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Business trends

Google expands in Indonesia's cloud services battleground

Amazon, Microsoft and Alibaba also find market's 150m internet users irresistible

Google CEO Sundar Pichai right, seen at the opening of the new Alphabet's Google Berlin office in Berlin, Germany. The company now has its eyes set on Indonesia.   © Reuters

JAKARTA -- Indonesia is becoming a hot spot for global technology companies keen to get into one of Asia's fastest-growing data markets, where e-commerce and food delivery services are rapidly expanding due to the coronavirus pandemic. The trend toward data localization is also drawing the tech titans to the world's fourth most populous country.

Google has just started offering services such as data storage, security and big data analytics to institutional and individual customers in the country using data centers of local partners. Previously, it had used overseas centers. The shift now gives customers faster service.

"Indonesia is full of opportunity -- one of the most creative, dynamic and [entrepreneurial] countries in Southeast Asia with more than 150 million internet users," Sundar Pichai, CEO of Google parent Alphabet, said during Google Cloud's virtual launching ceremony in Jakarta on June 24.

Google Cloud's launch in Indonesia foretells a mounting battle in the burgeoning market that has also enticed Amazon, Microsoft and Alibaba Group.

President Joko Widodo revealed as much in February after a meeting with Microsoft CEO Satya Nadella in Jakarta. At the time, Widodo said Microsoft wanted to make a significant data center investment in Indonesia.

With the addition of Indonesia, Google Cloud is now in 17 countries. The service has already signed up four of the country's five unicorns -- Gojek, Tokopedia, Traveloka and Bukalapak. Indonesia's largest lender by assets, Bank Rakyat Indonesia, is also a client, as is the country's second largest mobile operator, XL Axiata.

"Whether you are a large enterprise or a startup in e-commerce," Pichai said, "Google Cloud is here to support your digital transformation with the same technologies that power our own products, like Google Search and Gmail."

Google's global cloud revenue reached $8.9 billion in fiscal 2019, having more than 40% increase for two years in a row. It contributes 5.5% of Alphabet's total revenue.

In February, Google completed a $2.6 billion acquisition of U.S. data analytics startup Looker and is now ready to compete with market leader Amazon as well as with Microsoft and Alibaba.

Demand for data services has been increasing all over the world since the coronavirus pandemic accelerated the trends toward remote working and schooling.

According to U.S. research company Canalys, spending on global cloud infrastructure services hit another record in the first quarter of 2020, growing 34% year-on-year to $31 billion. Amazon Web Services maintained its lead, accounting for 32% of the market, followed by Microsoft Azure (17%). Google Cloud and Alibaba Cloud each had 6%.

In Indonesia, the unicorns, other digital natives, financial institutions, retailers and other businesses are turning the country of more than 267 million into one of Asia-Pacific's fastest-growing public cloud markets.

In a report released in October, the Boston Consulting Group projected a compound annual growth rate of 25% for Indonesia's public cloud market -- to $800 million in 2023 from $200 million in 2018. "As a result of these high-growth prospects," Boston Consulting said, "many of the world's major cloud service providers are considering setting up cloud services within its borders."

Indonesia is fast becoming the regional epicenter of COVID-19, reporting the highest number of cases and deaths. This has driven demand for services such as food delivery.

Alibaba Cloud was the early mover, having launched its second hyperscale data center in Indonesia in January 2019, citing "strong demand for big data and analytic solutions." Amazon Web Services followed a few months later, saying it would start service by early 2022.

NTT Communications has a plan to build a third data center in Indonesia. (Artist's illustration)

Other players moving into Indonesia include Japan's Nippon Telegraph & Telephone (NTT) group and Singapore's SpaceDC, backed by the city-state's sovereign wealth fund Temasek. In addition, state-owned Telekomunikasi Indonesia has been urged by the government to develop its own big data and cloud businesses.

There is another factor behind the interest of global tech giants in data localization: government mandates. Indonesian regulations require all public entities to store data locally, a situation that has already triggered the growth of the domestic cloud market and attracted big players.

The Boston Consulting Group says the Asia-Pacific cloud market is growing 25% each year, faster than that of the U.S., 18%, and of Western Europe, 19%. Elsewhere in the Asia-Pacific region, India's cloud market is expanding at a pace of more than 30% per year, according to the report.

Google also has plans to expand in India, which is shaping up as another battleground for the tech giants.

Additional reporting by Shotaro Tani.

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