Datacenter and Cloud developments and challenges in China

Terence GrahamAssociate Researcher, BroadGroupand Hong Kong University

AGENDA

BroadGroup Study China’s Mushrooming Cloud Scale of Investment and Optimism Inner MongoliaMarket DriversKey Challenges – Power and Cooling Key Challenges – Level of Market MaturityKey Challenges – Licensing Business ModelsPricing Modular2 Case Studies for Market EntryCloud Ecosystem in ChinaDatacenter Capacity and Projections Conclusions

BROADGROUP – CHINA STUDY

New study of China

Assessed Datacenter players, markets, strategies and Cloud in China

Conducted over past five months

Will be largest study of its kind

Publication November 2012

Some of the key findings …..

CHINA’S MUSHROOMING CLOUD

5 official Cloud Cities

BeijingShanghaiHangzhouWuxiShenzhen

CHINA’S MUSHROOMING CLOUD

Further 12 Cloud City Projects

BeijingShanghaiHangzhouWuxiShenzhen

HarbinDalianHohhotOrdossWuhanLangfangChengduLanzhouChongqingXianFoshanGuangzhou

SCALE OF INVESTMENT AND OPTIMISM

• More than 17 provinces and municipalities constructing 30 large-scale datacenters

• Total investment 270 billion RMB (US$43.26 billion)

• Total investment in cloud computing projects in China expected to reach US$154 billion in coming few years (Asia Cloud Computing Association)

• Rackspace to accommodate more than 10 million server units, 5x current total national datacenter capacity ( 人民邮电报 )

• Heavy construction, light applications

• Hype?

• From 5 to glut to cloud as colo?

INNER MONGOLIA

• Power supply and lower costs

• New eco system - companies announcing set up business processing centres

• Investment occurring in datacenter sector

• Access huge amounts of space (unlike Tier 1 cities)

• Not for all enterprises – latency issue

• Young educated workforce?

MARKET DRIVERS

2007 2009 2012E0

20

40

60

80

100

120

44.1% CAGR

Social Networking Site Users (millions)2007 2009 2013E

0

10

20

30

40

50

60

70

Online Gaming Market (RMB Billions)

27.5% CAGR

2007 2009 2012E0

200

400

600

800

1000

1200

1400

Online Sales Volume (RMB Billions)

68.2% CAGR

Source: National Bureau of Statistics of China

Growth in China being driven by increasing consumer and business online

“More than one-third of today's Internet traffic is devoted to video consumption, and we expect that to grow to 80 per cent by the end of 2015“

Scott Guthrie, corporate vice president, Windows Azure application platform, Microsoft

+ MOBILE GROWTH Text, Video, Photos, Mobile Internet ….

Transactions/Data Storage

Social Networking (Behaviour) Gaming

MARKET DRIVERS 12-5 Targets1.2 billion mobile usersMore than 800 million Internet users, Internet penetration rate of over 57% Fixed broadband Internet access to more than 250 million, more than 40 million FTTH usersOver 450 million 3G users, accounting for over 36% of total number of mobile phone usersInternational bandwidth of ８ＴｂｐｓAchieve LTE commercializationIPv6 broadband access users more than 25 million

5 Year Plan2012 (Year 1) Server virtualization and desktop virtualization (VDI)2013 (Year 2) Try to upgrade to cloud 2014 (Year 3) Private cloud plan2015 (Year 4) Public cloud plan2016 (Year 5) Private/public/hybrid cloud

MARKET DRIVERS

SEI Strategic Emerging IndustriesCloud computing industry chain expected to reach 750 billion to 1 trillion RMB by 2015

“There is no doubt datacenters are an indispensable and integral part of the core resources that make up a country’s economic, political, social, and cultural activities, and will become one of the country‘s most important strategic assets.” ( 周宏仁 )National broadband plan

Broadband Development 1.6 trillion RMB, of which 570 billion RMB in broadband fixed access networks Encouragement of private capital into telecommunications sector (June 2012)

KEY CHALLENGES – POWER AND COOLING Price of PowerPrice 80RMB per kVA (Beijing) – Can negotiate to 38RMB in Shanghai

High Power Consumption 2011 -- total datacenter power consumption in China 70 billion kWh - 1.5% of the country’s total (Other estimates put at 5% of total output)

Medium Sized DatacenterTo use 200w powered servers in a medium-sized computing center of 10,000 servers, annual electricity bill > 30 million yuan

