India Datacentre Market 2013 – Significant growth expected till 2016

Data Centres are facilities that house computer systems and store data - are of two types captive (firms setting up centres for their own use) and third-party (outsourced).Data centres market in India is seeing a good growth since past few years thanks to the explosion of data through smartphones, social networking sites and ecommerce companies. Even Government of India have initiated projects like Aadhar Card project by Unique Identification Authority of India, digitization of Land records, citizen services, etc. are also increasing the demand for data centres in India. In India market is dominated by third-party data centre providers like Netmagic, Tulip Telecom, CtrlS and telecom firms Reliance, Tata Communications and Sify that provide services to internet companies like Yahoo, Ebay, Flipkart, Myntra, etc. According to Nasscom, India’s data centre market was at about $2.2 billion in 2012 and is estimated to grow by more than 8% over the next 3-4 years. The current data centre space available is India is about 3.7 million sq ft as of 2012-end and is estimated to rise to 6.3 million sq ft by 2017, said Naresh Singh, Principal Research Analyst with Gartner, with service providers leading majority of the growth. In terms of market size, it is projected to grow to $3 billion (Rs 16,320 crore) from $2.2 billion (Rs 11,960 crore) in the same period. Data centre capacity is concentrated across certain cities such as Bangalore, Mumbai New Delhi and Hyderabad. Gartner valued the colocation and hosting market in India at US$609.1m in 2012 and by 2016 it will be worth $1.3bn.

The Date Centre Dynamics Intelligence Industry Census data collected in 2012 shows that investment in India’s data centre market was expected to reach US$4.4bn in 2012, up from $4.1bn in 2011 (China investment for 2012 was expected to be $8.7bn and Brazil’s $5.5bn). In India, this represents 1.21m sq m of data centre space being built – up from 0.76m sq m in 2011, and a power demand of 1.04 GW in 2012. A report by Frost & Sullivan which predicted that by 2018 there will be almost nine million square feet of data centre floor space — a three-fold increase from current levels. Most of the demand for data centres in India is from IT and IT-enabled service firms, banking and financial services sector, telecom companies, Internet service providers and consumer goods firms. The Indian IT infrastructure market, comprising of server, storage and networking equipment, will total $2.1 billion in 2013, growing 9.7 percent compared to 2012, according to Gartner, Inc and market is driven by hardware refresh, optimization and consolidation efforts and new data centre build. But the industry is facing severe problems like unpredictable power supply which will lead to shutdown of datacenters that costs in terms of money and data loss, unreliable internet connectivity, limited bandwidth and unreliable optical fiber connectivity between different parts of the country.  Despite these problems the demand for data centres in India is expected to grow because of the national e-governance projects by Central and State government and prospective changes in regulations by Reserve Bank of India planning to make it mandatory for data to reside within the geographic boundaries of the country. Even Indian companies are looking to increase the usage of Third Party Data centres as they also need to store data that they are collecting during their business activities and use such data for business decision making.

India Data Center Market 2012 – Significant growth forecasted, Future Outlook 2017

India Data Center market is expected to see significant growth in the next five years as there has been increased adoption by Indian companies of the third party data center services and the government has also increased its cloud computing initiatives where it is directly setting up data centers and also using the services of the third party data center service providers. Reliance Communications has announced the multiple orders bagged from Central and State Government of India as the company has signed long term contract with The Department of Post, Municipal Corporation of Greater Mumbai (BMC), Madhya Pradesh Border Checkpost Development Company Limited along with Karnataka DISCOM and Chattisgarh DISCOM. McKinsey has estimated that the third party outsourced data centre market in India is expected to grow at a CAGR of 32% to Rs 5,500 crore by the year 2017 with verticals such as banking and financial services, media and entertainment service, manufacturing, international telecom providers and retail accounting for 70% of this growth. TechNavio's analysts forecast the Data Center Equipment market in India to grow at a CAGR of 10.4% over the period 2011-2015.

