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In Indonesia’s cloud war, Google and Alibaba are one step ahead of competitors

Building local servers expand the market pool for cloud providers.

In the past three years, cloud service giants have shown increasing interest in Indonesia with serious investments. From establishing onshore servers to grooming local talent, global players are ramping up for the upcoming cloud war in Southeast Asia’s largest market.

Earlier this month, Alibaba Cloud, the digital technology and intelligence subsidiary of Chinese tech juggernaut Alibaba Group, announced plans to open its third data center in the country in early 2021. The company built its first two centers in 2018 and 2019.

On the other hand, Google Cloud Platform (GCP) opened its first cloud region in Jakarta on June 24, while Amazon Web Service (AWS) is set to launch its cloud center by early 2022. Also, Microsoft Azure showed interest in developing a similar project as stated by the firm’s CEO Satya Nadella earlier this year, promising an investment of up to USD 1 billion.

The Indonesian government is eager to receive these giants on its ground, believing that they will accelerate the country’s digital transformation. Indonesian President Joko Widodo even promised Microsoft’s Nadella that he would “prepare a regulation for data centers in a week” to streamline foreign investment in this sector, although he has not delivered on this promise yet.

Until now, all foreign cloud companies have served Indonesian clients from overseas locations, mostly from servers located in neighboring countries such as Singapore. Their services have supported the growth of the country’s major digital companies, with homegrown unicorns and large multinational companies benefiting from them.

AWS, for example, counts Traveloka, Tokopedia, and Gojek as its clients, while GCP, although relatively new, has attracted e-commerce giant Bukalapak to its platform, and maintains a close partnership with Gojek, as Google is one of the decacorn’s investors.

However, it is well known in the cloud industry that clients don’t stay exclusive. One company can use multiple service providers, and firms are usually willing to switch providers based on certain factors, people who are knowledgeable about these arrangements told KrASIA.

Yet, for cloud firms, establishing a physical infrastructure on Indonesian ground means to step ahead of competitors, as they can now comply with data regulation while serving customers with shorter traffic routes and less latency. Cloud providers with local-based data centers can also serve customers in the financial sector—especially fintech players—which was previously prohibited due to regulatory limitations. 

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A dynamic market with moving clients 

Indonesia’s digital ecosystem has shown significant growth in the past decade. Home to 175.4 million internet users, over 2,000 startups, one decacorn, and five unicorns, the country is Southeast Asia’s largest digital economy.

A report from Boston Consulting Group sees Indonesia as “one of the fastest-growing markets in the APAC region” for public cloud services. With a 25% compound annual growth rate (CAGR) over the next five years, the Indonesian cloud market is forecasted to hit USD 800 million by 2023.

“Indonesia is the biggest and most important market in Southeast Asia, in my opinion,” said CloudCover’s CEO Vishal Parpia to KrASIA. “It is still early on the digitization journey, but it’s already so big. The value of investing in this place is enormous.”

His company helps both traditional and digital corporates in Indonesia to migrate to the public cloud. CloudCover also assists clients to switch from one public cloud to another, which happens primarily for economic and technological reasons, Parpia explained.

Fundamentally, cloud service providers in Indonesia offer similar services ranging from data storage and analytics to security. Parpia said that the battleground actually lies in the pricing, as digital-native companies with the majority of their business operating on the cloud, are cautious with their operational expenditure.

“Obviously, clouds are very competitive when it comes to price point and it’s one of the key factors for digital-native companies,” Parpia mentioned.  “It is a very common reason to move.”

Comparing costs between cloud vendors is tricky as pricing varies based on different use cases. However, Parpia said that GCP’s pricing is “competitive” compared to other providers, although still higher than using conventional data centers. Google declined to comment about its strategy, only claiming that “customers appreciate our pricing strategy because of [service] packages we offer”.

In general, AWS is the most expensive vendor, targeting clients with high user activity on its platform, as the company charges additional USD 3.50 per million requests.

Alibaba Cloud declined to detail about its pricing strategy, but claimed to provide “cost-effective” bundles for clients, such as specially priced starter packages and time-limited discounts on premium services. According to some price-comparison sites, its pricing is still lower than AWS.

Each platform offers a distinctive feature. GCP, for instance, offers a multi-cloud data access service named BigQuery, which enables users to access data stored on other clouds such as Azure or AWS without having to move it to Google’s server first. AWS strives to excel in Internet-of-Things (IoT) solutions through its device management service Greengrass.

Alibaba Cloud, on the other hand, has a wider range of server types compared to competitors, and offers its clients different options to migrate servers.

Opening new opportunities through localization

Google Cloud data center pipeline. Photo courtesy of Google.

GCP and Alibaba Cloud are still behind in terms of global market share, each with 6%. According to analyst firm Canalys, AWS and Azure are the market leaders with 32% and 17%, respectively, as of the first quarter of 2020. Even though these companies are reluctant to share their market share in Indonesia, it is believed to be in accordance with each company’s global standing.

Yet, as relative newcomers, GCP and Alibaba have a bigger chance to grow their market shares through their localized data center. According to Indonesia’s regulations, companies in the banking and financial industries are not allowed to store their data on servers in other countries, therefore, having a local data center will allow these companies to get big players in this sector.

