Influencers in APAC MTDC markets: Cloud
August 21 2019
by Dan Thompson, Stefanie Williams, Emily Wentworth
Part of a three-part spotlight series covering various influencers – cloud, service providers and regulations – in APAC MTDC markets, this report discusses the development of cloud adoption and the factors driving adoption in Singapore, China, Japan, Australia and Indonesia. While creating a truly open and economically integrated Association of Southeast Asian Nations (ASEAN) is still years away, country leaders in Southeast Asia have created initiatives to promote the technology industry, and are upbeat about the growth opportunity that lies ahead. Several Southeast Asia-based startups continue to benefit from the investment of some of Asia's most prominent tech firms – which is good news for datacenter providers across the region because most of these tech companies leverage colocation in some way, either directly or by their use of cloud, which uses colocation.
The 451 Take
Across the globe, cloud and managed service providers continue to be important drivers for growth in the datacenter industry, as customers, and as fuel for larger ecosystem-based growth. This growth is underpinned by the fact that the cloud has become an integral part of corporate IT strategy. Our survey suggests that companies in Asia, particularly large enterprises and international multinational corporations (companies that are expanding outside their home country, but are still based in Asia-Pacific), now use a mix of public clouds (IaaS and SaaS), private clouds (on- and off-premises) and PaaS to keep their operations up and running. Looking regionally, APAC is a particularly bright spot for cloud applications, infrastructure and services growth, second only to LatAm, which is essentially starting from scratch. Zooming in a little more, ASEAN has slowly but clearly emerged as the center for technology innovation and creativity over the last several years. A number of member states of ASEAN (including founding members Indonesia, Malaysia, Singapore, Thailand and the Philippines) have embraced digital technologies more broadly to accelerate or improve economic competitiveness, and adopted regulatory reforms to create a business environment that attracts foreign direct investment and accelerates entrepreneurship.
Positioned as a regional startup hub for approximately 650 million people in Southeast Asia, the government of Singapore has been working closely with the private sector to lay the groundwork over the past few years. Aside from making infrastructure and channels for funding accessible, the government has rolled out programs such as Global Innovation Alliance, and provided resources like the Action Committee for Entrepreneurship International Center (ACEIC) to help local tech startups pursue overseas expansion by providing access to resources, advice, new markets and networks. The government also promotes collaboration between startups, SMBs, large corporations and government agencies through the Gov-PACT initiatives.
Thus far, collaborative works between the government and the private sector have been encouraging. Singapore is among the top startup ecosystems in terms of number of startups and funding. Although the full-year figures for 2017 are not available, the government pointed to a hefty $550m funding round in Q2 2017 alone, raised by the internet platform provider Sea (formerly known as Garena). Most startups today are primarily in the consumer digital, fintech and enterprise technology sectors, although the government's goal is to accelerate innovation in what it refers to as deep technology industries, which involve scientific and engineering innovation (e.g., clean technology, advanced manufacturing and engineering, and medical technology).
As the tech startup ecosystem continues to expand to include more than local startups (including later-stage SMBs and foreign entrepreneurs that are well-versed in the deep-tech industry), the government unveiled a new umbrella initiative called Startup SG, which is powered by statutory board Enterprise Singapore to encapsulate all startup initiatives in the hopes of building a vibrant global tech startup ecosystem. For startups looking to tap into government project opportunities, they can participate in the startup accreditation plan dubbed Accreditation@SG Digital (formerly known as Accredition@IMDA) provided by the IMDA. Accreditation@SGD has so far accredited nearly two dozen startups, creating a pipeline of over $80m from over 80 agencies, for more than 600 government projects.
All of these initiatives are naturally interesting to the datacenter industry, which seeks to land these companies (and of course, the Singaporean government) as customers. As we met with providers in the country, we heard more and more of decently sized deals from these segments (as well as cloud providers in general) that are underpinning many of these applications. While FSI remain important customers, the cloud and these other 'smart' services are gaining traction, and are a priority for datacenter providers in the country.
According to 451 Research Cloud Market Monitor data, public cloud services revenue is currently growing in China at a rapid pace, as more enterprise end users seek to lower costs by outsourcing more components of their IT infrastructures. Rising consumer mobile application usage for basic services, such as e-payments and health monitoring, in addition to entertainment, has also precipitated an explosion of data production, analysis and storage.
Companies like Baidu, Alibaba and Tencent (BAT) are the leading players in these twin arenas, but a second generation of 'unicorns' with massive and fast-growing IT requirements – including, but not limited to, Didi, Netease, Kingsoft, Ctrip and Tujia – has also emerged in the last couple of years. Despite strict licensing laws regulating the delivery of cloud and managed services in China by foreign businesses, large global firms and service providers have also found ways to the market and to take advantage of the major opportunities these trends have presented.
When undergoing site selection in China, with in-country infrastructure having been made necessary by a broadly defined data localization law enacted in 2015, both domestic and international businesses often prefer to situate datacenters in or near primary markets, especially Beijing and Shanghai. Even with higher construction and operating costs, these cities have the best fiber and power resources, offer the lowest latency to most customers, and are home to the most favorable business environments, as far as supply chain and IT talent are concerned.
Because of environmental and power availability concerns, though, as well as economic development considerations, the government in China is encouraging members of the country's hyperscale cloud and online content industries to build or lease datacenter capacity in relatively remote regions such as Inner Mongolia or Guizhou. This attitude, along with increasingly restrictive municipal policies on new datacenters in the top cities, and general time-to-market considerations, mean that, while many of these large companies have announced high-profile projects scattered throughout China, they now rarely build on their own in top markets.
