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Coming of Age

Coming of Age

Enterprise spending on data center services is expected to grow from USD 1.5 billion in 2017 to USD 3.7 billion by 2022, a compound annual growth rate of 19.6 percent and data center capacity in India to increase by 50 percent– A Gartner report.

India is a large and fast-growing developing market, with strong demand for data center services from both domestic enterprises and foreign multinational corporations (MNCs). To meet customer needs, data center providers in India are offering a full range of services, including colocation, cloud infrastructure as a service (IaaS), and managed hosting. Several are beginning to extend their support to hyperscale cloud providers, in anticipation of growing demand for hybrid or multicloud services.

Organizations in India are increasingly migrating their on-premises IT infrastructure to external data centers as part of a greater data center consolidation, migration to cloud, and outsourcing trend. This is enabled by continual improvements in data center quality and telecommunications infrastructure, choice of cloud platforms, and an increasing array of managed and cloud-related IT services.

Demand is strong from both India enterprises and foreign MNCs. Many foreign MNCs rely on India as the IT support center for their global operations, and are increasingly looking at India as a large market for their products and services as well. However, the greater demand is actually from domestic enterprises, buoyed by strong economic growth and the increasing focus on IT modernization and digitization.

Gartner expects enterprise spending on data center services to grow from USD 1.5 billion in 2017 to USD 3.7 billion by 2022, a compound annual growth rate of 19.6 percent. Data center services include colocation, managed hosting, IaaS, utility hosting, and data center outsourcing. This is in sync with the worldwide IT services market at USD 1 trillion in 2018, growing 7.9 percent in US dollars (4.5 percent in constant currency). With outsourcing contributing 60 percent of market growth, the market will reach USD 1.2 trillion in 2022.

In the past, the market has been dominated by a few large providers, with most of the data centers concentrated in major commercial hubs such as Delhi, Mumbai, Bangalore, and Hyderabad. Yet, there are more providers today, with more data centers being built in secondary locations to support India’s increasingly distributed economic growth, as well as to provide alternative hosting locations to the major commercial hubs.

There is now a wider choice of providers, hosting locations and services, including colocation, managed cloud services, and data center outsourcing. This is enabling enterprises to increase adoption, accelerating the growth trend in India. The strong demand is in turn encouraging data center providers to invest in new high-grade data centers and IT skill sets for managed services.

Data center providers in India continue to improve their services dramatically, providing high-grade facilities for colocation, cloud, and managed hosting services. Infrastructure and operations leaders with data center requirements in India can now consider the providers for accelerated deployment.

Key findings

  • Data center (DC) providers in India are competing to bring a significant number of high-quality facilities to market over the next two years. They will need to differentiate by other means, including value-added services, such as cloud platforms, managed services, and cloud-related IT services;
  • Even though data centers have improved significantly in quality and reliability, the networks connecting them and the quality of national power grids remain problematic in some areas, making disaster recovery (DR) more of an issue here than in developed markets; and
  • Providers are beginning to support increased demand for and from hyperscale cloud providers, such as Amazon Web Services (AWS) and Microsoft Azure, in preparation for hybrid and multiclouds. However, most data center providers have limited skills and experience supporting public clouds at this stage.

Recommendations

Infrastructure and operations (I&O) leaders responsible for planning and enabling infrastructure delivery in India should:

  • Shortlist providers based on the merits of each service required, rather than their total product portfolio, as their individual product capabilities can differ significantly;
  • Incorporate backup and disaster recovery in the hosting plan for mission-critical apps; and
  • Choose cloud-managed service providers, based on their ability to support beyond standard managed services to other life-cycle IT services, such as architecture and design, cloud migration, and optimization.

Strategic Planning Assumption

By 2021, data center capacity in India is expected to increase by up to 50 percent compared to 2017, providing customers with a wide choice of high-grade facilities at competitive rates.

Market direction

In most developed countries, data center players tend to focus on colocation and basic managed services. That is because construction of data centers requires high upfront capital expenditure, with a long period to recover the investment. This precludes most facilities-based providers from going up the IT stack into higher-level IT services, which require equally large investments in IT skills.

While some data center providers in India follow this approach, most of the large data center players have taken a different approach – going significantly beyond colocation into cloud and related managed and professional services. India providers are able to take a different approach due to several reasons, including:

  • Managed or IT services experience, drawn from an existing managed hosting or managed services business;
  • Strong internal software and product development skills;
  • Access to a very large pool of IT skills in India, and at relatively low costs compared to other markets; and
  • Strong access to funding, either drawn from related telecom or IT business, or from investors, including foreign venture capital companies, eager to participate in the economic growth in India.

At the same time, providers are continuing to invest aggressively in new data centers, in anticipation of strong demand for both colocation and cloud services. Based on the business plans shared with Gartner, the providers will collectively increase the total data center capacity in India by up to 50 percent within the next three years.

All the new data centers are of minimum Tier-3 grade quality, typically ranging from 200,000 to 300,000 square feet, with access to ample, reliable power supply. While they are being built in the major cities such as Mumbai, Delhi, Bangalore, and Hyderabad to augment current supply, some providers are expanding into secondary locations such as Pune, Chennai, and Amravati, creating more location options for customers.

All the data centers, including those built by telecom players, are “carrier-neutral.” The major data centers are already pre-connected by the telecom carriers, providing colocation and cloud customers with a choice of network providers and services, ranging from multiprotocol label switching (MPLS) to Ethernet to internet access, and in some instances, content distribution network (CDN).

