Cloud Computing: The Private versus the Public Cloud

Sep 27, 2013

Although cloud computing has become a ubiquitous term in both personal and business technology,  what makes up a cloud solution remains somewhat of a mystery to many end users. Outside of the financial industry, cloud computing is something that has been widely used by consumer markets for years. From Hotmail and iTunes to Google and on-line retail banking services, cloud services have been at the core of technological innovations since before they were called cloud services.

Cloud technology has enabled wider and easier access to data and service for years, but it is still a relatively new technology model for the financial industry. Despite being on the forefront of innovation in many areas, the financial industry has been somewhat slower in its adoption of cloud technology. For a long time, the issue that slowed adoption was concern over security. For financial services firms, leveraging the public internet to access applications and share data was not going to be good enough.

That was the market need that gave birth to the private cloud, which provides all of the benefits of the public cloud, but within a private network and a secure computing environment. In order to better understand why the private cloud is well suited for business, it is important to identify the ways in which public and private clouds differ?

A public cloud network, such as Google, is typically a service used for personal computing needs. It is inexpensive or, in some cases, free, and the cloud delivered service enables users to distribute and access data from anywhere at any given point in time. The main benefit of a public cloud service is easy access to data and services on a pay-per what you use, or pay nothing at all, model.

A private cloud network, otherwise known as the “cloud for business,” is specifically designed for companies that want the benefits of cloud computing but need the security of a private network and secure computing environment. Private cloud providers typically focus on providing specialized services and enriched technology environments to specific customer segments. In the case of Abacus Group, we offer private cloud services to cater to the business needs of the alternative asset management community.  Other providers might focus on healthcare or government sectors.

In finance and many other industry verticals, cloud computing services can be split up into four main categories: Software-as-a-service (SaaS), Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Recovery-as-a-Service (RaaS). While some providers look to offer solutions that cover all four categories, others look to specialize in one area and partner in others.  Here is a bit more detail on what each service provides:

  • Software-as-a-Service (SaaS) – The most common of the four cloud service offerings, SaaS offers users access to application software. Here users received access to a single instance of a hosted business application. . While support for the application is provided as a service, firm still must manage how the applications connects to and communicates with in-house technology. SaaS is commonly used on a pay-per-use basis and priced via a subscription fee.
  • Infrastructure-as-a-Service (IaaS) – Perhaps the broadest of the four services, IaaS provides a complete technology platform delivered as a cloud offering. It enables firms to run their business applications inside a managed data center or data centers with managed network connectivity among datacenters and to requisite third parties. IaaS cloud systems will usually offer other resources on-demand such as file-based storage, firewalls, and VLANs.
  • Platform-as-a-Service (PaaS) – With PaaS, cloud providers will deliver a computing platform on which users can then deploy their own applications and software solutions. This option allows firms to utilize a secure cloud platform for application development and systems integration without incurring the costs and complexity of buying the underlying hardware and software.
  • Recovery-as-a-Service (RaaS) – Also referred to as Disaster Recovery-as-a-Service (DRaaS), RaaS is a newer service sought from the cloud that offer firms a comprehensive set of disaster recovery procedures and facilities that will be enacted in the wake of a natural disaster. An outsourced RaaS provider offers significant advantages over in-house disaster recovery plans, the main advantage being that a third-party provider provides a more fail-safe option for recovery when a firm’s technology systems have been compromised. This type of cloud service was crucial to the speedy recovery and return to operations that many New York and New Jersey firms made following Hurricane Sandy in October 2012.
  • IT-as-a-Service (ITaaS) – This is a cloud computing model where the IT provider for a firm essentially runs like an internal IT department. In ITaaS, firms are able to optimize IT usage by paying only for the resources – hardware, software and IT support – that they require. ITaaS is typically billed as a monthly subscription and enables bring your own device (BYoD), flexibility and leverages the latest technology models that are developed through the use of private, public and hybrid clouds. ITaaS also offers users a high level of financial transparency on IT consumption costs.

The private could has proven to be an invaluable resource for hedge funds and private equity firms, particularly start-ups just trying to get their business off the ground.  Outsourcing to the private cloud not only cuts costs, but also provides better efficiency, scalability, virtualization, improved monitoring and enhanced security.  But one of the primary reasons that firms are migrating to the private cloud, even outside of these factors, is the speed to market. The rate at which firms can deploy new technology into the private cloud can mean the difference of several days of man power versus several weeks. For instance, building an internal infrastructure could take a firm months, while utilizing a private cloud services provider can take days.

In the last couple years, the financial industry has not only embraced private cloud computing, they have began building private cloud strategies and partnerships to further enhance business capabilities. Prime brokers and fund administrators are teaming up with private cloud service providers to offer more efficient service and faster access to data, applications and third-party services.

In the coming years, we will see the private cloud take on a larger role within the financial services industry.  In addition to prime brokers and fund administrators, the industry will continue to see an uptick in private cloud adoption among exchanges, investment banks, money managers and market makers.  As more industry players transition into the private cloud, we will see a dramatic increase in service functionality and utility as users look for ways to develop more sophisticated solutions thorough greater collaboration.


Learn more about how your firm can benefit from our comprehensive IT and cybersecurity services.

Contact Us