The likes of BAT, however, do continue to lease as much single- and multi-tenant capacity in Beijing and Shanghai (and in Guangzhou and Shenzhen) as possible, and are these cities' main sources of datacenter demand, often, with the new prohibitions, to the exclusion of each other and other potential colocation revenue streams such as financial services and traditional enterprise.
Japan sees interest in its datacenter space from a number of verticals; but one that is particularly compelling is the growth of online services companies, and specifically public cloud providers from the US and China. An important back story to this is Japan enterprises' propensity to leverage systems integrators and managed service providers to augment internal IT operations. However, because of efficiencies won in the cloud, enterprises suddenly don't need as much help as they did previously, leading many of these service providers to now offer services built around the public cloud (management, migration, etc.), in addition to their own cloud environments.
All told, we see the cloud growing at a compound annual growth rate of 16% from 2017-2022 – suggesting this isn't a trend going away any time soon, and both US and Chinese cloud providers are growing throughout the country. It is, however, not just the largest cloud providers that are making waves in the market; examples being Yahoo's expanding footprint with IDC Frontier, and Oracle's partnership with Fujitsu to offer its public cloud and database services in Japan. The enterprise shift to the cloud has brought about the maturation of the country's wholesale market within the past few years.
Traditionally, demand has come from government agencies, media, financial services providers, systems integrators and manufacturers. Most MTDC providers agree, though, that hosting and cloud service providers account for an overwhelming portion of new demand growth. Many traditional retail providers, along with some of the companies we would consider to be systems integrators, are working on strategies to accommodate larger deals, priced more like wholesale, rather than retail.
Interestingly, US providers like Amazon AWS and Microsoft Azure charge premiums for their services that are generally higher in other parts of the world than what they charge in the US. For Japan, this can be an additional 60-80% for like workloads. This price differential can be partially attributed to the fact that it costs these companies more to deliver their services in these countries, which suggests a possible 'way in' for datacenter providers. It also underscores the fact that Chinese providers can gain an edge through price, and even though features may differ between the US and Chinese services, businesses may find what they need with the lower-cost options. In either case, datacenter providers shouldn't narrow their focus when it comes to which cloud providers to go after in these markets.
Sydney's datacenter providers face diverse demand, as Australia as a whole continues to catch up with the rest of the world in terms of multi-tenant datacenter and cloud adoption, as well as associated services. While the country has historically been slightly behind in adoption of these services, enterprises around the country, and specifically in Sydney, have watched carefully, and mimicked as local and federal governments embraced the move from in-house datacenters to both MTDC models and the cloud, while endorsing specific providers in both datacenter and cloud programs.
This shift has opened the door for a number of service providers – from basic retail and wholesale colocation, to MTDCs and startups offering cloud and managed services, to hyperscalers moving in and deploying nodes to support growing demand. Additionally, international firms moving into the area to establish a foothold in Australia expect the same technical capabilities they receive in their home countries, increasing demand for these services.
Unlike other countries, hyperscale providers coming into Sydney are less likely to build out a self-owned datacenter and more likely to embrace the MTDC model, often spreading several deployments, ranging in size from a few cabinets to multi-megawatts across several providers based on requirements for power, connectivity and customer proximity. To this end, more providers are eyeing the potential for multi-megawatt customers.
As the largest economy in Southeast Asia, and with a median age of 29 years old, Indonesia has a tremendous opportunity for the development of a vibrant tech startup ecosystem. Since the introduction of the 2020 Go Digital Vision campaign in late 2016, the government of Indonesia has set itself ambitious targets. These include putting together programs to enable eight million micro-enterprises and SMBs to go online, and create 1,000 startups with a combined value of $10bn. To the credit of the Ministry of Communication and Information Technology, which has taken a proactive role in providing guidance and working closely with the other ministries and the private sector, the 1,000 Startups program is well underway with a growing number of local supporters and partners.
Financially, the government has nearly doubled spending on tech startup incubation since 2017. There are hundreds of 'activists' who are willing to contribute as mentors or trainers. Other macro factors, such as rapid mobile device adoption and greater spending power of the middle class, have helped attract foreign investors and technology giants alike, including Alibaba's investment in Lazada, and Google's backing of the the tech startup-ecosystem builder KIBAR. AWS recently announced its investment plans in Indonesia over a 10-year period. Some estimate that the country has nearly 20 notable VC firms; while some familiar accelerator names include Ideabox, Jakarta Founders Institute and Google Launchpad Accelerator.
The Indonesia Venture Capital and Startup Association notes that startup investments in the country are still dominated by series A, but it's upbeat about the growth potential in terms of deal quantity and deal size. In addition to the four unicorns – Bukalapak, Go-JEK, Tokopedia and Traveloka – Snapcart, which provides customer insights to businesses with its data analytics platform, is picking up interest in the retail industry. Other Indonesian startups include Alodokter, JULO, M-Health Tech, Pundi XC, Sale Stock and Xendit.
Much of the growth mentioned above is likely being serviced by the various cloud players in-region, and is either hosted in Singapore, or, in a growing number of cases, in Indonesia itself. This underscores the new interest in quality datacenter facilities in the island nation, as these cloud providers all look for reliable platforms from which to build on.