Lyft’s AWS Spend and the New Economics of Global Infrastructure

Lyft's AWS Spend and the New Economics of Global Infrastructure

Lyft’s AWS Spend and the New Economics of Global Infrastructure

Lyft officially began trading on the NASDAQ following an IPO process that has raised some eyebrows, and particularly with regards to their AWS commitment$300m in upfront, committed spend certainly seems like a big number for the infrastructure component of a relatively compact car-booking app, albeit a global one.

The dialogue around the prospectus made me think back to the economics of electronic trading 15 years ago. Back then, the old “Sell-Side” dominated what was a rapidly consolidating sector. The top firms were easily spending $100m a year, probably even closer to $250m a year, building out private, low latency networks and footprints in all the key exchange and financial data centres globally. Wombat rode that wave, providing anchor software that was the glue sitting atop the infrastructure.

It’s easy to forget that in the build-up to the credit crunch, and even in 2008 and 2009, the equity divisions in the top Sell-Side firms were printing money and obscenely profitable. Fixed income exposure, notably sub-prime, brought them down.

These giants were happy that it cost a small fortune to run and build their networks, because the cost in and of itself provided an insurmountable barrier to entry.

In that context, Lyft’s $300m for AWS, or even the $400m a year SNAP reportedly pay to Google Cloud, seems a little bit rich but not altogether insane. That said, you can’t help but wonder if they’d be better focussing their efforts on optimising their software stack.

The trading world has changed dramatically since 2007 with the emergence of specialist MSPs. No one in their right mind would now spend $250m a year, or even $50m a year, to build-out a dedicated global electronic trading infrastructure. In fact, there are firms like ourselves who allow traders access to equivalent managed infrastructure for a nominal fee to start. $5,000 to $10,000 a month will get someone up and running on a modern, ultra resilient low latency server with full execution and market data connectivity. In short, everything they would ever need to trade. $10m a year would fund a substantial global server platform covering every key electronic trading venue.

Observers will note that the financial firms have faced something of nuclear winter with regards to infrastructure investment since 2007. The upshot being that it has forced industry participants to get very efficient or face certain death. The current crop of emerging electronic trading firms are vastly more efficient than the old sell-side firms, and the same can be said of the vendors who serve them.

Coming back to the Lyft and SNAP’s base compute costs. Franky, I’d be surprised if we couldn’t have a very good shot at delivering an equivalent infrastructure for $10m to $15m a year and still make decent margin. For that they would get a global Tier 4 data centre footprint, fully resilient 25GB+ backbone, fully resilient 10GB internet and a full managed services layer to boot, including a financial industry grade cybersecurity perimeter.

It is clear that the Public Cloud providers have opened up a world of possibilities allowing companies like Lyft and SNAP to rapidly deploy global solutions. They would not be in business without that platform. However, if the evolution of global trading infrastructure proves analogous the next wave of entrants to those markets will leverage next-generation platform providers to be even more agile at a small fraction of the spend.

– Danny Moore, President & Co-CEO, Options Technology

Options Technology is the leading provider of cloud-enabled managed services to the global financial services sector. Founded in 1993, the company began life as a hedge fund technology services provider. More than a decade ago, the company made a strategic decision to become the first provider to offer private cloud services to the financial sector. Today over 200 firms globally leverage our award-winning front to back office managed infrastructure: 

Managed PlatformManaged ColocationManaged Applications and technology consultancy services. Our clients include the leading global investment banks, hedge funds, funds of funds, proprietary trading firms, market makers, broker/dealers, private equity houses and exchanges.

Options was named among the UK’s leading growth companies in the 2019, 2018 and 2017 Sunday Times HSBC International Track 200 league table. In 2017, the firm received a growth investment from private equity firm Bregal Sagemount.

For more on Options, please visit www.options-it.com, follow us on Twitter at @Options_IT and visit our LinkedIn page.

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