US and Chinese cloud companies vie for dominance in south-east Asia

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During last year’s Ramadan, Tokopedia made more sales in a single day than it had in its entire first six years of operation. To cope with the surge in traffic, Indonesia’s largest online shopping company turned to Google and Alibaba to run its Ramadan event through their cloud servers. Herman Widjaja, a senior vice-president of engineering at Tokopedia, argued that using both companies minimised the risk of its website and app crashing at such an important moment.

But the decision to look beyond Alibaba, which has two Indonesian data centres and is an investor in Tokopedia, is a sign of the growing competition in south-east Asia between US and Chinese cloud companies. At stake is the fastest-growing cloud computing market in the world, with annual spending on cloud services predicted to hit $76bn by 2023, according to IDC, the market intelligence firm. No player wants to “give up such a big market”, according to Tao Wu, a senior research director for Gartner. “The rise of Chinese cloud vendors such as Ali Cloud has prevented Amazon Web Services and others from dominating the market in the Asia-Pacific region. The addition of Huawei cloud makes the competition more fierce,” Mr Wu said.  The competition has involved a frenzy of investment, with Amazon, Google, Alibaba, Tencent and Microsoft increasing their data centre footprint in the region by almost 70 per cent over the past three years, according to Synergy Research Group. IDC said investment in cloud infrastructure in Asia hit $98bn last year.

“Many of these are traditionally SME-heavy markets with smaller companies, but once these are brought into the digital economy, that rolls up to significant demand in aggregate with hundreds of thousands of customers,” said Neel Laungani, head of technology, media, and telecoms (TMT) investment banking for Asia-Pacific at Deutsche Bank.

Global growth in hyperscale data centres, the biggest complexes built by the world’s largest technology platforms including companies such as Facebook and Apple, is about 10 per cent per annum in terms of megawatts of data centre capacity for the next 12 to 24 months, Mr Laungani said. “In Asia that is around 25 per cent.” Chinese providers, which face much more of an uphill battle in European and US markets, have also doubled down on Asia.  Alibaba Cloud was the first global public cloud platform to go live in Indonesia in 2018 and Google and Amazon have since unveiled plans to follow suit. The Chinese company operates 11 data centres outside the mainland and last month announced a $28bn investment in cloud computing over the next three years. Its pitch to customers is that it is “in Asia for Asia”.

But that hasn’t stopped companies such as Google from winning market share, as businesses increasingly turn to more than one provider. “There is a race to build unique offerings around aspects like analytics that these providers are working on so that their solution starts to differentiate from others,” said Anand Swaminathan, McKinsey Digital’s co-leader for Asia-Pacific.

The big cloud players also offer digital “transformation services” for businesses that want to update their ways of working, and cyber security services. Google said its customers had been able to cut the time they spent processing data queries from days to minutes or even seconds by shifting to some of its cloud tools.  “Once they are able to do that and analyse data more efficiently . . . then they come to us to help them with making intelligence out of their data, that’s where artificial intelligence and machine learning come in,” said Rick Harshman, Google Cloud’s Asia-Pacific managing director.  Google will become the first of the major US cloud providers to launch a data centre in Indonesia, in the capital Jakarta, next month while AWS will follow late next year or early 2022. “One of the reasons we are launching in Indonesia is that we have seen a tremendous adoption by ‘digital natives’ in Indonesia of public cloud,” Mr Harshman said.

But the Chinese tech giants can count on the loyalty of the wide ecosystem of south-east Asian companies that they have partnered with or invested in. For example, Shopee, one of south-east Asia’s biggest ecommerce companies based in Singapore, uses Tencent Cloud. Shopee’s parent company, SEA Group, which is listed in the US, counts Tencent as a major investor. Tencent’s cloud focus is on its gaming, and social messaging strengths, Mr Wu said. Alibaba has been leveraging its Alipay platform and ecommerce business to expand its cloud business in south-east Asia in particular, he added.

The US companies are catching up. Microsoft now provides cloud services to Grab as part of an investment into the south-east Asian ride-hailing company, and a similar arrangement has seen Google provide cloud services for rival Gojek. “These cloud partnerships are usually multiyear and large scale for most organisations and there is loyalty that is developed over time — as long as the price is right,” said Mr Swaminathan.  The big three US platforms have also all pledged to decarbonise their data centres in Asia. Microsoft, for example, will shift to 100 per cent renewable energy for all of its buildings and data centres by 2025. Tokopedia will not be scaling up for its Ramadan shopping festival this year due to the spread of coronavirus throughout Indonesia. But there is no doubt that the cloud remains the future, said Mr Widjaja.  “We do see cloud demand growing in light of the current situation,” said Julia White, corporate vice-president for Azure Marketing at Microsoft, adding that the ability to scale up or down with public providers was much more “cost-effective” for companies than owning their own set infrastructure.