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Vietnam unicorn VNG opens data center to cash in on storage law

Written by Nikkei Asia Published on   3 mins read

Startup eyeing US IPO benefits from rule blasted by global tech groups.

Vietnam’s first technology unicorn has unveiled a data center to capture the demand triggered by new government rules aimed at forcing companies to store information within the one-party state.

VNG, a games-to-payments startup aiming to list on the Nasdaq, debuted the server farm last week, doubling its capacity to serve cloud clients, which range from Spanish fashion brand Mango to Russia’s Rosneft. The data center opened after Hanoi abruptly enacted a data localization law—even though doing so violates its pledges in the trade deal known as CPTPP and has been widely criticized by lobbyists representing Amazon, Facebook and other tech giants.

The law is meant to facilitate authorities’ demands for user data or the removal of content deemed offensive. It also stands to benefit domestic companies, which officials say must increase their share of the cloud market. Foreign rivals, including Amazon Web Services (AWS), Microsoft and Google, hold 80% of the market, the Ministry of Information and Communications said.

“This is important in the long term,” VNG co-founder and CEO Le Hong Minh said of cloud computing, speaking to Nikkei Asia. “So we keep investing.”

He would not give the price tag of the data center, built in a Ho Chi Minh City industrial park, or comment on the prospect of an initial public offering in 2023. Along with conglomerate Vingroup and payment startup MoMo, VNG is among the closely watched candidates to become a rare Vietnamese company selling shares abroad.

VNG makes about 75% of its revenues from digital gaming. The popularity of its chat app, Zalo, has made Vietnam the only Southeast Asian country where a local player has more users than foreign chat platforms like Facebook’s Messenger and WhatsApp. The company, backed by Temasek and Tencent, has forecast an after-tax loss of 993 billion dong (USD 41 million) in its 2022 business plan.

Requiring firms to park data on computers inside the export-reliant country may shave 9% off Vietnam’s trade over the course of five years, according to the Information Technology and Innovation Foundation. The think tank said stemming cross-border data flow increases inefficiency, thus reducing trade, especially for companies that have global IT systems.

Concerns over data privacy and costs have made foreign businesses reluctant to build server farms in the country. A key cost is electricity, which is unpredictable because of the aging power grid.

Companies like AWS are adapting, though, with plans to construct “local zones” that are smaller and cheaper in order to comply with “residency” laws. Under the law, domestic competitors that have already set up data centers have an edge, including the state-owned telecommunications companies Viettel and VNPT and the IT giant FPT, which also are expanding as cloud demand grows.

“This data center will continue to build on our existing customer relationships in providing our customers surety in meeting the required data residency, compliance and security,” VNG Senior Director Gary McKinnon said at Friday’s ribbon-cutting filled with confetti and dragon dancers.

A few feet away, lime-green pipes and cooling machines that look like car engines kept servers running, with a capacity of 1,600 server racks. As with Alibaba or Google Cloud, VNG first hosted data for its own services, like music, games and payments, before deciding there was money to be made in renting out its data servers to enterprise clients.

Vietnam promised not to require data localization under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), though it has a five-year grace period from enforcement.

BSA, a software trade body funded by AWS, Siemens and others, told Nikkei the data curbs raise the risk that “companies will shift to other regional markets.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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