Data centres in the Southeast Asia region need to evolve to meet changing demands and stakeholder expectations amid the growth of the digital economy.
The region has been seeing a wave of investments into digital infrastructure as an emerging asset class and the data centre sector is faced with the need to adapt to the transformation, with the rapid development of technologies including 5G, artificial intelligence, and cloud computing.
Among the changes include the impact of generative AI on future data centre deployments and greater localisation of data centres.
Telcos are also divesting their capex-heavy assets, which include data centres and other digital infrastructure assets. These assets can be attractive as investments to experienced data centre operators and infrastructure investors. Given the rapid growth and increasing competitiveness of the sector, operators and investors must continually find new ways to differentiate, compete and drive value.
The emergence of generative AI
Generative AI is expected to change the format and location of future data centre deployments, as it has attracted a lot of hype recently with its capacity to create realistic and creative content.
An EY-Parthenon analysis revealed that the growth of AI is seen to cause a surge in demand for computing resources and for data centres.
While racks in Southeast Asia today typically only utilise a smaller energy supply — between three kilovolt-amperes (kVAs) and 10kVAs — tomorrow’s AI-enabled racks may need to support rack densities as high as 30kVAs to 50kVAs. This increase will present downstream implications and requirements for stable and secure power and more advanced cooling systems.
Specifically, this will impact the site selection process; instead of central locations, data centre site consideration criteria will favour locations with access to stable and secure supplies of electricity and water. This may likely drive future AI-focused data centres’ locations to move from traditional tier-one cities to tier-two cities and city outskirts.
While the demand for data centre capacity is still largely driven by tier-one or capital cities today, there is growing demand for those in edge locations in tier-two or tier-three cities that are closer to end users.
Localisation of data centres
Across Southeast Asia, there are three main segments of data centre users that drive data centre utilisation: cloud operators, content and gaming companies, and other enterprises. These three different customer segments drive localisation at different rates.
Content and gaming companies play a large role in driving localisation, with an increasing presence near their end consumers in tier-two and tier-three cities.
Cloud operators are starting to deploy cloud production regions in emerging markets. However, beyond the capital cities of these emerging markets, cloud operator demand for data centre capacity is still lagging.
Demand for data centre capacity from other enterprises continues to grow with public cloud penetration driving their digitisation. Currently, small- and medium-sized enterprises and large enterprises (including finance-related firms) remain largely focused on increasing their data centre usage within capital cities. While there are immediate roadblocks to localisation, it is inevitable given emerging trends, such as Internet of Things and autonomous vehicles.
Changes in retail colocation business models
At present, local data centre operators in Southeast Asia still retain a high market share within their local markets, leveraging their local connections and know-how, lower prices, and low overhead to serve their users. They consider premium managed services as optional “nice-to-haves” and primarily provide network and “remote hands” services.
Regional data centre platforms continue to grow with a focus on innovation and providing services to local branches of global enterprises. Network services are positioned as gateway products to attract new customers. Premium managed services, such as managed cloud, private cloud creation and cybersecurity, are positioned as differentiators that can create stickiness and help improve customer retention.
Both local and regional retail colocation-focused data center platforms remain successful by solving the unique pain points of different customer segments. The question on whether there will be a convergence toward a single winning business model remains to be answered.
