Research ETRM / CTRM in the Cloud | Page 5

CTRM in the Cloud

Introduction

Beginning with the first deployments of commercially produced Energy and/or Commodity Trading and Risk
Management (E/CTRM) software in the early 1990’s, such systems have traditionally and primarily been
implemented “on-premises”, or in other words, installed and maintained on the user company’s servers, within
their firewall and under the full control of that company’s IT staff. Commercially, this on-premises software is
mostly licensed in perpetuity for a specific number of users and is supported (bug fixes, version upgrades) by
the vendor under an annual support and maintenance agreement.
However, though such implementations are generally felt by the user companies to provide the most secure and
safe environments for their critical business data, on-premises implementation are not without significant
issues. They generally involve long, complex and expensive implementations that require months and potentially
a year or more to complete. They also have a high potential for non-standard implementations (customizations)
creating additional costs and complexity in version upgrades and there is significant and continuing costs and
effort in maintaining the computing environments necessary to run the software (machines, networks,
databases, operating systems, etc.).
Given these issues, it should not be surprising that alternative approaches to the traditional software model
have arisen to provide a more cost effective solution for companies seeking E/CTRM capabilities without the
inherent financial overhead of software acquisition and/or support. These alternatives, offered by either the
traditional vendors, or by start-ups seeking to take advantage of growing awareness of the issues of “onpremises” solutions, have included alternative commercial agreements such as software leasing, offsite hosting
of traditionally licensing software, and most recently, ‘proper’ Software as a Service (SaaS), hosted Cloud
deployment. Early proponents of these alternative delivery methods were vendors like Sakonnet Technology
(though the company is no longer in existence), Aspect Enterprise, SunGard Kiodex and OATI.
Despite the availability and willingness of vendors to provide their software using these alternative licensing or
deployment methods prior to 2010 or so, these approaches were usually only utilized by:
smaller companies seeking a cost-effective alternative to spreadsheets, or
by larger firms that required a solution for a specialized need (such as eTagging), or
by large firms that needed a “stop gap” solution while undertaking a strategic review of technologies or
the deployment of a larger scale, traditional software solution.
There have also been the occasional early adopters of the SaaS or ASP model; but again, these buyers did tend
to be the smaller companies with a limited scope of commercial activities.
In recent years, however, cloud solutions have gained in popularity as application development, web and other
technologies have made it easier for vendors to deliver applications in the cloud, and as the cloud has become
more secure. According to Gartner1, the generalized SaaS software market was $14.5 billion in 2012 and it is
forecast to reach $22.1 billion by 2015. ComTech Advisory2 estimated the cloud-based CTRM market to be $33m
in 2012 but growing rapidly by 15% per annum in subsequent years, versus an anticipated growth rate for
traditional E/CTRM solutions of less than 5% for the same period.
An additional and important consideration when examining the growing adoption of Cloud-based products is
the increasing push by the vendors themselves to not only find a wider market for their products, but to also
address shareholder concerns regarding their companies’ market valuations. As the vendors look toward an
“end game” event (merger/acquisition or public stock offering), investors will place significant value on their
ability to generate predictable recurring revenues. Given the “lumpy” and less predictable nature of traditional
software licenses, vendors are increasingly looking to these non-traditional licensing models to better ensure
their ability to grow market equity. In fact, given this pressure, and based on our conversations with executives
across the vendor community, ComTech Advisory believes that virtually every software vendor in this space is
currently planning or actively investing in technologies to better their ability to deploy their software via the
internet.

1

Forecast: Software as a Service, All Regions, 2010-2015, 1H12 Update, Gartner Report

2

2013 CTRM Global Market Size Report, Commodity Technology advisory Report

© Commodity Technology Advisory LLC, 2014, All Rights Reserved.

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