Upswing continues in Indian Data Center Market

Amidst the debate on data security, data localisation and the increasing cost of managing IT infrastructure, the data center industry continue to see an upward swing and 2016 will not be any different

By Mohd Ujaley

During his keynote address at vForum 2015 in Mumbai, Sanjay Poonen, Executive Vice President and General Manager, End-User Computing (EUC), VMware, drew the attention of the audience to a big popped-up photo on the giant screen and said a lot of things have changed in the data center and security segments since the man in the picture spoke on security and privacy. Poonen was referring to 32 year old, Edward Joseph Snowden, whose disclosure on numerous global surveillance programs run by different governments led to intense debate on data security and privacy, and finally catalysed the concept of data localisation, leading to indirect growth of the data center industry across the globe. And, the story for India, which has always been on the forefront of using technology, is no different.

The need to increase storage capacity, continuous rise of data usage, government focus on digitisation and the strategy of tech giants to diversify by establishing local data centers are propelling the demand for data centers across the globe. In India, this segment is also buoyed by the positive sentiments in the government projects such as Digital India, Make in India, Smart Cities and the strong resurgence of growth-related projects across different verticals such as manufacturing, e-commerce & retail, IT/ITeS, BFSI (primarily non-critical workloads) and emerging verticals like education, hospitality, healthcare and communications & media.

According to research carried out by Gartner, the value of the Indian data center infrastructure and solutions market will show a 5.2 percent increase year-on-year, totaling $2 billion in 2016. The research firm also believes that this segment will also be the fastest growing market, as spending is forecasted to increase 5.9 percent in 2016.

Even on the global level, the current macro trends driving the growth of data, and in turn the data center industry, more or less remain same – proliferation of tablets and smartphones, coupled with the content required to satisfy the seemingly insatiable end users. Billions of dollars are spent on data center infrastructure in order to meet the growing demands of businesses and their customers. Having the right data center infrastructure in place has become a kind of new “arms race” for companies trying to differentiate themselves and meet the growing demand in this crowded technology driven market. Says Sanjay Poonen, “It is the most exciting time to be in technology. Cloud, virtualisation, analytics and security are coming together in such a way that it is the right time for companies to be ready for any trend.”

The growth drivers

In India, around 2005, the trend shifted from paper-based to digital information management and therefore data centers became common and essential to the functioning of business systems for enterprises and governments. Apart from private data centers, the Government of India also set-up many data centers in states under the leadership of National Informatics Centre (NIC). Since then, the overall segment has moved so far that today cloud, mobility and virtualisation are not any more the technology trends that enterprises seek. These trends have gradually become mainstream.

“With technological advancement and most businesses expanding beyond geographical boundaries in the last couple of years, the generation and consumption of data has increased manifold, thereby creating a strong need for storage capacity. Additionally, the growth in software adoption with the proliferation of the cloud has made the concept of software-defined another business reality, with businesses adopting this model in the quest for efficiency, scalability and security,” says Srikanth Karnakota, who heads the server and cloud business for Microsoft India as Director. Karnakota also believes that the advent of digitisation across sectors and convergence of the “Digital Enterprise” has further fueled the demand for data centers.

Agreeing with the views of Karnakota, Ankesh Kumar who leads the product management & marketing at Emerson Network Power India as director says, “Cloud and virtualisation in the data center is no longer a myth with quite a few prominent players like AWS, Netmagic and Microsoft announcing extensive plans to invest in state-of-the-art data center facilities in the country.”

Many experts we spoke with, were unanimously of the view that factors such as – companies consolidating their collection of server rooms and data centers into centralised regional sites to cut cost; virtualisation and compression technology enabling companies to deploy more and use more data heavy applications; exponential growth of cloud based solutions and the need of cloud vendors for more data centers infrastructure to support their offerings – are giving steady pace to data center business growth in the country.

In India, the major demand is coming from the SMB and SME sector. They are mostly adopting hybrid cloud, which is a combination of on-premise and cloud offerings. Also, for reducing cost and risk, data center facilities are being designed and constructed from integrated, prefabricated modules. This approach enables organisations to develop fully customised, high performance data centers in far less time than it takes using traditional processes. Overall, the focus has shifted towards ensuring modularity with a razor sharp focus on maintaining energy efficiency.

Post Edward Snowden’s revelation, many countries including India are mulling to bring legislation on data sovereignty popularly known as data localisation and hence multinational companies are setting up local data centers in advance. Recently, we have seen some announcements from Microsoft on this front.

Analysts from International Data Corporation (IDC) expect the data center business to continue to increase for some time before these organisations also start looking at increased regulation and compliance issues. “Government approach in this regard would also matter with respect to the tenacity of regulations and verticals, going forward,” says Gaurav Sharma, research manager – enterprise & IPDS at IDC India.

Ankesh Kumar of Emerson Network Power also believes that capital expenditure, operating expenditure, along with regulatory compliance and security guidelines impact the decision of enterprises in setting up data centers.

Who is leading the growth

Many tech giants such as Microsoft, Amazon, IBM and NTT Communications, Tata Telecommunications and the government’s own National Informatics Centre are now racing to set up data centers.

Microsoft has commissioned three “hyper-scale” data centers in India. The firm has already started a private preview of these data centers with over 100 existing customers on board across different segments such as BFSI, government, manufacturing and start-ups. Microsoft will be spending Rs 1,400 crore on setting up these data centers. The company has already set up the cloud data centres in Mumbai, Pune and Chennai. Microsoft India’s cloud business is growing at over 105% annually and with the establishment of the local data centers, it is expecting a further acceleration in its business.

