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A Snapshot in Time: Looking Beyond the Data Centre Competitiveness Index

04/09/2019

Indonesia currently sits at the bottom of the Cushman & Wakefield Data Centre Competitiveness Index. Whilst it’s tempting to conclude that this spells doom and gloom for Indonesia’s data centre market, nothing could be further from the truth.

The competitiveness index ranks markets on the current climate, with the picture changing dramatically if you were to look at the future potential held by markets like Indonesia. I have seen first-hand a significant pick up in terms of interest from leading real estate players in the past few months alone looking to Indonesia to future data centre projects. Hardly the sign of a sector in crisis.

Fuelling the Opportunity

Indonesia is set to be the fastest growing market for data centres in Southeast Asia, with an expected growth rate of 22 per cent per annum over the next five years. Google’s entry into Indonesia demonstrates a developing interest in the country as a potential alternative to expensive Singapore. Land owners and real estate landlords are increasingly open to catering to the development of data centres in developing markets, especially where they own large industrial and warehouse portfolios.

We cannot overlook the fact that the potential for data storage and demand for data centres is tremendous in growth markets like Indonesia. Demographics alone are sufficient to put to rest the current concerns post by the gaps in infrastructure development. Optimism is driven by three key factors:

Factor One

50 million new consumers will be elevated to middle class status in Indonesia, Malaysia, Philippines, Thailand and Vietnam as soon as 2022, driven by rising income and prosperity. Providing connectivity to those new consumers is going to deliver significant opportunity to data centre owners.

Factor Two

Disposable income within the region will rise to US$300 billion by 2022, contributed by 350 million people. Data centre service providers are attracted to the prospect of bringing data and cloud storage closer to consumers who consume significant data daily to watch movies, upload photos and videos, play games, and make cashless payments.

Alibaba and Tencent, major players in fintech and cashless payment systems are now sharpening their focus on locating data centres in emerging markets. Indonesia offers the biggest potential in Southeast Asia with the highest number of internet users, social media users, and mobile users. Indonesia’s internet users number about 132 million. Singapore’s number a mere 5 million.

Factor Three

Indonesia’s data localisation policy means demand for data centres in the domestic market is going to tip the demand-supply dynamics. Hyperscale cloud operators, which typically include Alibaba Cloud, AWS, Microsoft Azure, Oracle Cloud Infrastructure, and Google Cloud, are also gravitating more and more towards data localisation. That is driven by a combination of regulations around cybersecurity, the e-commerce boom, and the ride-hailing industry, as well as on-demand access to cloud services by numerous local enterprises.

For example, Alibaba Cloud has by far the largest infrastructure footprint in the Asia Pacific region, with 15 availability zones outside mainland China covering the Singapore, Malaysia, Indonesia, India, Hong Kong and Japan markets. It is also the sole global cloud provider with local data centres in Indonesia and Malaysia.

Microsoft, through its local partner Telkomtelstra, has also progressively expanded its cloud solution, known as the Azure Stack in Indonesia. Others also continued to lease more data centre capacity from co-location providers in major cities, especially in emerging markets like Indonesia, following upgraded the connectivity infrastructure.

Compounding the Opportunity with 5G

While we are on the subject of potential, the coming roll-out of 5G is going to facilitate massive consumption and unlock new capabilities such as self-driving cars, cloud gaming, and a thriving ecosystem of smart appliances that require a constant connection.

There is no denying that the exponential power of 5G is going to spur on demand for data centres. 5G will essentially take the internet highway to the next level with machines speaking to machines across multiple devices. However, it also means there are many more access points for hostile groups to hack and conduct cyber terrorism against mission critical systems of a target country or community.

The ability of countries and cities to grow their data centre markets in the face of these threats should probably be a factor to consider in drawing up the next index.

For more on threats, digital and physical, facing Asia Pacific’s cities check out our Prepped Cities Index.

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