Archipelago: Tech Contrarian

By Maria Trombly, Securities Industry News
8 December 2003

At a time when other Wall Street firms are replacing expensive proprietary servers with cheap Wintel or Linux boxes, Archipelago is bucking the trend.

Although Archipelago Holdings-the parent of the electronic ArcaEx exchange-initially started out by using Windows servers on Intel hardware, it has since moved to Solaris and become a dedicated Sun customer.

“Among other things, we’re in the business of risk management,” said Steve Rubinow, Archipelago ‘s CTO. “We move so quickly around here, because it’s the style of our company-because we’re so small, nimble and flexible, and because the marketplace demands it. But we want to make sure, when we’re implementing systems, that we do things that give us the most likely favorable outcome.”

That means using products that are tried and true, he explained.

“Some people think we’re contrarian,” he admitted. “But we don’t get any surprises with Sun. When we’re putting stuff in, we know how long it’s going to take, we know how much it’s going to cost, and we know how it’s going to perform. We don’t get into these funny situations when things aren’t working and vendors are trying to figure out what’s going on and we’re losing time to market.”

In August 2002, Archipelago acquired GlobeNet, an ECN for Nasdaq and over-the-counter bulletin board (OTCBB) stocks. At that time, Archipelago was working almost exclusively in a Wintel environment, Rubinow said.

“It was helping to support the business, clearly,” he said. “But in terms of performance, reliability and all the things we knew we needed to go to the next level, we didn’t think that Wintel was going to take us there.”

Windows not reliable enough
Rubinow admits that every release of the Windows operating systems is better than the previous version. “But having said that, it goes back to where am I going to get the most predictable outcome?” he said. “If I use Solaris or another Unix OS, I can point to large financial institutions all over the world that have done similar things to what we’re doing and have been happy with the results. With the MS environment, it’s a little bit more theoretical. Yes, you can point to a laboratory. But if I look around the world, I don’t have any examples to look at. I don’t have the confidence to say, Well, in theory it should work out, so let’s do that.”

The acquisition of GlobeNet was a turning point for Archipelago, since Archipelago had decided to use GlobeNet’s technology as a key part of ArcaEx’s platform. That technology had been developed on the Sun platform. Rubinow said that he looked at other technology providers as well, but Sun had the longest track record for doing what Archipelago needed.

All Nasdaq-listed stocks were rolled over to the new exchange in April of 2003. During the six-month project, “several hundred” Wintel machines were replaced with six SunFire 4800 servers and around 20 smaller SunFire 280 machines running the Solaris 9 operating system. The SunFire 4800 servers are used for the matching engine that is at the heart of the exchange, and to support the database servers. Less computing-intensive applications, such as the Web servers, are supported by the smaller machines.

Each SunFire server replaced 10, 20 or even 30 Wintel servers, Rubinow said. This was partly due to the fact that the SunFire servers had more horsepower than the Wintel machines, but also because the applications were re-architected to be more efficient.

Fewer servers saves big money 
Consolidating servers from many smaller machines to fewer mid-sized boxes is actually one of the main drivers of the server marketplaces, said IDC analyst Jean Bozman, and mid-sized servers are a major factor in Sun’s market strategy. According to Bozman, at its peak Sun earned around $5 billion in revenue per year thanks to its very high-end, very expensive machines. By moving into the mid-sized and low-end server markets, Sun’s revenues have fallen but its unit shipments have actually grown, she said.

“We’re totally focused on low-cost computing and we’ve reengineering and redesigned the company around that,” said David Littlewood, director of worldwide financial services at Sun.

Part of the change is that Sun has embraced the Intel hardware platform, both for its core Solaris operating system and for Linux as well. That’s a very significant change for us in the last 12 months,” Littlewood said. “It means we get to play in the Linux market and also aggressively compete with Microsoft.”

Rubinow said that he couldn’t give out information about how much the project cost, but said that there were no significant cost overruns and the final price tag was “pretty much on target.”

Added Rubinow: “The switch went relatively smoothly. Based on my experience, it went more smoothly than a project should go. We had good people working for us, good vendors, and a little bit of luck didn’t hurt, either.”

Furthermore, since 26 servers take up much less room than several hundred Wintel servers, need fewer software licenses and require fewer people to maintain, Archipelago saves quite a bit of money in ongoing costs.

“We did a total cost of ownership study before and after the transition and there was a very substantial cost savings,” Rubinow said. “I prefer not to mention exactly how much, but it was huge. If we haven’t hit the break-even point already, we’re going to hit it soon.”

Today, Archipelago is about halfway through the transition process. Some Wintel servers will still remain when the conversion is complete, Rubinow said, to run Microsoft Office applications, communication gateways, print and file servers, and other administrative tasks.

The transition did involve some challenges, he said, including a very tight time frame. It also required the company to find Solaris-literate staff. To help during the transition, Archipelago brought in some contractors, some of whom remained with the company, and hired a few permanent staffers.

No Microsoft people were let go, he added, because a large number of Wintel servers still remain. “And most of the people we have are technologists at heart and are willing to learn the new technology,” he said. “We expect most of them to make the transition.”

To help the process along, Archipelago offers both formal and on-the-job Solaris training to its technology staff. This is especially crucial in the next few months, when several hundred more Wintel machines will be permanently retired as all exchange business moves to Sun.

Eyeing other operational systems
However, that doesn’t mean that the door is completely closed to other operating systems, Rubinow said.

“We’re making sure that we have all our bases covered,” he said. “We are looking at some of the things we’re doing on Wintel and Solaris to see how they will perform on the Lintel [Linux on Intel] platform because of the press about it being so attractive from a price-performance perspective. The thing about the Linux applications isn’t that we have a problem we need to solve. But if we can get 10 times the performance by using the Linux platform [for the same price], we need to see if that’s true.”

Today, the cost savings don’t seem substantial enough for Archipelago to make the switch, Rubinow said. For example, the company doesn’t have enough Web servers to make it cost-effective to switch them over to Linux.

“We have three or four of them,” Rubinow said. “Sure, we would save some money, but not so much money that it becomes urgent for us. We are looking at other applications, however, where the cost savings are more apparent.”

He added that Archipelago decided not to evaluate Linux as a possible operating system for the main exchange platform because, at the time the decision was made, he didn’t know of anyone else who was using Linux for that purpose.

“We couldn’t afford to take the chance,” he said. “From a business standpoint, it would be too risky. I don’t want to be one of those guys who discovers the first flaw and waits for people to fix it. I want other guys to find it.”