Third Option

Every day, thousands of companies generate digital landfills of data as they cater to new customers and generate sales through the internet. All this requires vast data centres to adroitly — and safely — manage and store digital information. India, an IT hotspot, is destined to bite off a large chunk of this rapidly growing business. The business world says it all: ---------

The data centre market in India is about $120 million — a meagre 1 per cent of the global market. However, India is “the fastest growing market in the APAC region, with growth rates in the next five years expected to be 22.30 per cent”, says Naresh Singh, principal analyst for enterprise network infrastructure & services at Gartner. According to Anu David, senior research analyst for the ICT practice of Frost & Sullivan, South Asia & Middle East, Indian data centres will soon become globally competitive.

Notably, companies are rapidly moving from managing their content through in-house or ‘captive’ data centres, to ‘third party’ ones run by Indian companies. Today, India has twice as many captive data centres as it does third-party ones. Estimates by Datamonitor, a London-based market research company, suggest that of the 7 million sq. ft of data centre space to be added in the next four years, more than 90 per cent will be for third-party data centres.

In the past, companies were concerned about outsourcing their data handling to others because of security, accountability and intellectual property rights issues. For instance, firms such as ICICI Bank and Indian Oil Corporation (IOCL) have traditionally banked on in-house data centres. ICICI Bank has its main data centre in Mumbai and a disaster recovery site in Hyderabad, while IOCL has data centres in Jaipur and Gurgaon. “The biggest advantage is that we are not dependent on uncertainties faced by a vendor,” says S.S. Soni, executive director for information systems at IOCL. “We are also able to maintain secrecy of information.”

Today, Indian companies who had been using data centres located in the US are shifting their data to local, Indian ones who offer them six times the access speed. For instance, clients of Tata Communications have expressed an intention to move their data centres from the US and EMEA region (Europe, Middle East and Africa) to India. Moreover, Indian businesses are also adopting data centres to host their mission-critical applications such as enterprise resource planning and customer relationship management software. Indian data centre companies have also begun to rapidly embrace data centres as places where long-term, sustainable business solutions are offered for data storage and management. Companies in banking, financial services and insurance, telecom and manufacturing are also investing in data centres.

“A few years ago, if you had to set up a data centre, it had to be in Manhattan or California,” says K.P. Unnikrishnan, director of marketing (alliances and teleweb sales) of Sun Microsystems India. “But in the coming years, most data centres will be in the Asia-Pacific region with preference for India.” Says Sunil Gupta, head of business operations of data centre services at Reliance Infocomm, “The past three years have seen an explosive growth in the data centre business.” His outfit plans to pump in between Rs 1,000 crore and Rs 1,500 crore for seven more data centres in addition to the six the company has in Bangalore and Mumbai. Tata Communications has 34 data centres across three continents and plans to expand to 500,000 sq. ft across 20 new centres in India, UK, US and Singapore. “Close to 400,000 sq. ft is going to be in India,” says Vinay Nagpal, group manager for hosting and data centre services of global managed services at Tata Communications. “Given that demand is way above supply, most of the facilities we are building are already sold out. In fact, we are not able to build up fast enough.”

Ctrl S Data in Hyderabad is also expanding at a rapid clip. Having already set up the country’s first tier-IV data centre in Hyderabad, it intends to spend Rs 750 crore on data centres in six cities across the country. Says P. Sridhar Reddy, chairman and managing director of the company, “The Indian data centre market grew very slowly till 2004 due to the high cost of hosting, which can be attributed to the expensive bandwidth. But with the bandwidth costs going down drastically, data centres in India are set for a giant leap.”

The shift from captive to third party is making increasingly more sense to companies who are interested in focusing on their core competencies. Companies require huge investments in order to maintain support infrastructure, whereas third-party outsourcing assumes the burden for doing so. Nagging daily concerns over power supply, reliability, sufficient bandwidth and ample disk space are now somebody else’s problems, while stringent service level agreements will ensure that a high quality of service offered by outside-companies is a contractual obligation.
“We invested in data centres back in 1999 when we didn’t have any other option,” says Pravir Vohra, chief technology officer of the ICICI Group. “But in principle, we are not against outsourcing applications to third party vendors, especially those that are not mission-critical.” The physical structure and equipment within the data centres belongs to the ICICI group, but it has outsourced certain applications and management to third-party providers such as HP, Sun Microsystems and IBM.

So, what could trip up growth of data centres in India? Power is the biggest concern, considering the shoddy state of the power sector in India. Gartner estimates that power will become a critical decision factor for India in about two years. Considering traditional data centres typically waste more than 60 per cent of the energy that they use to cool equipment, this is bad news for Indian companies. This means that backup generators or indigenous ‘clean’ technologies will become a necessity. Says Unnikrishnan, “New greening technologies can lead to dramatic improvements in energy efficiency and cost as the data centre is fast becoming critical for today’s business.”

David says that India will “become a major player in terms of both revenue and capacity, second only to Japan”, despite the many sizeable potholes facing the data centre industry. For this to come true, however, the government needs to fix the basic infrastructure so that companies are not hindered in their goals of becoming global leaders.

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