Amazon will establish multiple data centers in India in 2016 with an investment of millions of dollars. Amazon has 12,000 AWS active customers in India, across enterprises, small to medium size businesses, and startups. AWS is the pioneer in cloud infrastructure services and is the world’s largest in the space, with revenue expected to be $6.2 billion in 2015, out of Amazon’s overall revenue of over $90 billion (most revenues now come from the e-commerce business, but AWS is growing at 40-50% annually). Research firm Synergy estimates that AWS’s revenue from cloud infrastructure services in the first quarter of 2015 was larger than the combined revenue of its four main competitors – IBM, Microsoft, Google and Salesforce. Its Indian clients currently mostly use its Singapore data center.

IBM has already launched a 30000 sq. ft. cloud center in Airoli, Mumbai offering cloud services late last year and a second data center is expected to be ready later this year.

NTT Communications plans to invest $100 million in developing a new data center in Mumbai through its subsidiary Netmagic Solutions. NTT acquired Netmagic, a managed services provider, in 2012. The new data center will be spread across 300,000 square feet and host up to 3,000 server racks with 20-28 MW energy capacity. The company is likely to announce global cloud services to facilitate multinational companies.

Tata Communications will invest more than $200 million (Rs 1,200 crore) towards doubling its data centre capacity in India to 10 lakh square feet over three years. The company owns an undersea cable network and provides wholesale communication and data centre services to corporates. The Tata Group company leads the data centre market with a 31% share in India, and counts a global social media company among its customers.

Google’s investments in data centers in Asia are outside India. New investments will take Google’s data center investments in Singapore to $500 million and in Taiwan to $600 million.
US based, Pi Datacentres plans to invest Rs 600 crore to set up a facility in India and expects to start operations from March 2016. The data centre would be a purpose-built green field facility with a constructed area of more than 5 lakh square feet.

Nashik headquartered ESDS Software Solution is investing about Rs 335 crore to set up three data centres in India. The company will invest Rs 200 crore for the Navi Mumbai centre and Rs 100 crore for Bengaluru, while that for Nashik would be 35 crore. With this investment, the company will create a 2 lakh sqft data centre in Navi Mumbai, 1 lakh sqft data center in Bengaluru and a 50,000 sqft data centre in Nashik.

On the other hand companies such as Oracle are also mulling to set-up a data center in the country. Recently, in an interview to Express Computer, Prashant Ketkar, Vice President – Oracle Cloud, Oracle said, “As we focus more and more on India, we will have to think about a data center presence in the country. We are in the process of figuring out how we can get more involved and how can we facilitate that. When is the right time to make the investment and how can we overcome some infrastructural challenges like shortage of electricity grids etc. We do see ourselves setting up a data center in the future.”

Key obstacles and hurdles

Adopting efficient technologies and architectures for proper space utilisation; building an architecture and design for minimum redundancy; constant updation and skill building; maintenance and increased SLAs; optimisation and cost efficiency with converged infrastructure, Flash, SDI etc; getting more budgets and energy efficiency are some of the continuous challenges that every enterprise organisation needs to work on. However, one of the most challenging tasks has been security. In fact, in the recent past, it has proven to be both a boon and bane. On one hand, due to security concerns, companies are forced to open data centers across different locations and on the other hand, due to security fears, some companies are unable to move to cloud or adopt virtualisation.

“This is true to a certain extent. Giving physical control over to a third party is sometimes challenging – especially in the context of security. The other way to look at it is that, now one has access to the best in class security frameworks as the capital expenditure is shifted to cloud operators. However, a combination of private and public cloud federation can alleviate most of the issues,” says Sajan Paul, director – systems engineering, India & SAARC, Juniper Networks.

Adding to what Sajan opined, Rajesh Shetty, Vice President – sales – South, Cisco India, says “While considering the overall framework, security is a very important requirement as multiple mobile devices connect to the network, specifically with regard to the mechanism for these devices to connect wirelessly to the network.”

What lies ahead

With proliferation of e-commerce, focus on digitisation and India being the nerve center for major IT activities, the demand for high storage will continue, resulting in phenomenal growth of data centers in the country.

In India, Mumbai, Chennai, New Delhi, Bangalore, Kolkata are the most favourable sites for setting-up data centers. In fact, Mumbai’s location facing the west coast is perfect as it is well connected as multiple submarine cables land in this region, going through the middle east to Europe and the other way through South East Asia. On the other hand, Cochin longer down the coast is also connected to multiple of submarine cables, which also makes it an attractive destination.

“In the future, large enterprises will continue to invest in infrastructure replacement and growth related projects covering enterprise mobility, cloud and big data solutions. Also, they will be focusing on building intelligent data centers that focus on optimising existing hardware assets by using additional software capabilities. This will drive increased attention on newer trends such as public cloud and integrated systems,”opines Paul of Juniper Network.

While data security and regulatory concerns pose a big challenge for many enterprises in the global data center industry, it is also creating a massive opportunity for those firms that are able to help customers manage the compliance risk and shape this through their data center strategy. Like global CIOs and CTOs, the strategy of many of the Indian tech heads revolves around a hybrid data center approach that involves a blend of many strategies such as renting data center space, turning over some applications to a Software as a Service (SaaS) vendor or disaster recovery (DR) to an Infrastructure as a Service (IaaS) provider, and continuing to update and virtualise their own data center infrastructure and develop an internal cloud. As IDC observes, the future continues to lie in a hybrid data center.

In the future, the growth will be primarily driven by data center hosting players, high speed Internet bandwidth service providers, hardware vendors, power and cooling solution providers, and system integrators. As the market expands, some new players other than IBM, Microsoft, AWS, Netmagic, Tata Communications, may also move into the data center investment market. And as the market continues to mature, it is likely to see greater creativity and complexity being used in terms of the investment structures and options available.

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The article first appeared in print edition of Express Computer magazine, March 2016 issue. Read it here : Express Computer, March, 2016 

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