There are many flavours of build/buy in the typical capital markets sell-side trading application. Some banks such as Goldman appear to enjoy building their own database, language and then the trading applications on top of their home grown infrastructure. Other sell-side companies are happy to buy off the shelf infrastructure, building only the trading application itself using standard development languages. In general there appears to be a general trend that US investment banks appear to prefer to build rather than buy, where as the European banks are the reverse – my view
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The banks that prefer to build present a challenge for any product company. Product companies normally charge hefty licence fees per CPU, and expect to make a good margin on all sales. In the case of these “builder” sell-side corporations, the first challenge is getting your product to a Proof Of Concept (POC) stage. Post the POC it’s all really down to cost – especially in the current credit-crunch climate. A product company can have the best “solution” in the world, but if the cost isn’t right you could find the door well and truly closed – possible for a number of years until the next POC appears. Product companies need to take a step back and understand that if you can sell your product to a successful project then this is more than likely the best advertising you’ll get within the bank, which will generate future licensing fees coupled with the likely hood that other projects will leverage the successful architecture and knowledge from the initial project thereby generating new licensing revenue for the product company.
Unfortunately, if the product company doesn’t “get” the above they’ll fail post POC with a degree of negative exposure that will probably be well documented on some wiki within the organisation thereby ensuring that the sell-side doesn’t POC again for 2-3years. You can also guarantee that any future POC for product vNext will have to initially overcome the original purchase blocking issue.
In summary, product companies need to understand the impact of their action.
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