Changing business landscape
COVID-19 pandemic has spurred massive spending increases on data centers. Hyperscale companies broke all records for their level of spending, spurred on by business models that have actually benefited from the pandemic. The global COVID-19 pandemic has yet to slow down CapEx spending from the largest cloud players, which continue to spend billions each quarter on data centers as demand for cloud services has spiked since the start of the pandemic in early 2020. Over 80 percent of revenue generated by the 20 leading hyperscale data center operators came via cloud, digital services and online activity sales—all of which have seen COVID-19-related boosts, according to Synergy.
The world’s largest data center operators led by Amazon, Google, Facebook and Microsoft spent a record USD 37 billion in the third quarter of 2020. They continue to lead the way in terms of CapEx spending on data centers, followed by Apple, Alibaba and Tencent. The majority of the USD 37 billion spent in the third quarter of 2020 went toward building, expanding and equipping massive data centers.
Synergy analyzes the CapEx and data center footprint of the world’s 20 biggest cloud and internet service firms. In aggregate, the 20 companies generated USD 1.1 trillion in revenue during the first three quarters of 2020, up 15 percent year over year. “As these companies go from strength to strength, they need an ever-larger footprint of data centers to support their rapidly expanding digital activities. This is good news for companies in the data center ecosystem who can ride along in the slipstream of the hyperscale operators,” observed John Dinsdale, Chief Analyst & Managing Director, Synergy Research Group.
Modern hyperscale data centers house tens of thousands of servers and other critical IT products such as storage, networking and power systems. As of the third quarter of 2020, the number of hyperscale data centers across the globe reached 573.
Total CapEx spending on data centers by these 20 market-leading hyperscale companies jumped to nearly USD 100 billion in the first three quarters of 2020, representing an increase of 16 percent year over year. And the longer-term trend remains one of strong, steady growth, from which many companies in the data center ecosystem will benefit.
The majority of CapEx is devoted to IT equipment, including servers, storage, networking, and other devices, and physical infrastructure equipment. Omdia expects the IT category to account for 71.5 percent of total CapEx spend for this year, with physical infrastructure equipment receiving 19.5 percent. Land and building outlays will round out CapEx for the year at 9 percent.
The Indian government has seen active interest from the four leading players, Amazon, Google, Facebook and Microsoft. After Microsoft saw success with the US Government in October 2019, and won a USD 10 billion contract to build data centres for its Department of Defence, the vendor approached Ministry of Electronics & Information Technology (MeitY), to fund a majority of the capital expenditure for a pan-government data centre the Indian government was planning to set up. Some of its success stories in India include a `160 crore contract from Airports Authority of India and some projects from the Punjab state government.
Google Cloud Platform also followed suit, and ensured it was empanelled as a cloud service provider to MeitY (Microsoft, alongwith 14 other CSPs are also in the list). This should not be surprising as India’s public cloud market is estimated at USD 500 million, growing at 20 percent annually.
Amazon Web Services however is far ahead of the others. It has collaborated with government think tank NITI Aayog—both formally and informally—on multiple tech policy issues from Artificial Intelligence to blockchain, cloud services, contact tracing, and even drones; Contact tracing app AarogyaSetu, for instance, was initially hosted for free on AWS; Similarly, eSanjeevani, the health ministry’s telemedicine service, runs free on AWS cloud, Amazon also bagged the contract for CoWin—the government’s Covid-19 vaccination management system—hosted on AWS’ cloud platform.
Ajay Prakash Sawhney
Secretary – Ministry of Electronics & Information Technology (MeitY)
“We have prepared a policy on hyperscale data centre, and also a scheme for incentivizing investments in hyperscale data centres here in India. The current scale of hyperscale data centres in India compared in terms of power consumed is 200 megawatts and our effort will be to come out with a policy and scheme that aims for a tenfold growth in this, in a very short time.”
The government is planning to come up with a scheme to incentivise investments in hyperscale data centres in the country. In November 2020, MeitY had released the draft data centre policy which proposed to designate data centers as infrastructure and to group centres under the essential services category among other measures.