New energy efficiency focusMajority of current datacenters – coal poweredMIIT 工业节能“十二五”规划 calls for the establishment of China IDC green standards and an 8% reduction in datacenter PUE by 2015

PUE valuesNeed to move from current high 2.5 to below 1.5

KEY CHALLENGES – LEVEL OF MARKET MATURITY

CLOUD

Still in early stageStill not realized saves cost on OPEX not CAPEX

ENTERPRISE

IT Dept gap with CLOUD

IT departments - Fear of centralization, Internal gap with business depts Customization at odds with monthly fee model + strong influence of 3rd party ISVs and SIs

Long refreshment cycles

Complexity of Networks and connectivity procurement

BUSINESS CHALLENGES

Finding people with 3-5 years cloud experience

CLOUD KNOW-HOW

CLOUD COMPLEXITY

Vastly underestimated

CLOUD INCUBATORENVIRONMENT

Poor

TRUST, SECURITYLIABILITY

STANDARDSDATA PRIVACY

KEY MARKET=LARGEENTERPRISES

Who wantCLOUD

Perhaps the most significant current challenge

Policy uncertainty: Very black and very grey

“In building our first datacenter in China, we have learned a lot, how to communicate with authorities, what applications are needed, what government approvals are required, how to deal with delays and setbacks.”

Current – one license to build datacenter; another to arrange connectivity

VIE scheme

KEY CHALLENGES - LICENSING

End user (list) price is 4000-6000 RMB per month (per rack), with some areas cheaper

In Tianjin there is one site, a reseller, offering 2400 RMB per month

PRICING

MODULAR

Fast deployment – 3 months - but not cheap

Sites like Ordoss (Inner Mongolia) might be more suitable

Not an easy sell in China/not perceived as flexible

21Vianet own patents on modular datacenters

MARKET BARRIERS

Access to capital / funding – scale issue for China key market coverage – Very high capex requirements

There are 3 kinds of IDC license – (1) like carrier (China Telecom, Unicom) they don’t need a license can do IDC using telecoms license, (2) (domestic) companies like SDS or GDS, can build DC and provide service, (3) just buy capacity, rent DC from China Telecom or other IDC, and become a reseller.

Access to Power – limitations of grid – customized solution for higher power Very expensive

Access to bandwidth – especially cross city/province

Fibre link and last mile

DATACENTER COMPETITION - LANDSCAPE

“Big 3”China Telecom 300Unicom China Mobile

Different cloud strategies

Carrier Neutral21 Vianet GDSDr Peng SDS

Planning to buildAlibabaBaiduTencent

Massive ProjectsRange International

2 CASE STUDIES FOR CHINA MARKET ENTRY

Case Study 1 - SST - Shanghai Symphony Telecom – 信天通信Importance of a clear cloud story

Case Study 2 – Equinix Following the US$230.5 million acquisition of Asia Tone in July 2012, Equinix gained a total of 6 datacenters and one disaster recovery center located across Hong Kong, Shanghai and Singapore, including SH5. The first phase of SH5 will provide 200 cabinet equivalents, expanding to 900 with a gross area of 80,000 square feet when all three phases of SH5 are completed

CONCLUSIONS

Who will be the winners?

Experience elsewhere shows winning datacentre companies:

- Have size and scale- Achieved superior energy efficiency- Secured renewable energy supply- Have established clients and service offerings - Vertical market expertise - Regional expertise (multi-country) - Cost/Technical Differentiation

谢谢！Thank you ！

www.broad-group.com

xx

MARKET PLAYER LANDSCAPE

3 state-owned operators

From Red Ocean ( 红海 ) to Blue Ocean ( 蓝海 ) back to Red Ocean“In China the 3 operators [start] with 3 different cloud strategies but in the future will do similar things. We always compete, red ocean, price is important.”

