How is the data center industry becoming the future economy? How big the investment in Indonesia is going on for data center industry development?
A data center is a storage resource and data computing network that supports software and applications to transmit data to one another. The data center accommodates a lot of important data with very large and fast volumes so that it is needed both for business and non-business needs from various types of users or consumers. Based on data from Statista.com shows that IT spending for data center systems around the world is predicted to reach USD 222 billion by 2023.
Indonesia has developed along with technological developments and increased access to internet usage. According to the Association of Indonesian Internet Service Providers through mordorintelligence.com, by 2021 there will be 196 million internet users or 73.7% of the total population. And also the growth of e-commerce in Indonesia also encourages the availability of adequate data center needs. With an increase in IT spending, 5G implementation, and also digitization in various sectors, the Indonesian data center industry is predicted to provide great potential for further investment.
What is the potential of the data center industry and its demand in Indonesia? What is the trend that happening in the data center industry in Indonesia?
The Growth and Potential of the Data Center Industry Globally
Increasing data circulation is rapidly driving technological evolution around the world, one of which is the development of data center technology. Based on data from Statista.com, to meet cross-industry needs, there were 2,701 data centers located in the United States, the second is Germany with 487 data centers located, the third is the United Kingdom with 456 data centers, and China with 433 data centers located.
The increasing need for large-scale processing and digital application development requires large data centers and cloud technologies. Not only sufficient capacity, security, and also cost efficiency are also needed, but so many data centers are implementing artificial intelligence (AI) in the process of their systems. This also has an impact on other industries, namely semiconductors because special AI chips are needed that are more powerful and optimal in running machine learning algorithms at a sufficient level.
The need for data centers is also projected to continue to grow due to the implementation of the internet of things (IoT) in many industries in line with advanced industrial development and the shift towards automation and digitalization. Revenue in the Data Center market is projected to reach USD 342.10 billion in 2023 globally with an annual growth rate (CAGR) of 4.66% until 2027 and predicted to reach USD 410.40 billion by 2027. Network infrastructure is the largest segment which is predicted to gain USD 203.40 billion in market volume in 2023. Globally, most revenue expected will be generated in the United States which will score around USD 99.97 billion in 2023.
Data Center Growth Opportunities, Entry of Various Investments Worth Billions USD
According to ilogo.co.id, the first data center in Indonesia was built in 1997 by Telkomsigma which has been certified as Tier III Operations in ASEAN. In 2016, the area reached 290,000 square meters and continues to increase to 375,000 square meters today. This indicates that the demand for data centers in Indonesia continues to grow, mainly triggered by economic developments and also the pandemic.
This growth is also supported by the government as a regulator in which Bank Indonesia (Indonesia’s central bank) through regulation number 9/15/PBI/2007 requires banks and other financial institutions to have a Disaster Recovery Center (DRC) mechanism. Such mechanisms are required to ensure data recovery and operations can continue in the event of an emergency.
Based on data from kontan.co.id, from the demand side, the need for data centers is estimated to grow to 200 megawatts (MW). As described in perantara.net, the market value of the Indonesian data center industry is currently estimated at USD 1.7 billion and is predicted to grow to USD 2.4 billion in 2027. It is estimated that the investment value for the data center industry development will reach USD 42.4 billion in 2027.
Indonesia has experienced a rapid increase in data center investment of 45% due to the soaring number of companies investing in this industry such as Telkom Indonesia, DCI Indonesia, Princeton Digital Group, GDS Services, and Indonet. More than USD 3.36 billion will be invested in Core Developer Services throughout Indonesia from 2022 to 2027.
According to Perantara.net that apart from local companies, it is known that cloud service providers Microsoft, Google, Oracle, Amazon Web Services (AWS), Alibaba, and Tencent have set up cloud regions across the country. Statista revealed that in the last six years, the revenue of the cloud computing market (cloud) in Indonesia has increased sharply. It is known that the Indonesian cloud market was only worth USD 153 million in 2016, the market has grown by 608.33% in 2022 to almost USD 1 billion.
The Trend of Data Centers Based on Green Energy and Environmentally Friendly in Indonesia
According to katadata.co.id, Telkom Indonesia is encouraging the empowerment of environmentally friendly energy in the operation of the Hyperscale Data Center (HDC) which is being built in Batam last December 2022 and is targeted to be available in 2024. Telkom said that this is the key to the success of a data center where the level of efficiency is high energy use.
Shows that the higher the computational ability that occurs in a data center, the more energy it requires to do so. So it takes energy that is more environmentally friendly and efficient. In this case, Telkom Indonesia is working with Medco, a well-known energy company in Indonesia, and also the State Electricity Company (PLN) which will play a role in the distribution.
Telkom is also working with Singtel which is an old player in the industrial data center in Singapore because Telkom sees a potential need for an overflow of requests originating from Singapore and its surroundings. In addition, Telkom predicts that in 2030 Indonesia’s data center needs are estimated to be at least 1,200 MegaWatt (MW). So this is a huge opportunity for players in the data center industry.
According to techverse.asia the Institute of Essential Services Reform (IESR) said that the data center has operational characteristics for 24 hours in its use, so the energy required is also large. It is recorded that energy used by data centers can reach 200 Tera Watt Hour globally, so a more environmentally friendly strategy is needed to anticipate this enormous energy demand.
Especially nowadays, the global trend is towards carbon neutrality in various industries. Nationally Indonesia only has 11.5% of the renewable energy mix, while the target that must be achieved by each country in the Paris Agreement is 23%. The high potential of the data center industry in Indonesia has attracted many foreign companies to build their data centers in Indonesia. Here are three international companies that have been operating in Indonesia:
1. Alibaba Cloud
Alibaba Cloud, which is part of the Alibaba Group, is a data center and cloud processing provider. Apart from consumers, Alibaba is also used for online business and Alibaba’s own e-commerce ecosystem. The Singapore-headquartered company offers cloud services available on a pay-as-you-go basis and can provide data storage, relational database, big data processing, elastic processing, anti-DDoS protection, and content delivery network (CDN) services. Based on data from Statista, Alibaba Cloud managed to generate revenue of USD 11.76 billion globally in the 2022 fiscal year.
2. Amazon Web Services (AWS)
Amazon, which was founded in 1994, developed its business not only in online retail sales for books, clothing, electronics, and others but also penetrated data storage and cloud services which have played an important role in industrial technology. Based on data from Statista, since AWS was launched, the company managed to generate more than USD 62 billion revenue in 2021.
Founded in 1997, Oracle is a company focused on relational database services. Oracle ranks among the giant companies as the most reliable provider of data management systems in the world. Based on data from Statista, for more than 10 years, Oracle generated revenue of USD 42 billion in the 2022 fiscal year, which grew from USD 22 billion in the previous year.
This makes Oracle one of the world’s largest responsible companies. The proof is that the cloud services and licensing company segments are the largest source of revenue at Oracle, accounting for more than 50% of the company’s overall revenue.
Enter The Indonesian Data Center Market with BRIGHT Indonesia
Because of the huge impact of the data center industry in Indonesia, of course, it takes a lot of in-depth research about the data center market in Indonesia. So, to enter the Indonesian market, you need the right local partner to assist you.
BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.
BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:
- Provide assistance for you in expanding and developing your business by identification of potential partners.
- Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arranging business meetings, and acting as a liaison.
- Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
- Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.
For more information, email firstname.lastname@example.org