The draft policy is aimed to benefit the data centre park developers and data centre operators as well as the allied ecosystem of data centre sector. The policy intends to ensure sustainable and trusted data centre capacity within the country. This policy framework shall be followed by a detailed scheme with implementation guideline document providing the particulars of various fiscal and non-fiscal incentives to be provided to the sector by the Central and State Government.
There has also been a good response to production-linked incentive schemes for which application windows are open and the scheme around hyperscale data centre s will be beneficial for those who manufacture high end servers.
The Indian data center market is expected to grow at a CAGR of 8 percent over the period 2021 to 2026, according to ResearchandMarkets. The rapid adoption of cloud-based business operations has encouraged businesses to acquire data management capacities to handle huge volumes of data that are being generated. Increased proliferation of online shopping due to the availability of user-friendly interfaces, high-speed internet, and smart devices such as smartphones, tablets, and laptops is expected to drive the market.
The growing cloud computing in India, increasing internet penetration, government regulations for data generated in the country, and increasing investment by foreign players are some of the major factors driving the demand for data centers in the country. The digital expansion of end-user industries in the country and initiatives by state governments to attract the construction of data centers in their states for economic growth will offer a massive opportunity to the studied market vendors over the forecast period.
With more than 669 million Internet users presently and forecast to be USD 5 trillion economy by 2024, India is estimated to generate massive data at explosive rates in the coming years. The mass adoption of smartphones, and smart devices by end-users, adoption of cloud computing, big data, and AI, by Indian enterprises, an increasing number of interconnected devices due to IoT is further supporting this growth. The country has one of the largest e-commerce and telecom industries. And with a population projected to top 1.4 billion over the next five years, with only around +100 third-party data centers across the country, the number of hyperscale, need for the data center is massive in India.
Its data center footprint is assessed at 11 million square feet, poised to develop to 30 million square feet by 2030 and cross 100 million by 2060 containing 5,000 edge data centers the nation over. As per Arizton’s research, India data center market is expected to be valued at USD 4 billion by 2024.
With the highest mobile data consumption in the world (and predicted to consume 25GB/month by 2025), India attracted USD 396 million investment in the data centers in 2020 alone.
The country is also witnessing the rising shift of the economy to a consumption-based model by bringing the core technologies into one stack. Shift toward digital transactions to achieve RBI and government’s less cash objective and cloud penetration across all these technologies is growing. Therefore, the need for high-quality experience is driving all the top global cloud vendors into having a presence in India. The companies in the country scrambling to meet that growing demand include hyper scale and colocation providers such as Bridge Data Centres and STT GDC, as well as the giant public cloud players Google Cloud, Amazon Web Services, AlibabaCloud, Microsoft Azure, and Oracle.
Also, the major data center-hubs in Asia, like Singapore, are imposing new restrictions and limits on locations for data centers on the island, which is becoming more challenging for providers; hence they are shifting their focus to India.
The India data center market is dominated by a few major players like Atos, Amazon Inc., Cisco Systems Inc., Dell Software Inc., and Hewlett-Packard Enterprise. On account of high initial CapEx required to set up infrastructure and long payback period, the top 11 players account for more than 70 percent of the total revenue.
These major players, with a prominent share in the market, are focusing on expanding their customer base across foreign countries. These companies are leveraging strategic collaborative initiatives to increase their market share and increase their profitability. However, with technological advancements and product innovations, mid-size to smaller companies are increasing their market presence by securing new contracts and by tapping new markets.
Due to lack of quality and reliable infrastructure across majority of locations in India, 60 percent of the total number of data centers in India are located in the top four cities. Over the next five years, on account of higher rental costs and space constraints, along with improved infrastructure availability in next rung cities, some larger hyper-scale data centers will be set up in those cities.
Considering the challenges in setting up data centers, larger international players have acquired local players to foray into the Indian market. For instance, Netmagic was acquired by NTT in 2012, Tata Communications by ST Telemedia Global Data Centres, and more recently GPX Global Systems (India operations) by Equinix.
Such acquisitions and partnerships are expected to continue.
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