As some large financial services companies convert parts of their operating systems to Linux - the free, open-source alternative to Unix and other proprietary products - a debate has emerged among vendors about what the newish technology does best.
A growing number have embraced Linux. Some, like the securities giant Morgan Stanley & Co., have implemented large-scale deployments, while Goldman Sachs Group Inc. is among those in the early phases of adoption. Other users include Lehman Brothers, Merrill Lynch & Co., and Credit Suisse First Boston Corp. And while much of the Linux activity in the financial services sector to date has come from the securities end, banks are likely to be the next major market to adopt the technology.
At the LinuxWorld conference in New York last week, where several financial companies discussed Linux's part in their IT strategy, two name vendors gave clashing views on the system's applications.
International Business Machines Corp. arrived with the message that Linux can and should be used for core processing, where it has yet to make a grand entrance. Sun Microsystems Inc., on the other hand, said Linux is ideal for small-transaction processing by large numbers of employees, and that could mean desktop operating systems for bank tellers or cheaper servers for smaller remote offices.
Both camps agree on a few things: Linux is affordable and dependable, and those qualities count for a lot.
John Sarsgard, the vice president of IBM's Linux sales programs, said many core processing systems are ripe for replacement, and that Linux is a logical choice. "Those machines are the oldest things around, and they are always the last to change," he said. "Linux is just now maturing to the point where it's ready for an environment like that."
A corollary to consolidations is the chore of integrating customer data stored on incompatible computer systems, Mr. Sarsgard noted. This is driving many banks and other financial services companies to upgrade their computer networks, and many of them are choosing Linux.
A second area where financial companies are starting to use Linux is in the systems that analysts employ in creating research and applying models. Having a cluster of servers crunch risk-analysis data can cost less than using a proprietary Unix-based machine.
Jonathan Schwartz, vice president for software at Sun Microsystems in Santa Clara, Calif., agreed with Mr. Sarsgard that Linux is more cost-effective than traditional systems but said he did not see it as the backbone of core processing systems. "We think the dominant opportunity for Linux deployment is in transaction workers, because these are places where the companies can save a lot of money."
Mr. Sarsgard agreed that a Linux-based operating system could be much cheaper than the standard Windows environment. "Why spend $350 for a desktop when you could spend $10?" he asked.
However, Larry Tabb, a senior strategic adviser for the TowerGroup Inc. research firm in Needham, Mass., said Linux will probably be used at first as a Unix replacement. This is a threat to Sun and others that design and sell proprietary servers that run on Unix coding. Last year Linux-based servers accounted for 7% of servers shipped into the financial services industry, versus 5% in 2000 and zero in 1998 (data on the odd-numbered years were not given). Mr. Tabb said he expects Linux shipments to grow 22% a year through 2005 and those of Unix to drop 9% a year.
Linux - and the open source movement, as the free-software idea is known - has won more than its share of boosters, who suggest that the operating system could be used to run everything from Palm Pilots to automated teller machines, desktops to mainframes.
"We are in an arms race in terms of technology and computing power," said Jeffrey Birnbaum, the managing director and global head of enterprise computing for Morgan Stanley's institutional securities division. To enhance its IT capabilities and at the same time cut data processing costs, Morgan Stanley began an extensive migration of its technology infrastructure in May 2001, using Linux to improve performance on its network of 6,000-odd servers and 36,500 desktop and laptop machines, linking more than 50 sites worldwide.
Red Hat Inc., of Raleigh, N.C., is one of the leading Linux vendors and Morgan Stanley's vendor in its IT overhaul. Linux can run on any type of machine, but one of the main cost advantages comes from shifting away from Unix-based expensive proprietary computing systems to commodity machines that use the same basic components as desktop PCs.
Red Hat's chief technology officer, Michael Tiemann, said Morgan Stanley's network was driven 20% by commodity machines at the start of the transition. The original goal was to raise that to 80% by 2007, and with a 40%-to-50% shift done, it is expected the 80% mark will be reached by 2005.
"We can see that computing performance and reliability are both up, and their costs have come way down," Mr. Tiemann said.
Linux is essentially an operating system, the basic software that lets a computer run other applications; Microsoft Corp.'s Windows is the dominant operating system today, though many mainframes and some high-end servers and workstations use variants of the older Unix operating system. Both of those are proprietary packages, completely owned by the software company - in stark contrast to Linux, which was explicitly designed to be in the public domain.
Most Unix-based machines also use proprietary hardware architectures, and cost more than standard computer designs. Though the basic Linux software is distributed free, many new companies offer installation and support services, as well as modified versions of the code and documentation that allow people without extensive training to understand how to use it. This model is no longer free but is still much cheaper than the competing operating systems.
"Linux is on track to become a mainstream operating system" in financial services, said Dan Kusnetzky, vice president for systems software research at International Data Corp. in Framingham, Mass. "It's moving away from the early-adopter stage and is showing up more and more."
Jim Hunt, vice president of computer platform engineering at Goldman Sachs, said it has begun using Linux for some of its most intricate analytic computations. "We are in the early phase of adoption," he said. "Using Linux basically allows us to use Unix-type applications on generic Intel-based hardware." The savings have been considerable, he said.
Mr. Kusnetzky said the complexity of these computations previously would have required a supercomputer, but using Linux on a cluster of servers is now viable. "I don't know of too many companies that are willing to spend millions of dollars on a supercomputer when there is a less-expensive alternative," he said.
