The 451 Take

Local and international IT service providers are scaling-up their operations and pushing the need of multitenant data center abilities, while restricting their presence only in five top Indian cities.

Like all emerging data center markets, India has its own unique set of difficult circumstances that providers must overcome in order to be successful. A lack of basic infrastructure nationwide (particularly power resources and fiber connectivity), systemic wealth and income inequality, labyrinthine and lethargic government bureaucracy, and hesitation on the part of local businesses to adopt colocation services are but a few of the challenges.

However, as the Indian economy continues to grow and modernize, as more and more of its citizens access the Internet and use mobile devices, and as international cloud and IT services companies scale up their in-country operations, the opportunity for data center providers to thrive in the market is immense.

India’s colocation and managed hosting services market are poised to cross the 2 billion USD in revenue mark by 2019, up from 1.3 billion USD in 2016 predicts Mumbai, New Delhi and Bangalore: Multi-Tenant Datacenter Markets, a study by 451 Research. Due to uneven development in more rural areas, a lack of basic infrastructure across the country, systemic socioeconomic inequality, and generally low Internet access, though, the vast majority of India’s data center supply is currently concentrated in the country’s top five colocation destinations: Mumbai, Chennai, New Delhi, Bangalore, and Pune. Leading homegrown players have found greater success, precipitating major strategic partnerships and acquisitions involving some of the world’s top global providers, a pattern that may continue over the next few years.

With its vast population, world-class financial services industry, and high level of international connectivity, coastal Mumbai is clearly the premier market in India for data center companies. The city continues to grow and develop, even entering a new phase of its evolution recently with an increased presence of global cloud and online content companies. Currently, one-third of the entire data center foot print of the country is contained in Mumbai. Being the financial capital of India, with its close proximity to submarine cable landing stations the city is constantly adding infrastructure. It looks set for a banner year of growth in 2018, therefore, with several of the city’s top players planning to significantly expand their operations, particularly in the lower-cost area of Navi Mumbai. Almost all of India’s major providers are already in Mumbai, so the competition will only grow more intense as firms build out capacity. At the same time, however, land and power costs are rising, and competition is heating up, forcing some providers to build new data centers in outlying areas or nearby cities.

New Delhi’s supply additions have mostly been driven by government agencies, disaster recovery deployments for manufacturing companies and, more recently, local e-commerce firms encouraged by state programs such as Digital India. A much smaller market than Mumbai in terms of overall operational square footage, the capital maintained a modest growth rate and steadily rising utilization levels until earlier this year, when a large-scale data center, located in the business-focused Noida area, came online. To avoid pricing pressure and oversupply, the city’s other providers will have to wait and see how demand responds to the new building before they proceed with any significant expansions. More state efforts need to be made in improving the essential infrastructure behind this technological advancement, though, especially regarding power access, reliability, and network density.

Lastly, IT-oriented Bangalore supports a healthy, albeit modest, data center industry that has augmented its supply in accordance with the growth of the city as a whole. Bangalore also sits at the convergence of much of India’s network connectivity, including routes between the country’s top two international subsea cable landing points: Mumbai, for Europe and the Middle East, and Chennai, for the Asia-Pacific region.

451 Research predicts continuous growth for cloud computing as-a-service sector in India, with a compound annual growth rate of 25 percent over the coming few years. It estimates that India’s colocation and managed hosting services market would cross 2 billion USD in revenue by 2019, up from 1.3 billion USD in 2016.

“Despite the challenges, the opportunity for data center companies to thrive in India is enormous. Most homegrown providers already offer a range of managed services, and many have even launched their own public and private cloud platforms. The success of local companies such as Netmagic Solutions, NxtGen, Reliance Communications and Sify Technologies has even resulted in partnerships and acquisitions involving global players including ST Telemedia and NTT Communications, and we expect more on the horizon,”

Teddy Miller
Associate Analyst,
Multi-Tenant Datacenters