The Internet Data Centre Market in Asia-Pacific

By Cindy Payne, Managing Director
Asia-Pacific Connections Pte Ltd

June 2002

Research leader, International Data Corporation (IDC), predicts that the Asia-Pacific (excluding Japan) Internet Data Centre market will grow at a compound annual growth rate (CAGR) of 36% from US$713 million in 2000 to reach US$3.3 billion in 2005. However, IDC also predicts that the Asia-Pacific (excluding Japan) information technology (IT) outsourcing marketplace will grow at a CAGR of 24% from US$4.7 billion 2001 to reach US$14 billion in 2006. This presents significant opportunity for Internet Data Centres across the region that have been plagued by consolidation and significantly lower revenues than originally expected.

Whilst shared and dedicated hosting revenues across Asia-Pacific are expected to reach approximately US$4 billion by 2004, the real opportunity for Internet Data Centres is in the provision of outsourcing services to enterprises who need support across all information systems (IS) applications, as well as network and desktop platforms. Internet Data Centres in the region are beginning to provide mission-critical IT-outsourced services to enterprises including:

The management of core systems (networks, storage, servers)
The design, construction and operation of IT and network systems
The provision and support of hardware, software and other services needed to achieve quality of service, time-to-market and cost effectiveness
The provision of customised and utility-based services
The monitoring of the application environment.

Within the IT-outsourcing arena, applications outsourcing will register the fastest growth with a CAGR of 51%. Internet Data Centre customers within the region have already begun to purchase support for critical enterprise applications including website management (37%), multiple application management (12%), messaging (12%), Enterprise Resource Planning (ERP) solutions (5%), Customer Relationship Management (CRM) solutions (3%) and Supply Chain Management (SCM) solutions (2%).

Global socio-political turbulence has also created strong interest in disaster recovery and business-continuity services. The Asia-Pacific disaster recovery and business continuity market is expected to grow at a CAGR of 20% from US$551 million in 2001 to exceed US$1.3 billion by 2006. Internet Data Centres sited in Australia, Korea and Singapore currently account for the bulk of the regional market. Multinational companies from Europe and the US who need mission-critical 24/7 support have long used Australia and New Zealand as IT-outsourcing havens. However, between 2001 and 2006, Australia and New Zealand's disaster recovery and business continuity market will only grow at a CAGR of 7% and 9% respectively, whilst Singapore will grow at a CAGR of 26%. In contrast, North Asian disaster-recovery and business-continuity hubs, like Korea, will grow at 31% and the People's Republic of China (PRC) is set to register the highest growth at 46%.

The PRC's entry into the World Trade Organization is fueling a new drive for competitiveness by using technology as a tool. The PRC Internet Data Centre Market is growing at a CAGR of 84% and will become the biggest Internet Data Centre market by 2005. Other top growth markets include India with a CAGR of 56% and Indonesia with a CAGR of 45%. In contrast, the mature markets of Australia and New Zealand will only grow 29% and 19% respectively. Smaller markets like Singapore and Malaysia have also developed national strategies to ensure that they win a share of the Internet Data Centre global marketplace.

The sectors driving the growth of Internet Data Centres in Asia-Pacific include communications, banking and finance, and manufacturing. In 2000, the communications sector accounted for 15% of the regional marketplace, whilst banking and finance accounted for 12%, and manufacturing contributed 8%. Upon sizing the companies who used Internet Data Centres in the region, IDC found that 52% were small-to-very-small companies numbering under 1,000 employees, 21% were medium-sized companies with between 1,000-9,999 employees, and 7% were large enterprises with more than 10,000 employees.

In order to convince more enterprises with substantial IT budgets to use Internet Data Centres, the key concerns of CXOs must first be addressed. Most importantly, regional Internet Data Centres must develop a comprehensive migration strategy and provide SLA-based incentives to support migration. At the same time, they must establish partnerships with leading consulting, hardware, and software vendors to build credibility. Finally, to survive the global technology recession, Asia-Pacific Internet Data Centres must differentiate their service offerings, develop vertical-industry expertise, customise utility-based services and build core competencies in IT design and processes to align with customer needs.

As a result of the global technology recession, some clear trends are emerging in the Internet Data Centre marketplace, including consolidation (through mergers, acquisitions and alliances), increasing demand for managed customer systems on a dedicated and customised basis, and the emergence of small but nimble Internet Data Centres capable of offering high-value boutique-style service. To compete in this very dynamic marketplace, Internet Data Centres must heed these trends and offer CXOs a compelling reason to outsource more of their IT service and support needs.