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 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 …..

4. CHINA’S MUSHROOMING CLOUD
5 official Cloud Cities
Beijing
Shanghai
Hangzhou
Wuxi
Shenzhen
Data integration on backend is difficult
Hp ibm accenture working with municipal champions on smart city smart gird smart meter projects
Serious projects takes time before one can see results
Also many tier 2 cities vertically integrated city and suburbs textiles hub, pharmaceutical hub, chemicals hub
Oracle working with these cities on vertical clouds tailored to the demands of those specific industries

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
Bt healthcare cloud tier 2 city in gansu province
Why?
Someone in the office has personal connection with someone powerful enough to cut through the red tape and get the project off the ground
Basically every tier 1 and tier 2 city has a cloud plan
Powerful local city officials competitive

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?
From 5 to glut to colo
Mention tier 2 spending on cloud
3-4 million on cloud infra, 500,000-2 million on storage
Less infighting easier to get projects off the ground
Number of experts and research institutes have made projections and estimates for the capacity coming online
Hype the numbers are so big
one natural reaction is cynicism
Build streets first, worry about cars later

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?
Starter flat
Bargain limited resource give them coal mining rights
Half price of bj
Norway/finland/iceland location agnostic people fixed price 15 years
Latency online gaming/fast traders
Dc within half an hour car
CITIC telecom ifc
One of the most expensive per square meters dcs in the world
Cheap power = Iceland/Finland/Norway fixed prices 15 years for those that are location agnostic
Unicom Langfang/Beijing/Inner Mongolia

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 ….
Reflect changing behavior
Taobao story 80
120
Linkedin
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
Building blocs being put in place now
When see public 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)
Do not like paying royalties to foreign ip holders
One track build national ecosystem for cloud
Disappointed if govt didn’t come out and say it would try to form a china cloud standard
Indigenous innovation
Bb ubiquitous HK example
21th century economy
280 billion yuan ct to increase access speed by factor 10 in 3 years

11. KEY CHALLENGES – POWER AND COOLING
Price of Power
Price 80RMB per kVA (Beijing) – Can negotiate to 38RMB in Shanghai
High Power Consumption
total datacenter power consumption in China 70 billion kWh % 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
Baidu pue 1.3
21vianet free air cooling
poor design 200 watt powered annual
to achieve green target
recognize international enterprises to outsource to them their datacenter footprint in China CSR statements at shareholder meetings – why important internal targets enterprises want assurances about power increasingly a major issue
Baidu did not care much about PUE concept but when it is now processing 100 PB a day through its datacenter and Tencent announced number of servers and traffic growing at 50-60% annually take a much harder look at PUE and cloud-like technologies like virtualization
Baidu now 1.3 PUE

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
North south divide
31 provinces 31 telcos
Poor interconnection
Only 3 internet peering
Firewall
Maintain each provincial monopoly position – ct and unicom could resolve the problem overnight but don’t No peering –
piece network together
firewall in/out China
Korean gaming rude awakening
Virtualization can’t do everything 1000 pcs 100 broken if datacenter breaks down
Vmware selling lot of virtualization software for testing and development
Oracle erp us 80% packaged software 15% youngyou in china 50% own erp – private companies only 10 years old
No standardized interfaces or messaging buses// Complexity of cloud no definition Academic conference no one could really define cloud in one sentence. 20 vendors 20 different definitions someone joked Chinese govt should step in and set a definition.
8-9bn RMB in turnover only spend 15 million on IT – limits the market – SMBs not spending in US and Europe SaaS sold directly to SMEs.
 Build as powerful as Google. Amazon 3-5 years ahead. If Amazon and Google were to enter the market no holds barred Baidu would disappear overnight but Tencent would be a formidable competitor.
 SLA – data security multitenancy
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

