Cloud Platforms Fuel a Data Center Construction Boom in Indonesia

ST Telemedia, one of Singapore’s largest data center operators, announced this week that it’s expanding into neighboring Indonesia. The news followed recent moves by the largest American cloud providers to establish data centers there as well.

Indonesia, namely the area around Jakarta, is undergoing a data center construction boom. It’s a relatively small market today, but analysts that specialize in Asia-Pacific data center markets expect it to almost triple in size within five years, driven primarily by hyperscale cloud platforms.

Asia’s third most populous country is a relatively young digital services market, Phil Shih, managing director at Structure Research, told DCK in an interview. As more and more people come online, and as more local enterprises want to switch to cloud infrastructure instead of operating data centers inhouse, demand for cloud services is growing quickly, and so is demand for data centers to support those services.

Other factors at play are the Indonesian government’s slow-moving effort to prohibit digital services from storing citizens’ data outside the nation’s borders and the tight supply of land and power in Singapore, which has traditionally been the data center hub from where platforms served Indonesia and much of the rest of Southeast Asia, Shih said.

Land and power supply in Singapore is so tight that the government last year placed a moratorium on new data center construction until it figures out a solution.

American Platforms Follow Alibaba into Indonesia

Indonesia is one of few Asian markets outside of China that welcome Chinese cloud providers, Shih pointed out. While US-based cloud providers have been driving most of the data center growth elsewhere in the region (outside of China), they don’t dominate the market in Indonesia, which has a large Chinese-speaking population that uses Chinese apps and content.

Alibaba was first to land cloud infrastructure in Indonesia, Shih said. Tencent recently built a data center there. Google launched its cloud region in Indonesia last year, and Microsoft announced plans to build Azure cloud data centers in the country earlier this year. Google, together with Facebook, is also funding a new submarine cable that will link Singapore, Indonesia, and North America.

AWS announced plans for a Jakarta cloud availability region in 2019 but has remained silent on the subject since. Last January, however, an Indonesian government official told news reporters that the company would build data centers there, if not in 2021, then in 2022.

The cloud providers are looking to address demand from traditional enterprises in Indonesia, among whom cloud adoption rate is still relatively low, according to Shih. Additionally, “a lot of this public-cloud demand is being driven by a burgeoning startup community,” he said.

There is a number of local tech unicorns. The first to reach unicorn status was Gojek, which started as an Indonesian Uber of sorts but has eventually expanded into a platform for everything from ride-hailing to digital payments to app-based ordering of personal massages, hairstylists, and housekeepers.

Other examples of Indonesian unicorns include e-commerce player Bukalapak, travel-booking company Traveloka, and digital-payments company OVO.

New Hyperscale Data Center Cluster Emerging in Southeast Asia

Most of the tech action is taking place in and around Jakarta, the country’s cultural and political center. “Jakarta is the market right now and will be for a while,” Shih said. Naturally, it’s also where the bulk of data center construction is done.

Structure estimated that the commercial data center market size in Jakarta was about US$216 million in 2020. The analysts expect it to reach $625 million in 2025, growing more than 20 percent on average each year.

Data center capacity wise, Structure expects the market to go from just over 70MW in 2020 to more than 200MW in 2025.

Bekasi, the industrial area where STT plans to build its campus, is where the hyperscalers tend to go, Shih said, so the area is now emerging as home to the country’s first cloud data center cluster.

There’s plenty of undeveloped land in Bekasi, and, unlike Jakarta, it is served by a private energy supplier, whose service is more expensive but more reliable than the national grid that serves the rest of the greater Jakarta area, he said.

Bekasi is also not affected by the frequent flooding that occurs in Jakarta, which is one of the world’s fastest sinking cities due to a combination of groundwater extraction and rising sea levels.

STT’s data center business, called STT Global Data Centres, has created a joint venture with the Indonesian conglomerate Triputa Group and Temasek Holdings, the Singapore government-owned investment company that owns STT.

The JV’s future campus will support up to 72MW of critical IT capacity, STT said in a statement. It plans to begin construction in the coming months and complete the first phase by early 2023.