Wall Street Grids: The Cloud or the Data Center?

Is in-house financial grid computing "dead" and headed for the cloud? Or is it alive and well and rapidly filling data center space from existing providers?

I read a lot of blogs and listen to a lot of conference calls from public companies in the sector. Last week's intake provided a stark difference between the view from the cloud and the reporting of events on the ground from data center developers.

In a post last Thursday, Reuven Cohen of Enomaly predicted that Grid is Dead, citing discussions with prospects in New York:

Reuven offers a technical discussion of utilization rates and how clouds and virtualized grids might improve the performance of financial applications.

I don't doubt that Wall Street IT executives are having interesting discussions about the potential of cloud computing. But in the meantime, they're leasing large amounts of single-tenant turn-key data center space from Digital Realty Trust (DLR) to run these apps in their own space, as was clearly indicated in the company's conference call with analysts last week.

"We are seeing a lot of the demand driven from the financial services industry for these internal grid computing (and) cloud-type computing applications," said Bill Stein, the CFO of Digital Realty, which is the world's largest landlord of data center space. "You have cloud computing or utility computing within a company, and that's where we're seeing a lot of the demand, especially from the financial services industry, where they are ratcheting up and down computing power for different applications, especially highly computational type applications and risk management and derivatives pricing and such."

Digital Realty CEO Michael Foust said the strong demand from Wall Street is helping the financial sector become an even bigger part of its business. Financial services firms represent 12 percent of Digital Realty's current revenues, but about a third of the deals in its sales pipeline.

The Digital Realty executives confirm that there has been a shift in their portfolio, as financial firms that previously would have built their own facilities are instead leasing data center space that has been built by Digital. We've previously noted the growth of Digital Realty's Turn-Key Datacenter program, which allows tenants to preserve capital and deploy new space more quickly.

Is the shift from build-your-own data centers to turn-key space an interim step for financial grid apps before they eventually migrate to the cloud? Perhaps. But Digital's leasing suggests that for the next several years, many Wall Street firms are likely to keep their grids in-house.