TAB: Tencent Alibaba Baidu

3rd party or carrier-neutral datacenters

ISVs

SIs

• Backbone network bandwidth ( 骨干网带宽 ) of 22 Tbps• International bandwidth ( 国际出口带宽 ) 925 Gbps • Number of broadband users 80 million• Datacenter space over 1 million square meters• Datacenters 300+• 3 star Tier ? and above datacenters 265• 5 overseas datacenters• Racks over 100,000, with another 80,000 on the way• Currently operating 20,000 VMs ( 高性能虚拟主机 ) in 3

datacenters in Shanghai, Guangdong, and Sichuan• Storage capacity of 20,000 TB IaaS services• Installing 300,000 WiFi hotspots to reach a total of 900,000

around country

CHINA TELECOM

CHINA TELECOM – NEW BUSINESS UNIT

Quest for the IT holy grail:

March 2012 China Telecom creates new business unit bringing IDC and cloud computing business together, 中国电信天翼云公司 or 中国电信云计算公司 , led by Dr. Jerry Xie ( 谢朝阳 )

Key implications:

Aim to build nationwide network of datacenters

Still relatively young companies so will take some time

Fear of becoming obsolete like Yahoo (company DNA)

Use cloud-like technologies to build platform that delivers better end user experience for content (main competitive advantage)

Specs: commodity-PC server & rack power & bandwidth-hungry & own management software (“special sauce”)

Like-Google approach to datacenters?

Change in relationship with China Telecom & China Unicom

Openness & Zynga problem 70,000 web-based applications run on Baidu platform or run on their own servers with interface defined by Baidu

BAIDU / TENCENT / ALIBABA

• SEI Strategic Emerging Industries– Cloud computing industry chain expected to reach 750 billion to 1

trillion RMB by 2015 – “There is no doubt datacenters are an indispensable and integral

part of the core resources that make up a country’s economic, political, social, and cultural activities, and will become one of the country‘s most important strategic assets.” ( 周宏仁 )

• National broadband plan– The campaign against fake broadband– 1.6 trillion RMB, of which 570 billion RMB in broadband fixed access

networks

• Encouragement of private capital into telecommunications sector (June 2012)

GOVERNMENT AS ENABLER

• 1.2 billion mobile users• More than 800 million Internet users, Internet

penetration rate of over 57% • Fixed broadband Internet access to more than 250

million, more than 40 million FTTH users• Over 450 million 3G users, accounting for over 36% of

total number of mobile phone users• International bandwidth of ８Ｔｂｐｓ• Achieve LTE commercialization• IPv6 broadband access users more than 25 million

TARGETS

有没有中国特色的云计算发展路径？

Cloud with special Chinese characteristics?

CLOUD ECOSYSTEM (1)

CLOUD ECOSYSTEM (2)

In China - Cloud = IDC + CDNChina Mobile rolling out IaaS in Guangdong province by end of 2012

VDI licensing “3 for 1”China Unicom in Shanghai

THE GROWTH OF CLOUD

In a Nutshell

“They have no idea how difficult it will be to replace MS and VMware and are scrambling to develop a ‘Chinese solution.’ It is a really hard problem. They will need 10s of 1000s of engineers, over multiple years, to engineer an alternative. Then find a way to lock it down and create a trade barrier with a ‘national ecosystem.’ Ha! The Chinese have been good at import substitution with a lot of things but software is not a strong point, especially large-scale systems. As for CT, like bellheads everywhere, they are going to have a really difficult time [figuring out] life-beyond-transport… With shared services they will start with storage and disaster recovery, maybe managed security. But that is a long way from server virtualization and cloud, or application services. You are right, though, they have to get started somewhere.”

- IT expert

Aliyun

“We are catching up quickly, very focused, do not lack [for] connectivity of customer. We know what is missing, what needs must be fulfilled. What is important is that we would rather have 3 of the best cloud services instead of 5 mediocre ones.”

“We are aiming for 1 billion RMB in revenue from Aliyun. We currently have less than 50,000 machines, we are shooting for 300,000 in the next 16-18 months. We have more than 1000 developers.”

[July 2012]

3rd-party IDCs ( 第三方 IDC 运营商 )

“To create a cross-cloud, cross-region, real-time application support network.”

“Learn from the semiconductor industry how to [foster] value creation for the whole ecosystem. Greater China has become the foundry, the middle layer between commercial production and value-added design. We will play a role in the cloud akin to that played by a foundry and provide a basic foundation for cloud services, drop down the cost of innovation.”

Conflict of interest? Financial resources?

ISVs: Who will be the IBM of China?

SIs: Who will be the Huawei of cloud?

Not another 5-Year Plan

• 2012 (Year 1) Server virtualization and desktop virtualization (VDI)

• 2013 (Year 2) Try to upgrade to cloud • 2014 (Year 3) Private cloud plan• 2015 (Year 4) Public cloud plan• 2016 (Year 5) Private/public/hybrid cloud

谢谢！Thank you ！