With three of the top five global economies [1] – China, Japan and India – Asia Pacific is home to a digitally-savvy population keenly interested in trying out new technologies. This has created increased demand for online services that are available anytime and from anywhere. Companies are scrambling to digitally transform themselves with a cloud first strategy in order to meet this demand.
As a domino effect, the internet infrastructure market has been growing steadily in the Asia Pacific region. This presents a major opportunity for data center operators with the right technology and expertise.
Apart from the three top economies, another regional driver for Asia Pacific growth and digitization is the economically well-knit ASEAN region with 650 million inhabitants. The region registered a combined GDP of US$3 trillion in 2018 [2], making the region another magnet for global investment with Singapore being the destination of choice for global organizations for regional headquarters and infrastructure. The ASEAN region could add nearly as much to the global output as the Eurozone over the next five years [3], according to an HSBC report released late last year.
Adding to the already prevalent digital momentum, the COVID-19 pandemic has given a new sense of urgency for secure cloud-based digital platforms for employees to work from home during nationwide lockdowns. Many innovative cloud-based technologies are being tried out by organizations in Asia Pacific and these could become the norm once this pandemic is behind us.
Market size
To understand just how big an opportunity Asia Pacific presents for data center operators, one needs to look at market size. The region will become the second largest data center and hosting market in the world by 2023 [4] and revenues will increase dramatically. Asia Pacific will account for 29.6 per cent of the global data center market revenue in 2023, just behind North America which will account for 34.3 per cent.
In US dollar terms, the Asia Pacific data center market is forecast to reach US$32 billion by 2023, behind only North America in terms of regional revenue [5]. This represents a major growth opportunity for companies with the right technology and expertise in the internet infrastructure business.
The Asia Cloud Computing Association (ACCA), which brings out the authoritative, Cloud Readiness Index, notes that Asia Pacific’s international connectivity has increased by 63 per cent year-on-year in 2018 [6], ensuring that the region’s economies are in a strong position to lead the next wave of global digital innovation. Many governments continue to provide support around cloud infrastructure, planning and procurement, in the form of “Cloud First” strategies. All this fuels the region’s data center market growth.
Growth drivers
There are many drivers for Asia Pacific data center growth and one of them is online shopping. With the largest number of internet users in the world, online retail is booming in Asia Pacific. It is expected to grow from a paltry 3.2 per cent of total retail sales in 2011 to 17.2 per cent by 2021, according to Euromonitor International. This compares well with the global figure of 18.1 per cent also in 2021 [7].
Closely related to the above is the rise of regional super-apps, like Grab and Gojek in South-East Asia (SEA) and Paytm in India. Following the Chinese model, popularized by WeChat and Alipay, these applications offer a multitude of services to customers. Grab and Gojek offer services ranging from ride hailing, food delivery, medical advice and even help in choosing financial products. In markets like Indonesia, where the majority of the population are unbanked, the super-apps have come up with novel ways to tap into new customer needs [8].
With integration of third party services these super-apps require massive amounts of cloud compute to offer real time access through mobile phones. Not surprisingly this is also fueling regional data center demand.
Demand for OTT (Over the Top) video services like Netflix, Amazon and also regional content from a number of local service providers is also growing rapidly in the Asia Pacific region. Global hyperscale operators are thus looking for data center space in the region to feed this demand. Apart from the established players, new international services are entering the market hoping to capitalize on the enormous scale available. It is estimated that Asia Pacific subscription OTT revenues are likely to reach US$19.9 billion by 2024 [9].
Another driver for data center growth stems from the increasing requirement of governments for data localization from international service providers. A good example of this is the Indian market.
Currently around 70 per cent of the country’s data is stored outside of India but new legislation is attempting to reverse that with data localization laws that are similar to the ones being used in Germany and Australia [10]. Demand is outstripping supply in India and analysts expect the country’s data center market size and capacity to grow from 252 MW of power in 2019 to 536.1 MW by 2024, which means a compound annual growth rate (CAGR) greater than 20 per cent [11].
Indonesia is another country which is tightening legislation in order to make it imperative to store its citizens’ data within the country [12]. At the same time, the country is attracting investments from hyperscale cloud services providers such as Google, Alibaba and Amazon due to market size.
New technologies like Internet of Things (IoT), Artificial Intelligence (AI) and big data analytics, which Asia Pacific companies are rapidly adopting, require high performance computing infrastructure. Along with the fifth generation mobile telephony (5G) this will also drive cloud-based digital transformation.
For organizations, data centers are becoming as important a part of business operations as are office space, retail and industrial assets. In an increasingly digital world a cloud-based enterprise IT strategy has become an essential part of business delivery.
All these market trends indicate that Asia Pacific demand for high tech and high performance data centers is unlikely to abate anytime soon. Once the region and the globe manages to defeat the COVID-19 virus and go back to normal conditions, it is quite likely that new ways of working through online tools will become the norm and this in turn will also fuel further data center demand. This makes the region a major market opportunity for companies with the right kind of technology.
About Princeton Digital Group
Princeton Digital Group (PDG) is a Warburg Pincus-backed investor, developer and operator of internet infrastructure. Our portfolio of data centers powers the expansion of hyperscalers and enterprises in the world’s fastest-growing digital economies. Our agility, speed and unmatched experience in scaling global internet infrastructure provide our partners and customers immediate access to growth opportunities across Asia.