The Indian IT infrastructure market comprising of servers, storage and networking equipment will reach US$2.05 billion in 2012, a 10.3% increase over 2011, according to Gartner, Inc. The IT infrastructure market is expected to reach $3.01 billion by 2016. Revenue growth will be primarily driven by ongoing data center modernization, as well as new data center build outs. Servers are the largest segment of the Indian IT infrastructure market, with revenue forecast to reach $754.5 million in 2012, and grow to $967.2 million in 2016. The external controller-based storage disk market in India is expected to grow from $439.4 million in end-user spending to $842 million in 2016. The enterprise network equipment market in India, which includes enterprise LAN and WAN equipment, is expected to grow from $861 million in 2012 to $1.2 billion in 2016. Gartner Analysts predict that Indian businesses are looking to focus on optimizing the IT Infrastructure and strategy by implementing virtualization and ongoing investment in large captive data centers mixed with the capacity growth initiated by the data center service providers are the key drivers for growth. Mobility, social media and cloud computing adoption will have significant influence on the way data centers are designed, operated and managed their by the data center services providers.

Dimension Data estimates data centre market in India is growing at a CAGR of 22% and will touch Rs 6,500 crore by 2016. BSNL offers managed co-location, managed hosting and cloud services through the Internet Data Centers (IDC), which have been built by Dimension Data for BSNL. This public-private initiative will leverage the strength of BSNL in telecom infrastructure and vacant buildings and that of Dimension Data in providing data center and cloud computing," Communications and IT Minister Kapil Sibal said while inaugurating BSNL IDC services. Dimension Data operates and manages IDC centers, which are located in Mumbai, Faridabad, Ahmedabad, Jaipur, Ludhiana and Ghaziabad. Each of these is run at a Tier III level and all make use of vacant space BSNL has at its telephone exchanges. According to Reji Thomas Cherian, VP, Telecom, Media & Entertainment, Capgemini India, the Cloud Computing market including PaaS, IaaS and SaaS was worth $400 mn for India alone. Data center services revenue is projected to touch $2.6bn in 2012. The managed security market in India was worth $321 mn in 2011 and is expected to see rapid growth. Moreover, managed third party data center services generated revenues to the tune of $662 mn in 2011 and this too is on a high growth trajectory.

India Data Center Market 2012 – Cost Savings & Various Service Offerings

The Indian Data Center market is seeing significant growth in demand as there is not only significant increase in adoption by governments both at the center and state levels where they are aggressively building data centers to utilize cloud computing to store data and provide services to citizens more efficiently but also from the business organizations who have realized that there are significant benefits for them in terms of cost savings and increased focus on their core businesses as hosting a company’s IT infrastructure in a managed data center by a third party service provider and in a centralized rather than distributed manner, works out to be more cost-effective in the long run. In case of captive data centers, huge costs associated with real estate, IT infrastructure, and the manpower to manage it will have a direct impact on the company profitability. Data centers services providers invest hugely (in Crores of rupees) in power and cooling infrastructure such as chiller units, generators, batteries and UPS units, power distribution units (PDUs) and specialized computer room air conditioning units (CRAC) and businesses that are looking to use the data centers services providers can benefit from the economies of scale and shared services model. Data center providers are currently offering infrastructure services along with specialized services (over the cloud) such as security, digital video surveillance and storage and data centers are partnering with vendors and solution providers for offering such services.

Managed hosting services is another key driver of growth in India in which data center provider will lease an entire server to one customer who has full control over the leased server and administration (monitoring, updates, application management, etc.) are offered as add-on services. This is cheaper when compared to deploying a server in-house, as it is costly in terms of power and cooling costs and IT staff costs. Managed services, which include cloud computing solutions, managed ATM services and video conference solutions and Network leases are usually a 12-month contract renewed every year. But for managed service contracts, customers prefer a three or a five-year contract, as they want certainty. Collocation (colo or coloc) is a data center service in which customers can place their own server in a data center and use shared and redundant resources like power and HVAC which is very attractive for the customers as they need not have invest upfront  for such resources. Data centers also offer locked cages for customer servers, monitored by IP cameras at the customer’s end and customers can also visit the site and do server administration from a cubicle. The data center colocation and hosting market in India is estimated to reach $609.1 million in 2012, according to Gartner, Inc. The market will experience consistent growth through 2016 when the market is forecast to total $1.3 billion.