“By building the data center inside Indonesia, that door is now open to Google,” said Parpia. Companies in the financial industry can board GCP without fear of violating data rules, he added.

The same benefit also goes to Alibaba Cloud. “We strive to provide trusted, secure, and high-performing cloud infrastructure that fully complies with local regulations, including the stringent requirements from the finance sector. At such, we are committed to being local businesses’ trusted partner on their digital transformation journey,” said the company’s country manager for Indonesia, Leon Chen, to KrASIA.

Compared to AWS and Azure, both GCP and Alibaba have a wider pool of potential customers to tap. They can now serve traditional yet enormous enterprises such as banks and insurance companies.

“I would expect big banks, like more traditional retail finance companies, to start consuming cloud services in a much larger way,” said Parpia. “I expect to see a significant increase in enterprise use for the next six to 12 months.”

The financial sector is going to be one of GCP’s priority markets in Indonesia. “We’re excited to enable customers, especially those in regulated industries, to accelerate their digital transformation and data-led innovation close to home while meeting their local regulatory and compliance requirements,” said Rick Harshman, managing director for Google Cloud Asia Pacific (APAC) to KrASIA.

Another advantage brought by localizing service, added Parpia, is faster speed. The international data transfer process is ridden with lags as it usually runs through undersea cables. Furthermore, it consumes more internet bandwidth than local ones. So, clients using local providers will experience fewer disruptions with their cloud services when the servers are onshore.  

Local service provider Telkomsigma’s CEO, Sihmirmo Adi, sees the participation of global giants in the Indonesian cloud service industry as an opportunity to secure partnerships.

“Instead of seeing them as competitors, we would rather collaborate with them [global service providers]. Either they build a data center here or form a partnership with local players,” he said, as reported by Bisnis.com. Local players can demonstrate their knowledge of Indonesian clients’ needs and networks, while foreign service providers can offer their advanced technology and scalability.

Talent gap and security concerns hamper cloud adoption

Even though the regulatory path seems cleared for GCP and Alibaba Cloud to reach more local clients, they might face a hard time attracting potential new customers.

Indonesia lacks local cloud-native talents that are well-versed in working with public cloud technology. This results in startup companies outsourcing technical tasks to contractors outside of Indonesia. Gojek, for example, has offices in Singapore with data science and engineering capabilities, while another office in Bangalore focuses on research and development.

Another concern is data security. Local digital-native companies have been struggling against data hacks that compromise user privacy.

Tokopedia, for instance, allegedly had 91 million of its user’s personal data—including names, e-mail addresses, and phone numbers—sold on the dark web. Even though cloud service providers claim to offer strong data security, potential clients might still be skeptical, especially for those unfamiliar with cloud systems.

Regardless, cloud providers are putting extra effort into securing customers’ trust.

Alibaba Cloud datacenter server. Photo courtesy of Alibaba.

Alibaba Cloud’s planned data scrubbing center, for instance, promises to detect, analyze, and block cyberattacks, like denial of service attacks, directed at its clients.

“It can automatically mitigate attacks and reinforce the security of clients’ applications, significantly reducing the threat of malicious attacks,” said Alibaba Cloud’s Chen, adding that finance and gaming businesses are particularly susceptible to this type of digital raid.

Since January 2020, the company also started a partnership program with local ecosystems to promote cloud adoption and the use of data intelligence among businesses of all scales and types. It has also partnered with universities, incubators, and training institutions to support digital talent development in Indonesia.

“In the meantime, we aim to conduct over 200 trainings by 2020. We estimate to attract 20,000 participants and get 10,000 people trained with Alibaba Cloud certificates,” Chen added.

GCP says that security-wise, the company offers a layered security architecture which includes data encryption and protection against cyberattacks, via a security system called Titan Chip. On the data privacy front, Harshman ensures that the control is fully in the client’s hand.

“Our privacy practices are audited against international standards. We guard against insider access to your data and never give any government entity ‘backdoor’ access,” he added.

As for talent development, GCP runs several certified training programs, including one that is hosted together with Indonesia’s Ministry of Communication and Information Technology. It aims to deliver 150,000 hands-on training labs this year, including several free training sessions.

GCP already had 1,000 graduates from last year and aims to replicate the number for this year, according to Harshman.

“This helps to broaden access to cloud skills and professional qualifications that are in high demand and support the digital economy in Indonesia,” he added.

The future cloud war

For now, GCP and Alibaba Cloud might enjoy the benefits of their onshore investment in Indonesia. However, the question is this: five years from now, once everyone will be on the same footing, how will they retain customers?

The answer might lie in the relatively untapped rural areas of the country. “Everything that I have seen in Indonesia has been very advanced technically, but in rural areas, internet penetration hasn’t really happened,” said Parpia.

Also, there are cultural and language barriers in various parts of Indonesia that city tech talents may not be able to overcome alone. To build suitable tech solutions across the country, cloud providers will have to leverage local talents to overcome language and cultural barriers.

However, Indonesia also needs to improve its digital infrastructure and network coverage in even the most remote areas. As for cloud service providers, firms need to be willing to go beyond metropolitan cities.