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Summary

IT Services Contracts Analytics’ (ITSCA) April update saw a striking deal between Microsoft and BlackRock where the companies are developing a major relationship in financial services technology. The two companies entered into a strategic partnership to build a retirement-planning platform at the end of 2018. Under this new deal announced in April 2020, clients of BlackRock’s Aladdin program will be migrated to Microsoft cloud over the next two to three years.

Aladdin provides Microsoft with a true marquee client for cloud in the buy-side sector

This move will enable BlackRock, an investment management company, to tap Microsoft Azure’s large network of data centers. BlackRock previously operated Aladdin from its own infrastructure, spending $79.8m on a New York data center in 2014. BlackRock will also be able to expand Aladdin’s capabilities with the large suite of tools and services that Microsoft cloud will offer. Aladdin (which stands for “asset liability and debt and derivative investment network”) is a critical tool which is widely used by wealth managers globally. By hosting Aladdin on its cloud, Microsoft will enable Blackrock to improve client experience and accelerate innovation on Aladdin.

The deal positions Microsoft well to support the long-tail investment management firms in the sector

Omdia has estimated the total contract value (TCV) for the deal at $38m over an estimated term of three years. This is based on the analysis that BlackRock usually relies on lower priced strategies and would be looking for a low-cost solution with Microsoft’s cloud, compared with a full IT outsourcing deal. However, Aladdin has become a major revenue source—worth $974m in 2019—and we expect the company would spend around 1.5% of that income on the cloud expansion platform. The Blackrock deal is a noteworthy win for Microsoft as it calls attention to Azure’s increasing appeal as a financial services technology platform. This deal is also expected to increase the company’s cloud revenue in the future. With BlackRock—one of the dominant firms in the sector—showing willingness to use Microsoft, this should benefit the company in capturing demand from the long-tail of small investment and wealth management firms in the sector that will need to turn to cloud services.

Appendix

Further reading

Omdia IT Services Contracts Analytics (April 2020)

Author

Anushree Agarwal, Analyst, IT Tools and Insights

[email protected]

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