Datacenter and Cloud developments and challenges in China Terence Graham

1. Datacenter and Cloud developments and challenges in China Terence Graham Associate Researcher, BroadGroup and Hong Kong University

2. AGENDA BroadGroup Study China’s Mushrooming Cloud Scale of Investment and Optimism Inner Mongolia Market Drivers Key Challenges – Power and Cooling Key Challenges – Level of Market Maturity Key Challenges – Licensing Business Models Pricing Modular 2 Case Studies for Market Entry Cloud Ecosystem in China Datacenter Capacity and Projections Conclusions

3. BROADGROUP – CHINA STUDY New study of China Assessed Datacenterplayers, 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 …..

4. CHINA’S MUSHROOMING CLOUD 5 official Cloud Cities Beijing Shanghai Hangzhou Wuxi Shenzhen

5. CHINA’S MUSHROOMING CLOUD Further 12 Cloud City Projects Harbin Dalian Hohhot Ordoss Wuhan Langfang Chengdu Lanzhou Chongqing Xian Foshan Guangzhou Beijing Shanghai Hangzhou Wuxi Shenzhen

6. 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?

7. 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?

8. MARKET DRIVERS Growth in China being driven by increasing consumer and business online Social Networking (Behaviour) Gaming 44.1% CAGR 27.5% CAGR Social Networking Site Users (millions) Online Gaming Market (RMB Billions) Transactions/Data Storage “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 …. 68.2% CAGR Online Sales Volume (RMB Billions) Source: National Bureau of Statistics of China

9. MARKET DRIVERS 12-5 Targets 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 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

10. MARKET DRIVERS 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 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)

11. KEY CHALLENGES – POWER AND COOLING Price of Power Price 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 Datacenter To use 200w powered servers in a medium-sized computing center of 10,000 servers, annual electricity bill > 30 million yuan New energy efficiency focus Majority of current datacenters – coal powered MIIT 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 values Need to move from current high 2.5 to below 1.5

12. KEY CHALLENGES – LEVEL OF MARKET MATURITY Complexity of Networks and connectivity procurement CLOUD Still in early stage Still not realized saves cost on OPEX not CAPEX Long refreshment cycles 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 3rdparty ISVs and SIs

13. BUSINESS CHALLENGES KEY MARKET= LARGE ENTERPRISES CLOUD KNOW-HOW Finding people with 3-5 years cloud experience TRUST, SECURITY LIABILITY Who want CLOUD CLOUD COMPLEXITY Vastly underestimated STANDARDS DATA PRIVACY CLOUD INCUBATOR ENVIRONMENT Poor

14. KEY CHALLENGES - LICENSING 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

15. PRICING 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

16. 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

17. MARKET BARRIERS Access to capital / funding – scale issue for China key market coverage – Very high capexrequirements 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

18. DATACENTER COMPETITION - LANDSCAPE “Big 3” China Telecom 300 Unicom China Mobile Different cloud strategies Carrier Neutral 21 Vianet GDS Dr Peng SDS Massive Projects Range International Planning to build Alibaba Baidu Tencent

19. 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 datacentersand 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

20. 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

21. 谢谢！ Thank you！ www.broad-group.com

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28. 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: TencentAlibabaBaidu 3rdparty or carrier-neutral datacenters ISVs SIs

29. CHINA TELECOM • 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 starTier ? 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

30. 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:

31. BAIDU / TENCENT / ALIBABA 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 & Zyngaproblem 70,000 web-based applications run on Baidu platform or run on their own servers with interface defined by Baidu

32. GOVERNMENT AS ENABLER • 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)

33. TARGETS • 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

34. 有没有中国特色 的云计算发展路径？ Cloud with special Chinese characteristics?

35. CLOUD ECOSYSTEM (1)

36. CLOUD ECOSYSTEM (2)

37. THE GROWTH OF CLOUD In China - Cloud = IDC + CDN China Mobile rolling out IaaS in Guangdong province by end of 2012 VDI licensing “3 for 1” China Unicom in Shanghai

38. 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

39. 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]

40. 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?

41. ISVs: Who will be the IBM of China? SIs: Who will be the Huawei of cloud?

43. 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

44. 谢谢！ Thank you！