This article was first published by DCD reproduced with kind permission.
By Paul Mah
Demand for data centers is surging, but Indonesia’s cloud industry may need more regulations
With a thriving digital economy that at least one study says will dominate Southeast Asia by 2025, Indonesia is a land of opportunities. Its middle class has also burgeoned, making the country an even more attractive destination for businesses, says Nick Parfitt, senior global analyst at DCD.
While data centers are booming and large cloud players are arriving in the country, in-house premises are still strong, and the country’s regulators may need to do more to safeguard and encourage cloud business.
Middle class demands
“[Indonesia’s] got what I calculate to be the sixth largest middle class in the world, with a 2017 World Bank estimate pegging [the middle class] at 52 million people. They also suggest another 45 percent of Indonesia’s population is free of poverty and looking to move into the middle class, which could raise this figure to 120 million people,” he said.
This puts Indonesia’s middle class on a par with the entire population of other countries (the UK holds 64 million people and France 66 million). In this age of pervasive online connectivity, this translates to an enormous demand for digital goods and services.
“One of the things that tends to correlate with the development of data centers is the evolution of the middle class. [They] want to consume technology and buy electronic gadgets such as smartphones. They obviously then need the services and network to back all of these devices,” Parfitt explained.
The Indonesia population is also younger than other more mature economies: “You also have a huge number of young people who are familiar with technology [in Indonesia], unlike some countries where the population is growing older – and with a correspondingly lower tech take-up.”
In-house still leads
Yet Indonesia’s technical infrastructure is comparatively undersized, according to DCD’s annual Asia Pacific Data Directions Survey for 2019. Concluded in January, the survey garnered more than a thousand responses and includes scores of interviews with end-users, colocation providers and managed service providers.
Indonesia traditionally has a higher proportion of on-premises data centers compared to the average for the Asia Pacific region. In 2019, there was only a slight reduction of in-house facilities, from 60.2 percent in 2017 to 54.6 percent in 2019.
The dip can be partly attributed to routine decommissioning of older in-house data centers at the end of their operational lifespan, says Parfitt. It is also influenced by the global trend towards alternative IT deployments, where in-house data centers now have to compete with the cloud, outsourced deployments and colocation.
“The in-house data center is no longer the default option. I’m sure that there are businesses started in the last couple of years that have gone straight to cloud. The IT landscape in Indonesia is part of the global trend that we are seeing elsewhere,” he said.
On a positive note, the standards of Indonesian data centers have moved ahead by leaps and bounds, says Parfitt. He pointed to the sheer number of Indonesia facilities awarded Uptime Institute accreditation in recent years as the most visible example of the industry’s drive towards excellence.
Dawn of colo
Parfitt has seen breathtaking change in Indonesia over the last decade. The first DCDsurvey of Indonesia in 2012 spoke of “server rooms after server rooms”, but the situation is completely different today.
“Our last survey showed a landscape that was largely a legacy data center environment. That has changed. The country now has very good colocation facilities that are soaking up some of the demand from the small and medium enterprises (SMEs) that make up the Indonesian economy,” he said.
“Indonesia has progressed a long way for such a large market in a short time,” Parfitt said, “There can be few markets in the world that have moved as fast as Indonesia had.”
And the industry is not standing still: “The focus has now moved from the building to advanced considerations such as sustainable operations. The focus is moving in the right direction, and many of the facilities have accrued very good local reputations, too,” he said.
Global cloud providers clearly recognize the huge opportunities in Indonesia. Both Amazon Web Services (AWS) and Google Cloud Platform (GCP) have announced plans for a physical presence in the country, while China’s Alibaba Cloud is already operating out of two data centers there.
Parfitt suggests that the legislative environment could do more to accelerate the adoption of the cloud in Indonesia. As cloud resources are used differently from physical colocation facilities or in-house data centers, the right set of laws will go a long way towards winning the trust of organizations as they turn to the cloud, he says.
“The legislative environment has to be right for the cloud. [The public] cloud has to be ring-fenced with a whole series of regulations to encourage its adoption. This is because the cloud creates uncertainty – often unwarranted. You must take it more on trust. That’s why you need to have a certain degree of legislation underpinning it,” said Parfitt.
Unfortunately, recently proposed reforms to the country’s Electronic Systems and Transactions law, also known as Government Regulation 82 of 2012 (PP 82/2012) may temporarily stymie progress on the legal front.
Representatives of Indonesia’s digital infrastructure operators claim the changes will benefit foreign companies and threaten data sovereignty, though end-users from large enterprises appear to have welcomed it. While this is being sorted out, at least one survey respondent has described the current situation as one in which there is insufficient government regulation.
Regardless of how it turns out, Parfitt notes that the final legislation will have to be “implementable, enforceable and enforced” to advance the industry. “From the interviews I did, there may be an issue with how easy it will be for some companies to implement, and for the legislator to police,” he said.