management side really wants to reduce costs and differentiate itself," says Larry Tabb, director of the securities and investments practice at research and consulting firm Tower Group. "They're looking to call themselves ASPs and to deliver their products in a virtual way."

But analysts question whether investment-management software companies have the expertise to run as ASPs. "It's a whole different business," says Robert Hegarty, research director, investment-management technology, at Tower Group. Instead of the emphasis on industry knowledge, "They need to know how to manage a data center that's Web-enabled," he says. Software providers could easily partner with companies such as Exodus Communications Inc. for this, Tabb says.

Old-economy players see the ASP model as an opportunity to expand their market share by serving up access to small and midsize companies. As a first move, Infinity has launched eFinity, a back-office service that processes, clears, and settles derivatives instruments, whose value is based on an index of stocks, bonds, commodities, or currencies.

"The back office is traditionally seen as a cost center, and most organizations are running it not as a separate business unit, but as overhead," says Clare Porter, VP at Infinity, adding that a bank's processing unit would be most adaptable to using an ASP service. To offer the service, Infinity has teamed with SunGard Business Continuity and Internet Services, which provides the hardware infrastructure, disaster recovery, and links to the Internet.

Traditional financial-software companies will no doubt face competition from new-economy ASPs, which have designed their software from scratch to work on the Internet. These vendors are teaming up with large global IT companies to offer their services.

EPit Inc., a San Francisco maker of electronic-exchange trading software, recently teamed with Hewlett-Packard to bring the full functionality of open-outcry trading pits to PC screens. HP is supplying the infrastructure, including the scalability and security features, as well as $8 million in venture-capital financing.

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