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Thinking data centers? Think Asia

Algo trading, digital banking, and crypto are driving growth in Asia Pacific’s data centers.

Photo by Jordan Harrison on Unsplash

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Asia is now the biggest region for data centers and is by far the world’s growth market. As the type of demand for computing changes, data centers are being turned into nodes in a greater cloud-based industry.

Digitalizing finance means relying more on the hardware that processes computing: servers and cables, collected in data centers run by telecom operators or technology integrators like Equinix.

“The business model is to provide a neutral meeting place for networks and systems,” said John Knuff, Equinix’s global head of financial services in New York. These began as exchanges for Internet traffic but have since been applied to capital markets, electronic trading, and other uses.

Data centers are like finance’s vascular system, taking in transaction orders and exhaling trade and price data. The more servers that connect to one another, the more pathways are created. This is critical to low-latency trading strategies, carrying out algorithms, and managing digital banking services in real time.

More of this activity is moving to cloud, so therefore cloud vendors are driving demand for data centers in Asia, led by the likes of Alibaba, AWS, Baidu, Bytedance, Microsoft, and others.

New integrators

This is opening space for new types of players in the data-center game.

For example, W3Bcloud is a Dublin-based startup that is planning to open data centers across the region. It is backed by blockchain developer ConsenSys and Advanced Micro Devices, a graphics visualization company.

The startup was created to serve next-gen workloads that involve heavy graphic computing. Processing digital currency transactions over a blockchain is one possible use case, says Wael Aburida, co-founder.

Although W3Bcloud has opened data centers in Europe and the U.S., its plan is to open multiple sites across Asia Pacific. “Data localization rules and privacy laws are why we need a mesh” of smaller, nimbler data centers throughout the region, Aburida said. The company hopes to have as many as 40 such facilities operational by 2024.

But it’s not just startups that are looking to capitalize on next-gen use cases such as blockchain. Equinix, for example, sees crypto trading as the next big growth driver for cloud-based data centers to serve the finance industry.

Asia takes the lead

Dan Thompson, research director at 451 Research, in a recent online conference hosted by S&P Global Market Intelligence, says Asia Pacific’s data centers now boast the greatest amount of “operational square feet”, or OSF, and in 2019 overtook North America in terms of revenue.

The U.S. remains the largest single country hosting this high-tech real estate, but China, Japan, India and Australia are all major markets.

Data centers tend to cluster in cities that are either major users, including financial hubs like Hong Kong and Singapore and tech centers like Shenzhen and Mumbai. And they congregate where there are a lot of undersea cable connections.

But data localization and privacy rules tend to change, as do local policies with regard to data centers. Singapore, for example, has put new builds on hold as it assesses their impact on energy consumption; while in Hong Kong, global providers are hesitating over the city’s political unrest.

The fastest growing large markets are Guangdong province, Hangzhou (home to Alibaba), Guangzhou, Sydney, and Singapore, says Thompson. The industry’s global average growth rate is 6% but it’s 25% in Guandong and 20% in Mumbai (based on estimated compound average growth rates from 2017 to 2023).

These places are usually lightly regulated, although changes in regulation will drive telcos to set up shop elsewhere. For example, Thompson says, Shenzhen began to regulate new builds, so companies moved data centers to Guangzhou. When that city also began regulating the industry, it broadened across Guangdong province.

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Thinking data centers? Think Asia