13. BUSINESS CHALLENGES KEY MARKET= CLOUD LARGE KNOW-HOW ENTERPRISES
Finding people with 3-5 years
cloud experience
TRUST,
SECURITY
LIABILITY
Who want
CLOUD
CLOUD
COMPLEXITY
Vastly underestimated
Cloud complexity build as good as google/amazon
Shanda
Popular gaming platform
Used cloud like technologies DDoS – competitors would try
no idea of how many servers it has
Received Govt handout to show govt officials to demonstrate what an amazon type platform looked like
Very poor monitoring systems
You can really expect a great platform
Personalities in internet flamboyant used to work for amazon s3
Cloud incubator no IaaS
Big cloud centers not interested in attracting startups
Not spending 8-9bn rmb 15rmb on it/ sla/multitenancy/BT puts together a great product Haggle on price end up with a bare bone version of cloud service, these companies ROI does not include other elements such as business agility – cost savings and make up their mind whether they are going to use you or hire 2-3 more people
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
Private capita lFujitsu 80-20
licenses
Space/power foreign company like kddi or fujitsu
8020
Identified a gap in market they could exploit
Visit 4 star dc left a lot to be desired
Fujitsu boss visit many times
Customer has to deal with ct/cu/cm
Winwin
Hogan want to win cisco communications hub greater asia, several tens of thousands for rackspace, couple million to china telecom for bw
Did this because it had worked with unicom in shanghai and upset local incumbent a bridge u don’t want to burn
Rumors licensing Examples of JVs – Akamai, Symantec/Huawei, sds and datapipe, joyent, emc and Lenovo, citrix has done well
Private capital into DC conference release guidelines postponed indefinitely wait till after nov leadership change
VIE Sina badge of honor for Internet companies
VIE scheme 3 years billionaires strong personalities Shandacloud person amazon S3 /Cayman
Alipay taken out of equation no legal recourse to pursue the Chinese holder of the license
VIE
Energy and mineral companies seeking to use VIE vehicle > govt forced to act
TRUST
Finding entrepreneurs 3 years they want to become all billionaires social gaming
21vianet ipo
raised a lot of money for expansion and 4g license
bad cloud/cdn no biz bleeding you have to be very careful about bottom line

15. PRICING
End user (list) price is RMB per month (per rack), with some areas cheaper
In Tianjin there is one site, a reseller, offering 2400 RMB per month
People expensive bandwidth cheap
Beijing and shanghai competitive even for title of most expensive
Licensed 21vianet bgp you get as # from cnnic China Internet Network Information Center
Configure router
Depending on where enduser is who is accessing your website or product use automatically routes to use network offering least congestion
2000 rmb a meg startup 100 meg
Go to hangzhou
Beijing and Shanghai
Even same quality BGP there is a price differential, BJ is 50% cheaper than Shanghai – maybe it’s the business culture in Shanghai. Shanghainese are more wise to doing business (and not getting fooled). Compromise, if CT/Unicom is selling at 100, the other telco (CT/Uni) will do 85/90, there is a little bit of difference, but they (Unicom in Shanghai) won’t sell at 60/70 to compete with CT.
2000 RMB a meg bgp got to tier 2 city if you are a cloud city.
foreigners always get charged premium 
chinacache quotes 10x

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
ordoss west solar power
21 has patents on modular

17. 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
200m rmb
Not counting land
“To create a cross-cloud, cross-region, real-time application support network.”
Beijing/Shanghai/Guangzhou/Shenzhen/ - Chengdu/Xian/Dalian
Talk to shareholders
200m rmb a datacenter not counting on land
facility over which you have complete control
not 21vianet franchise model with local telco > reduce capx exposure but once biz grows
national presence a stronger business – not like UK London or France with Paris
China is like several countries stuffed within the borders
Gain scale you become like Telecity with a presence in countries
Scale of operations – multiplicity – achieve economies – unified design and server configuration on the backend – improved ROI
Foreign companies are not getting licenses full stop
Running back and forth
6.8 kva per rack customized but will pay a lot
1.5 EDC
you could get cheaper bw in another province but the provincial pta will step in and prevent you – protect each provincial ct – difficult to create own network/NO SPOT market
21 vianet certain amount of fiber
Shanghai sds zhangjiang
Dr. peng great wall broadband
Alibaba

18. DATACENTER COMPETITION - LANDSCAPE
“Big 3”
China Telecom
Unicom
China Mobile
Different cloud strategies
Carrier Neutral
21 Vianet
GDS
Dr Peng
SDS
Planning to build
Alibaba
Baidu
Tencent
Massive Projects
Range International
Range crossborder
Carrier conflict of interest
Unicom tail end of a drawn out merger between it and netcom
Excited
First time building real datacenters
Starting to seize control of its destiny
Why carrier neutral good cannot commoditize quality of service db story / 24 hours china mobile

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 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
Trust
Good internet citizen award
Pull the plug
Dc in guangdong province 70gig
Blog/pornography/internet scam
Child of a loveless marriage

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
Focus on verticals/market experience
SST not selling to engineer bandwidth
Need to understand industry
Hiring new people
Think what the enduser is going to do with the bandwidth
Finance companies superfast hilatency
Govt datacenters UK special audit comply security requirements
Not general approach dig deep into that vertical
American healthcare datacenters manage compliance rules these companies exist under
multiprovince
Cost and technical differentiator
Once build dc constantly have to invest in the facility to keep it upgraded and up to new standards.

21. 谢谢！
Thank you！

23. xx

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: Tencent Alibaba Baidu
3rd party or carrier-neutral datacenters
ISVs
SIs
the chicken and egg problem

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 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

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

32. SEI Strategic Emerging Industries
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. In China - Cloud = IDC + CDN
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 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
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！