Amazon to build smaller 'local' data centers in Asia-Pacific

Viet · Mar 31, 2022

Strategy aims to better serve region as 'data sovereignty' laws impact business

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Inside an Amazon Web Services data center. (Photo courtesy of AWS)
AKITO TANAKA, Nikkei Asia chief business news correspondentMarch 24, 2022 14:01 JST

SINGAPORE -- Amazon plans to complement its network of massive data centers in the Asia-Pacific region by building smaller "local zones," the e-commerce company's cloud services arm told Nikkei Asia.

Amazon Web Services offers clients a range of digital capabilities, such as data storage and processing. Like its major competitors -- including U.S.-based Microsoft and Google, and Chinese giants Alibaba Group Holding and Tencent -- it has been racing to build large, multibillion-dollar data centers in Asia.

But in an interview with Nikkei, Phil Davis, the director who oversees the Asia-Pacific region and Japan for AWS, said his company has spotted a new opportunity. "What we've seen now is that a lot of smaller countries may not need the full capability [of megadata centers] ... but need much more local infrastructure."

Amazon has announced it will build 10 so-called local zone data centers in six countries: Australia, India, New Zealand, the Philippines, Thailand and Vietnam.

"I think you will see us announce more," Davis added.

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Phil Davis, Amazon Web Services Asia-Pacific regional director: "We are significantly advantaged to any other competitors." (Photo courtesy of AWS)
Amazon's local data centers are smaller than its megadata centers, which the company calls AWS Regions.

An AWS Region comprises a cluster of data center facilities, offering customers redundancy and resiliency. It costs Amazon billions of dollars to set up this infrastructure. Amazon currently has eight of these Regions in the Asia-Pacific, including in Japan, Australia, India and Hong Kong.

Davis said AWS would continue building more AWS Regions in the area, and the company has announced it will add megadata centers in Auckland and the Indian city of Hyderabad.

But by constructing many smaller data centers, Davis said, the company will be able to strengthen its position in the Asia-Pacific region.

Local zones will allow AWS customers to run "latency-sensitive" services like real-time gaming and live video streaming as well as new applications -- including autonomous driving and virtual reality -- throughout the region. Customers will be able "to build and deploy applications that require single-digit millisecond latency," Davis said, referring to extremely small lag times in data transfers.

Davis also said local data centers can help users comply with data sovereignty regulations and requirements in their respective countries, though they were designed primarily to focus on enabling low-latency use cases.

"You take a look at Indonesian financial regulators. They are requiring more and more of the actual processing [to be done] onshore," he said. "You got data sovereignty issues. You got processing sovereignty issues ... that is really the problem statement."

Vietnam is also planning to introduce extensive rules governing how companies use and move data.

Since the e-commerce giant pioneered cloud computing services 16 years ago, AWS has grown to become a major cash cow for Amazon.

AWS accounted for more than 70% of Amazon's consolidated operating income in the most recent fiscal year, growing more than 36% yearly.

Although Amazon does not disclose the regional breakdown of AWS' revenue and profit, Davis mentioned that the region he oversees is "in a comparable type of growth."

According to Synergy Research Group, Amazon kept a top share of over 30% in the global cloud market in the fourth quarter of 2021, topping Microsoft, Google and Alibaba. Amazon is also the market leader in the Asia-Pacific region, capturing top positions in all areas except China, where Alibaba leads.

"China remains a unique market that is dominated by local companies, while in the rest of the APAC region there is strong competition between global cloud providers, with some local companies also challenging for business in their home countries," said John Dinsdale, chief analyst at Synergy Research Group.

AWS says it has "millions of customers" worldwide, and in Asia-Pacific it serves various sectors, ranging from startups to large corporations to government agencies.

Asked about the competitive landscape in the region, Davis said, "We are here early and longest. ... We are significantly advantaged to any other competitors."