Location, Location, Location - Data Center Location Matters
Updated: Aug 11
Author: David Nagrosst, Associate at Portman Partners
Asia-Pacific data centre services market is estimated to be worth US$14.13 billion in revenue in 2016, representing a growth of 15.3% over 2015. The market will grow at a compound annual growth rate (CAGR) of 14.7% from 2015-2022 to reach US$31.95 billion at the end of 2022. The key theme driving growth across Asia-Pacific is the explosive digital needs of emerging economies with huge populations such as China, India, and Indonesia. Furthermore, rising complexities within the IT infrastructure brought about by virtualization and consolidation, coupled with various cost constraints are encouraging enterprises to look into adopting third-party data centre services. This is spurring the strong growth of managed services, especially across emerging economies.
Based on a PWC report: global content providers such as Google, Amazon and Netflix are increasingly opting for a decentralised content hosting strategy, which aims to reduce latency issues thereby enhancing user experience for the large online population of APAC, despite potentially incurring higher data centre and network costs.
As a result, data centres operated by global content providers are mushrooming in strategic locations around the globe. Overcoming latency in digital on-demand video streams is a major driver for this strategic approach. Given the large and growing number of end-users in the Asia Pacific, it is a strategic move for content providers to locate data centres that are closer to these end-users across the region.
Problems emerging markets face in meeting the data boom
There are myriad challenges for mobile operators and other telecom companies to overcome:
lack of or substandard infrastructure
vast and sparsely populated geographical areas to cover
network reliability concerns
poorer target groups
The developing countries take the next big step into the “post-mobile data revolution,” there will, of course, be a number of challenges to overcome. The penetration of data in many of these markets is still low and prices are still high. In the developing world, 31% of the population is using the Internet, compared with 77% in the developed world.
In many countries, prepaid cards sold in small denominations at numerous mobile booths have given consumers with little money access to mobile telephony. Off-grid base stations in Asia, the Middle East and Africa are increasingly using green power solutions, almost completely replacing the use of dirty and expensive diesel. In East Africa, M-PESA and other mobile money systems have revolutionized the way money is transferred, making it possible for almost everybody to use basic banking services.
The biggest challenge is infrastructure. High-quality, efficient data centres are essential. The house and power all the equipment needed for transmission of data and are both the heart and brain of any network. But traditional data centre builds take a lot of time to plan, coordinate (with different suppliers) and construct.
While there continue to be significant challenges there are many opportunities, such as the growth rates and the size of the population. The Asia Pacific economy is growing at a very rapid pace as their populations become more educated and move into the middle class and into the digital economy driving demand for Mobile Internet, Online Gaming, Social Media and rich Internet content.
Let’s look at 2 markets in Asia that are on 2 different playing fields.
Singapore is a global commercial, financial, transportation, and shipping hub which in size has a land mass smaller than that of New York City. But don’t let the size fool you.
Singapore has many advantages as a nation including:
Well trained and educated workforce
Densely connected undersea cable network and internet connectivity
Limited environmental disasters
Proximity to other large population centers of Southeast Asia
Reliable legal system
Favorable tax structure
Reasonable and lower regional internet per meg pricing
It is due to these many factors that they have scored very well and the highest among its country peers on Cushman and Wakefield’s Data Centre Risk Index.
It’s no wonder then that organizations based across Asia, US and Europe have set up and are continuing to set up regional headquarters in Singapore to service Singapore and it’s populous neighbors. This has created multiple pipelines of demand for network and data centre infrastructure expansion in this tiny but capable and mighty nation.
In recent years, Singapore has also begun to emerge as a plausible alternative to Hong Kong as a gateway to the burgeoning Chinese market. Ali cloud is based here. There has been an increasing number of providers working towards a China-Singapore footprint as organizations look to serve the market outside of China as China-based companies consider expanding infrastructure outside of China. At the same time, Singapore has become almost the default jumping-off point of choice for hosting and cloud infrastructure providers looking to set up a hyper-scale footprint in the Asia-pacific region.
The colocation market in Singapore has benefitted handsomely from these drivers and outsourcing is a trend that shows no sign of slowing down. But there are constraints. The market is maturing and the competitive landscape is growing with increased providers and capacity. The recent oversupply has cooled prices. It is now a buyers market, but for how long? One thing is certain, the time certainly has never been better for businesses to buy into long-term contracts at attractive price points before the supply is once again exhausted. Despite these shifting market conditions, there is little doubt that the overall trajectory remains intact and the pipeline of data centre builds and investments are being made.
Since 2000, the Indonesian data centre market has experienced significant growth and major changes in its landscape.
With a large urban population (51%) with a growing proportion of active internet users (26% in 2013, 34.9% in 2014) and social media users on computers (26%) and mobile devices (16%). Recent reports from Indonesian internet service providers (ISPs) have suggested that in 2015, internet users had risen to 93.4 million, with a rapid expansion of e-commerce business reaching an estimated $18billion, the majority of which (85%) was due to mobile phones accessing the internet.
Also with the new Government Regulation No. 82/2012, which states that by October 2017, all organizations, particularly financial institutions, must locate their Indonesian-related data in the country with other portions of the legislation coming into force later this year. Although, it’s a largely wait and see approach to just how much enforcement there will be.
Indonesia’s large population, which is the 4th most populous country in the world, the explosion of internet-connected mobile devices and demand for a faster response to content are drivers of growth for Indonesia. This has helped increase investment in the number of data centers in Indonesia. There are no signs of abatement of the ongoing increased use of smartphones that coincides with the growth in e-commerce transactions, including mobile phone or computer games, development of e-government services; online computer and mobile voice over internet protocol calls and/or social media platforms, cloud computing and big data analytics.
While both Asian countries have different growth drivers; they have overcome shortcomings and developed a sustainable growth in spite of being a “developed” or “emerging” market. Secure data centres play an important role in our lives where we expect an absolute continuity of services and fast access to applications and content at a reasonable cost; there will generally be some tradeoffs between costs and proximity to your customer base that each company needs to decide for themselves. In general, my guidance is to base your data centre where you can provide customers security, flexibility and accessibility to data and information around the world while rationalizing your cost-benefit for the proximity of access to your user population. It will depend on the nature of the business as well as if there are any regulatory restrictions.