Data center-in- Data center (DiD in which data centers host a major IT service provider like HP, IBM or Dell and the service provider will in turn host infrastructure for its own customers which helps  service provider to focus on its core expertise (applications and services) without making upfront and expensive investments in power and cooling. India players are already hosting some of the major IT service providers and are also opening data centers overseas and are actively looking to go global. Small and Medium businesses are also increasing the adoption and they have significant cost and resource savings by hosting their IT on third party data centers and which is further fuelling demand in India market. The various service offerings by the data centers services providers and the significant cost benefits and increased focus on core business processes are expected to fuel the data center market in India in the next five years and large players are investing heavily in setting up new data centers and increasing capacities. 

India Third Party /Hosting Data Center Market - Major Players

Note: Co-Lo- Co-Location & hosting, MNS- Managed Services, EDC- Enterprise Data Capacity, VAS- Value Added Services. Source: IDC & Company Websites

The third party data center market is dominated by telecom players as they are providing services like broadband and leased lines for the customers and the data center offering will be a value addition service for the clients. Apart from telecom players there are players like Ctrl S who is a specialized data center provider and Sify and Netmagic that are specialized in the internet services. Some small players like Cyquator, ESDS, Net4 with capacities ranging from 10,000 to 20,000 sq ft exist in the market that also offer services to small and medium enterprises. Data centers small or big are all maintaining global standards and getting themselves certified accordingly. Facilities provided are world class.

India Third Party /Hosting Data Center Market - Major Challenges

Bandwidth cost has come down, but it is higher compared to western countries and today it constitutes 30% to 35% of operational costs of a data center. Three years back bandwidth price was $2000 - $2500 per Mbps per month and presently it is around $500-$700 per Mbps per month but it has to come down to $150 - $200 per Mbps per month to become a viable data center destination. In US band width rates presently are at $100 per Mbps per month. There has been an increase in bandwidth with speeds progressing from 1G to 10G. With the band width pricing falling down in India compared to US many e commerce companies and travel sites have shifted to Indian Data Centers. Several service providers with bandwidth and/or data centre space are entering into the business. Most telecom companies now offer hosting services.

Cooling systems affect the power consumption in the data centers. Dual core and quad core processors in the servers generate hit and directly affects the power required per square feet. Higher-density cabinets and racks in the data centers are expected to increase in the coming years which will affect the density of both power and cooling required to support them. Row and rack-based cooling are the best for higher-density equipments as it helps in reduce energy consumption by 15%. Cooling cost can also be reduced by air conditioning wands that pinpoint critical hotspots in server arrays to a specific temperature and also free cooling wherein external cold air is used to cool the data center. Proper airflow, temperature and humidity in the data centers help reduce the power cost as the power tariffs in India are raising by 10-15% every year. Availability of uninterrupted power supply is one of the major problems that Indian Data Centers are facing. The Government of India estimated the country will require an installed capacity of over 200,000MW by 2012 to meet electricity demand. Its current total installed capacity is about 160,000MW.

Rising real estate costs are another challenge. Real estate costs are higher because most of the data centers are set up near to the metropolitan and major cities and most of the clients are not keen in having their data centers far away near to smaller cities and town where the cost will be less. Most of the data center clients in India are BFSI, Manufacturing. Mumbai is the financial hub; Delhi has most government and public sector establishments and real estate prices in IT cities such as Bangalore and Hyderabad are also rising. Government can help the data center industry in India by providing the network connectivity and improving the power supply to the cities and towns near to the metros and IT hubs.

Virtualization is the key for making data center more efficient and lower costs. It optimizes the usage of critical underlined compute resources, reduces low equipment utilization rates, enables infrastructure consolidation and helps reducing heat and power consumption. Also Green IT practices such as data center virtualization, better data center design and layout and asset lifecycle management, which reduce the need for CAPEX, are becoming increasingly important. Tools are being developed that help in power efficiency and usage calculators, Building management systems, infrastructure management, that help in improving efficiency and reduce costs.

Other challenges for the industry are lack of qualified and skilled professionals who are needed at mid level and higher levels of management of data centers. India has lot of IT professionals experience in other fields but people with data center experience are hard to find. Data centers in India are running at 80-90% capacity and with rising demand Vendors have to look for ways at increasing their capacities fast and at low cost. Setting up full fledged data center takes a minimum of three years to complete and become operational. Data security concerns is another issue as India in the BPO sector has experienced pilferage of data by employees. With rising cost and competition there has also been pressure on the margins of the data center vendors. Cost of adoption and integration of new technologies in hardware, software and facilities management is a concern and vendors have to realign their pricing strategies and business models to maintain the profitability.

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