The wide choice of data center providers and abundant hosting capacity will create robust competition in the marketplace. This will keep data center prices low as well as improve the overall service quality. This will encourage more enterprises, since many still have IT infrastructure within the premises due to legacy IT practices, to accelerate their migration to external data centers and cloud.

Market analysis

Data centers in India are concentrated in a few major cities such as Mumbai, Delhi, Bangalore, and Hyderabad, similar to other countries. The data center quality varies. While there are large high-grade data centers rated Tier-3 and above, most of the data centers built in the earlier years are relatively small, and are of Tier-2 grade.

India has poorer environmental factors than other major data center locations in Asia-Pacific, including unstable power supply and frequent telecom cable cuts, resulting in outages. There is also air pollution, which can lead to accelerated hardware deterioration. Mumbai is prone to flooding while Delhi is in a seismic zone. Extreme traffic congestion also adds delay to on-site repairs.

While some of the poor environment factors still persist, outages are less frequent as major providers have mitigated the risks with better data center facilities, supported by diverse power and telecom infrastructure, with extra resilience built in to deliver availability comparable to data centers in developed markets. It is now possible for enterprises to host in India, with confidence.

Investment in data centers was historically led by telecom providers such as Reliance Communications, Tata Communications, and Bharti Airtel (through its subsidiary Nxtra Data). However, more providers have entered the market, including CtrlS Datacenters, ESDS Software Solutions, NTT Com-Netmagic, NxtGen, Pi Datacenters, Sify Technologies, and ST Telemedia Global Data Centers.

Most of the providers are domestic players. They compete on a broad portfolio of capabilities, including high-grade data centers, colocation, cloud IaaS platforms, and managed hosting and cloud services. These providers include the big telecom providers, who historically focused on colocation and basic managed hosting, but have introduced cloud and managed services over the past two years.

Colocation

The major providers are competing on the quality of their data centers. While implementations vary between providers, the new facilities are generally designed and built based on best practices laid out by the three major data center design and infrastructure standards American National Standards Institute (ANSI)/Building Industry Consulting Service International (BICSI) 002-2014 Data Center Design and Implementation Best Practices; ANSI/Telecommunications Industry Association (TIA) 942-A 2014 Telecommunication Infrastructure Standard for Data Centers; and Uptime Institute’s Tier Standard.

An increasing number of data centers are being certified. The typical SLA for availability today is 99.982 percent, in line with international standards. In addition to certifications, enterprises need to validate (preferably with a site inspection) to what extent the providers meet the specifications as well as change control and incident management processes to ensure correct operation.

For high availability, providers are introducing their own implementations to mitigate the local environmental risks. These implementations are not always obvious from the data center specifications, and typically require a site visit to understand their importance to the availability of the data center.

In addition to building a quality facility, they are also obtaining certifications for important operational standards, including International Organization for Standardization (ISO) 9000 for Quality Management Systems, ISO 14000 for Environmental Management Design and ISO 27001 for Information Security Management and ISO/International Electrotechnical Commission (IEC) 20000 for IT Service Management. Those that want to support e-commerce are also being certified for Payment Card Industry (PCI) Standard.

In anticipation of growth, the providers are building more data centers in the major hosting locations – in particular Mumbai, Bangalore, and Hyderabad. They are also expanding their footprint to secondary-location cities, such as:

  • Pune – as an alternative site to Mumbai;
  • Chennai – to support enterprise requirements in southern India or MNCs that want a data center close to the international cable landing stations; and
  • Amravati – as a cost-competitive alternative to the major cities, without compromising on quality and performance.

Managed hosting and cloud services

The major data center players are already strong colocation providers, and will continue to grow with the market as they expand their hosting capacity and footprint. While some will focus on this as a core business, most are moving up the IT stack into cloud infrastructure as a service (IaaS), managed services, and cloud-related IT services to enlarge their opportunity.

Most providers typically offer their own multi-tenanted cloud IaaS platform, with managed and professional services. The primary use case they support is “lift-and-shift” – migration from existing data centers to their platform and service, which can include hosted private cloud as an option. A few will support on-premises private cloud deployment. The providers offer a full range of managed services, including support for cloud platforms, operating systems, infrastructure middleware, and databases. The providers also offer professional services, such as cloud architecture and design, migration, operational reviews and optimization, and life-cycle management.

Providers are also building skill sets to support application-specific hosting requirements, focusing on SAP and Microsoft, and to a lesser extent, Oracle. They are in the process of securing certifications from the software vendors, driven largely by near-term market opportunities with support from the software vendors. The providers’ managed services skill sets are improving rapidly as they gain more customers and experience. Enterprises should consider using the providers for their higher-level capabilities, and not just for colocation. As the providers’ capabilities vary significantly at this stage, validation of their capabilities is important. A few providers are beginning to extend their managed services to hyperscale cloud providers.

Outlook

More enterprises, including MNCs and domestic companies, can now accelerate their migration from internal DCs to external providers for colocation, including to cloud. While colocation is an important service, enterprises should evaluate the possibility of using the providers’ higher-level capabilities, such as managed hosting and cloud services. Problems with unstable power supply and frequent telecom cuts still exist. These challenges can be overcome by taking extra mitigation procedures, including choosing a good data center provider, carefully validating its capabilities, and putting a DR plan in place.

Courtesy: Gartner

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