Hundreds of millions of young, tech-savvy internet users in the Indo-Pacific region engage with cloud computing applications on a daily basis, most likely from their phones. They stand at the heart of an internet economy that is growing at double-, if not triple-digit annual rates in the region.

Now global tech companies are vying for supremacy across a geography whose long-known economic potential has been augmented by the pandemic, which has sparked a global digitisation drive.

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“It is an important growth story and [big tech companies] do not want to miss out on the opportunity,” says Luc Grimond, partner and managing director at Boston Consulting Group.

With research firm IDC expecting public spending on public cloud services in the Asia-Pacific region to triple through 2023, US and Asian cloud providers are squaring up. The likes of Alibaba, Tencent and Baidu are going head-to-head with Google, Microsoft and Amazon Web Services in the battle for market leadership in the world’s fastest-growing cloud region.

Increasing demand 

With a highly connected and internet-enabled community, the Indo-Pacific region has digitally transformed over the last decade. The south-east Asian internet economy is growing particularly fast, having more than tripled since 2016 to reach $100bn for the first time in 2019, according to research from Google, Bain & Company, and Temasek.

“The two pacesetters in the region are Indonesia and Vietnam, which lead the pack with growth rates over 40% a year,” says the report. It also highlights that the internet economy in Malaysia, Thailand, Singapore and the Philippines is growing by between 20% and 30% annually. 

With cloud computing infrastructure forming the backbone of today’s internet economy, this increasing demand should translate into booming spending on cloud computing services, which are expected to increase almost three times to $76.1bn in 2023, from $26bn in 2019, IDC forecasts. 

“The public cloud is a launchpad for virtually all IT innovations in enterprises,” says William Lee, research director for cloud services at global market intelligence firm International Data Corporation (IDC). “If you look at the Covid-19 pandemic, cloud technology and services are at the centre of government and industry efforts to manage the crisis. We believe that the pandemic has further catalysed the cloud’s position at the centre of enterprise and public sector digitisation.”  

Laying groundwork

As soon as the Covid-19 emergency started regressing, big tech cloud providers rushed to announce multibillion-dollar investment campaigns in Asia to deepen the footprint of their cloud infrastructure in the region and maximise connectivity between themselves and their customers, enabling a stronger connection and improved latency.

Chinese company Alibaba announced a $28bn investment into its cloud division in April, which will be used mainly to expand its operating system and data centre servers. National peer Tencent raised the stakes further right after, announcing a major $70bn investment strategy to build hyperscale data centres, supercomputers and 5G networks, as part of plans to advance cloud computing, artificial intelligence (AI), blockchain, Internet of Things (IoT) and quantum computing over the next five years.

Additionally, Baidu announced plans in June 2020 to deploy 5m AI cloud servers by 2030, the company told fDi

US big tech companies have also been busy. In July 2020, Google CEO Sundar Pichai announced a $10bn investment in Indian businesses and infrastructure projects over the next five to seven years, enabling access to information in different languages and helping the digital transformation of businesses.

Google meanwhile launched its Jakarta Google Cloud Platform in June 2020 to provide a better connection for its Indonesia customers who were previously using services from neighbouring cloud regions such as Singapore and Sydney. Amazon Web services (AWS) – the global market leader in the cloud – will also build its first data centre in Indonesia by 2022. The AWS Jakarta region will enable technologies such as analytics, AI, IoT, machine learning and mobile services.

“Information and communication technologies and cloud investments are pouring into Asia due to their young populations and continued growth. You have a tech-savvy consumer base that embraces innovation faster than the older populations of Europe and the US,” says Mr Grimond of Boston Consulting Group. “For the big cloud providers, it’s a no-brainer.”

Rise of the hyperscalers

Amid rising concerns about data leakage or hacking, countries such as Vietnam and Indonesia have regulations that restrict access to data to local data centres. This means that cloud providers can only host data if they have a local presence. “If you want to capture Indonesia, where the regulation is as strict as anywhere, there is no other way to do business but to build in Indonesia,” says Boston Consulting Group’s Mr Grimond.

Like the global market, south-east Asia’s cloud industry is being driven by public cloud “hyperscalers”. 

“The term 'hyperscale' is used to describe companies that have huge data centre networks that are used to support a multitude of external clients,” says John Dinsdale, chief analyst and research director at Synergy Research Group.

“The 20 companies that meet Synergy’s criteria for a hyperscale operator include Amazon, Microsoft, Google, Facebook, Apple, Alibaba, Tencent and Baidu.” 

Public demand

It’s not just the private sector driving demand for cloud services. Demand by public institutions is set to grow by an annual 37% in the next five years, IDC figures show, particularly as governments transition towards e-governance and smart city models. 

For example, Vietnam is implementing a national digital transformation programme by 2025, including the upgrading of 4G to 5G network services, the acceleration of digital payments in the country, and the adoption of cloud services for all e-government services.

“I expect the government to update its guidelines to increase usage of the public cloud to increase operational efficiency and agility as it moves along its digital transformation journey,” says Siew Choon Liew, research manager at IDC Asia/Pacific.

Despite the booming demand, it will be hard for competing cloud infrastructure providers to enter new markets in the region where any of their competitors already has a dominant position, as confirmed by IDC’s Mr Lee. 

“If customers have already invested in people, skills, independent software vendors and partner relationships, it will take something special to convince them to add to the environment,” he says. ”For example, Australia will not see much of the investment coming from the BAT (Baidu, Tencent and Alibaba) trio, even though it is the second-largest cloud market after China in the region.”

When Alibaba laid out its first serious cloud-infrastructure investment campaigns in 2015, the then-president of its cloud division, Derek Wang, was very clear in his aims: “Our goal is to overtake Amazon in four years, whether that’s in customers, technology, or worldwide scale.”

In 2020, the aim must be to keep a firm grip on the Indo-Pacific market as the chasing US pack snaps at its heels.

This article first appeared in the August - September edition of fDi Magazine. View a digital edition of the magazine here.