India has been receiving increased international interest for setting up data centre infrastructure in the country. While global IT giants such as Microsoft and IBM have announced their plans of setting up local data centres in order to tap the growing cloud solutions market, Amazon is considering setting up its data centres soon. Recent Gartner estimates expect the value of the Indian data centre market to stand at $2.03 billion in 2015. Further, enterprise networking will be the biggest segment in this market, with the revenue expected to reach $948 million in 2015.
With the revival of growth-related projects across verticals such as banking, insurance, telecom and the government, and large enterprises investing in big data solutions, the demand for data centre infrastructure is only set to rise in the coming years. While the present landscape has become mature for this industry, data centre operators still face several challenges.
Data centre landscape in India
According to Gartner estimates, the current market size of the Indian data centre industry is $1.92 billion while the server segment revenue stands at $657 million. Data centre operators in India are classified into two categories: hosted data centres and captive data centres. Hosted data centres are owned by third-party service providers that provide infrastructure and maintenance services to clients through their own data centres. Captive data centres, on the other hand, are only for captive usage. The majority of the data centres in India are captive and a few of them also provide third-party services. The key captive data centre operators in the country are Bharti Airtel, Reliance Communications and Tata Communications while Netmagic Solutions, Tulip Data centres, Sify Hosting, Spectranet, and the National Informatics Centre have hosted data centres.
Data centre solutions have been adopted by various enterprises across business verticals. Among these, business process management, manufacturing and banking, and financial services and institutions are the largest users of data centres. They account for more than 50 per cent of the revenue for third-party data centre service providers.
The following are the key industry verticals that have witnessed increased adoption of data centres:
Information technology: With a compound annual growth rate of 8.5 per cent, the IT infrastructure market is expected to reach $3 billion by 2016. The share of network equipment (including LAN and WAN) is about 40 per cent, followed by servers (33-34 per cent) and storage (22-25 per cent). Its growth is being driven by ongoing data centre consolidation and modernisation, as well as new data centre build-outs. Indian businesses are shifting from a distributed IT set-up to a more manageable and efficient centralised model. This model consolidates several remote branches into fewer but larger data centres.
Further, enterprises are increasingly adopting cloud computing and moving their IT infrastructure to professionally managed data centres. They are opting for managed hosting under which the data centre provider leases out an entire server to them and provides services such as monitoring, updates and application management. Enterprises are also looking to adopt a co-location model where they place their own server in the data centre and use shared resources, thereby achieving cost savings.
Telecom: To differentiate themselves in the market, communication service providers are enhancing their hosted and cloud services for their business customers. For instance, Reliance Jio Infocomm Limited is reportedly setting up 14 data centres across India to create a cloud computing infrastructure that can take advantage of, and complement, the upcoming roll-out of 4G telecom services. Third-party data centre leader, Tata Communications has 44 data centres across the world, with the latest being set up in Delhi. This is in line with the company’s strategy of investing more than $200 million to establish 1,000,000 square feet of data centre space over a period of three years.
Government: e-Governance has come to the forefront with the launch of the government’s Digital India initiative. The National e-Governance Plan received a budgetary allocation of Rs 12.75 billion in the 2014-15 fiscal, and aims to provide infrastructure for integrated citizen-centric services at the local level. One of the initiatives taken under the National e-Governance Plan is the setting up of state data centres (SDCs). These are being implemented to provide online delivery of services, create a central repository for the state, secure data storage, provide citizen information and service portals, state intranet portals, disaster recovery, remote management, and service integration. Currently, 23 SDCs are operational and the Department of Electronics and Information Technology plans to take this count to 33 by 2015-16. These data centres are regarded as the core infrastructure for supporting the e-governance initiatives of the National e-Governance Plan.
Banking: According to Gartner, banking and financial companies in India are expected to spend around Rs 470 billion on IT products and services in 2014, an increase of more than 10 per cent from Rs 426 billion in 2013. This IT expenditure by financial institutions will be made largely on internal IT, hardware, software, external IT services and telecommunications.
Challenges and the way forward
Although the data centre market has matured over the years, India is still not considered the most preferred destination for setting up data centres. According to a recent Asia-Pacific Data Center Index study published by the International Data Corporation (IDC), Hong Kong is considered the most suitable location in the region for setting up data centres, followed by Singapore and Taiwan. The reason for their popularity is cheaper bandwidth, strong infrastructure and low cost of capital.
In India, lack of power availability and reliability are the key challenges faced by the data centre industry. These lead to increased cost of operation, difficulties in expansion of operations and increased capital cost. Since diesel-based generator sets are generally used during power outages, the rising cost of diesel also negatively impacts the operational expenditure. Apart from this, there are other concerns pertaining to the enforceability of contracts, and law and order which deter IT companies from setting up server units.
The high cost of internet bandwidth is another impediment. Although bandwidth costs have reduced in recent years, they are still higher than the costs in most Western countries. According to the International Telecommunication Union’s annual “Measuring the Information Society” report, the cost of an entry-level broadband plan in India is equivalent to 5.5 per cent of the per capita income of the country. In comparison, a similar plan accounts for 0.5-0.8 per cent of the per capita income in countries such as Singapore, the US and the UK. As a result, several Indian portals still find it cheaper to host their applications in the US, despite having over 90 per cent of their user base in India.
Another key impediment is the high charges related to cable landing stations, the points at which submarine optic fibre cables enter and exit the mainland. Station owners often impose hefty charges for allowing internet service traffic to pass through.
Some of these challenges have put pressure on the demand for third-party data centres. Many enterprises are now strategising to avail of IT infrastructure “as a service” rather than investing in their own captive data centres. The demand is coming from domestic companies and India-focused units of international companies. For instance, the India units of three international banks recently shut their in-house data centre and moved them to CtrlS’s premises in Navi Mumbai. With the rising cost of power and real estate, it becomes more economical for enterprises to outsource their needs to data centre providers rather than to build their own data centres. Analysts estimate that outsourcing upwards of 150 racks can result in cost savings of 40-50 per cent.
The emergence of the third platform is also contributing to an increase in the domestic server capacity. According to IDC, the third platform of computing, which includes social media, mobile, cloud computing and big data, is transforming the IT industry. Further, this transformation is much faster than the first (mainframe) or second (client/server) platforms. Going forward, the increasing traction of cloud and enterprise applications will drive growth in the data centre infrastructure market. This growth is likely to occur due to greater utilisation of the centres’ existing floor space. With an increase in the uptake of cloud services, data centres are set to become a critical element in every enterprise’s IT infrastructure strategy.