Is Linux technology set to Elbow Unix off Wall Street?

By Maria Trombly | Securities Industry News | Feb. 3, 2003

Morgan Stanley Dean Witter has been seduced by a penguin, the cute little mascot for the open-source Linux operating system, once a favorite of nerds everywhere and now a mainstay in the enterprise as well. In a remarkable development, a free platform put together by volunteers working in their spare time, has become the operating system of choice for many Wall Street firms. Morgan Stanley is one of them.

The reason? Money.

Jeffrey Birnbaum, global head of enterprise computing for institutional securities, said he was told in 2001 that he needed to spend less money on computers. Morgan Stanley's institutional division has almost 4,000 Unix-based servers in four major hubs and 30 satellite offices worldwide.

At the same time, the company required more and more computing power as it has increased trade volume and the speed and complexity of its order execution programs. "The work we will have to process tomorrow requires greater CPU power than today," Birnbaum said.

The first thing he found when he started looking for alternatives to Morgan Stanley's proprietary Unix-based systems was that he didn't really need the largest SMP (symmetric multiprocessor) machines.

"Our in-house developed applications would actually run best on the machines on the order of two to four CPUs," he said. "We had a lot of large SMP machines, with more than four CPUs, but we found that we weren't getting any benefit from that. Our applications didn't run better, and these machines had a bigger risk-there's a higher chance that one of those CPUs will fail, and then the whole machine goes down."

In addition, he said, there was a premium for larger SMP machines. An eight-processor machine is more than twice as expensive as a four-processor machine.

"We needed to get to a commodity computing platform," he said. One of the advantages of going with a commodity is that you get more performance at a constant cost over time. Moore's Law is at work, in the customer's favor. "We're not seeing the same curve in the proprietary Unix space."

The reason is that the three major vendors of Unix systems on Wall Street-Sun with its Solaris operating system, HP with HPUX and IBM with AIX-bundle their platforms with proprietary hardware. It's similar to the way that personal computers were sold before Microsoft DOS (and later Windows) came along.

Microsoft is trying to take on Unix as well with its Windows Server 2003, due out later this year, but Windows is at a disadvantage in this space. That's because it's easier to move applications running on Solaris and other Unix-based systems to Linux, also a Unix-based system.

In fact, going from, say, Solaris to Linux is only slightly more difficult than going from Solaris 7 to Solaris 8, Birnbaum said.

"And we're always being forced to upgrade anyway," he added. "So, in effect, it was zero additional cost to do the port. Now, Microsoft has made a concerted effort to make the port easier, and they have, but it's still not the same."

In addition, he said, it was easy to move programmers to Linux. "We did not hire any quote Linux' people to do this," he said. Instead, he sent his existing Unix developers to training for a couple of days or a week. "And they were up to speed. Because, again, it's Unix."

To get an estimate of the absolute minimum cost savings he could expect to see, Birnbaum calculated the costs of replacing proprietary Unix machines with Linux on Intel as they came to the end of their life cycles, without adding any additional servers. Within five years, about 80 percent of all servers would be running Linux, and the company would save millions of dollars. He would not give the exact number, but said it was substantial.

The first application to move to Linux was the equity options calculator, which was deployed on Linux in November of 2001.

After calculating all the costs, the Linux on Intel alternative had 13 times the price performance of the equivalent Unix alternative. Part of the reason for lower costs is that Linux runs on off-the-shelf servers with Intel processors, and Morgan Stanley was able to get competing bids from multiple vendors and choose machines based on their price performance and how they fit into the environment, and how well they're supported.

"It opened up the opportunity for us to be much less OEM [original equipment manufacturer]-dependent," Birnbaum said. "We run IBM, Dell and HP and all of them have the ability to compete for our business."

As a result of this experience, Morgan Stanley speeded up its conversion to Linux, now expected to be complete in 2005, vs. 2007. The first project had 10 Linux boxes. Today, there are 900 Linux boxes in Morgan Stanley's institutional securities division. By April, there will be another 300 to 400.

By 2005, Birnbaum said, he expects to see more than 80 percent of all systems running on Linux. "Sometimes, there's stuff that runs that's not worth taking out of the Unix environment," he said.

Morgan Stanley isn't the only company that will follow the Linux path. According to Framingham, Mass.-based research firm International Data Corp., 2003 will be the year that Linux takes over the No. 2 position in server operating systems, after Windows but ahead of Unix and all others. In 2006, Linux will grow in share to more than 25 percent of the total server market, while all other operating systems decline.

What makes the Morgan Stanley case interesting is that Linux is being used in the data center, at the heart of the company. Previously, the most visible implementations of Linux have been in peripheral applications, such as file, print and Web servers.

The company is part of a major sea change. According to a recent report from Goldman Sachs, the Linux operating system, together with cost-efficient Intel-based hardware, will change the enterprise data center and will have far-reaching implications for software and hardware vendors.

The biggest obstacle to moving to Linux, at least at the beginning, was the lack of third-party support for Linux from software vendors. Today, that problem has been pretty much ameliorated.

For example, Reuters is getting ready to release a Linux version of its Market Data System (RMDS) in the next couple of weeks.

"Around this time last year, the demand from our clients for a Linux port really started to heat up," said Peter Lankford, Reuters' head of real-time content management solutions. "It's about Intel and Intel's economies of scale. What we found throughout our testing are significant price performance advantages."

The beta test of the software was so popular that Reuters had to turn customers away, said Casey Merkey, global program manager for RMDS on Linux.

"We have gotten an overwhelming response from our customers base," he said. "Everybody's looking at it right now."

A number of other software vendors have already ported applications to Linux, including Oracle, SAP, BEA Systems and IBM, but Lankford said his was the first major finance-specific application to make the jump.

Like Morgan Stanley, Reuters didn't find the port itself particularly difficult.

"We had an alpha version of our software running on Linux within a couple of weeks of sitting down to do the port," he said. "The rest of the work was fine-tuning and checking for bugs. We have been supporting multiple operating systems in the past, so porting to Linux was just a matter of using a different compiler."

The next step for Reuters is to look for other applications for Linux in-house.

"If Linux can save our customers money, than it can for us, too," he said.

In addition, he said, Linux fits in with Reuters' long-term commitment to openness. "Reuters has been a pioneer in open systems and a proponent and a leader for 15 or 20 years," Lankford said. "We were the first market data vendor to really embrace and capitalize on the PC and certainly one of the first to really drive the adoption of Unix in financial institutions. This is just another step along the road."

One thing that Morgan Stanley and Reuters have in common as they began their move to Linux was that they both decided on the version of Linux from Raleigh, N.C.-based Red Hat.

"Previously, what many independent software vendors like IBM, BEA, SAP and Veritas did was port the software to Linux and if they needed to modify the Linux software to suit their port, they could make that modification," said Red Hat CTO Michael Tiemann.

The ability to freely modify source code is a major advantage of an open source operating system like Linux, but the result was lots of versions of Linux that couldn't play well together. With the release of Red Hat Linux Advanced Server in March of 2002, Wall Street firms and software vendors were finally able to settle on one stable and reliable off-the-shelf version of Linux.

The company has already sold 20,000 support licenses for its operating system, with a quarter-over-quarter growth rate of more than 50 percent, said Tiemann. Since the software itself costs little more than the price of a CD, the company makes its money by providing service and support to its customers.

Today, both Morgan Stanley and Reuters use the Red Hat version of Linux, as do IBM, BEA, Oracle and other major software vendors.