COVID-19 implications for data centers has been saved
COVID-19 implications for data centers
ME PoV Fall 2020 issue
The shrinking economy
The dual effects of COVID-19 and sharp oil price reduction have had manifold economic consequences across the Gulf region. They have significantly aggravated the demand shock of a hydrocarbon industry already contending with a global slowdown.
According to the Khaleej Times, over 50 percent of Emirati and Saudi residents believe the pandemic will have a long-term and far reaching negative impact on their economies.
Despite the downturn, one sector of the economy, namely internet service providers (ISPs), information technology (IT) infrastructure providers and data centers, have seen demand increase primarily as a result of the shift towards home and remote working.
Prior to the spread of COVID-19, the Middle East was witnessing rapid growth and uptake of data center services. The region was starting from a low base, as evidenced by the small investment and power capacity figures shown in figure 1.
Demand for data center services
Data center growth has been driven by increased company awareness of the benefits that cloud services can provide, increased pressure from the boards to provide more secure and robust IT environments, along with setup of local data centers across the region. According to multiple information sources, the market was expected to grow at a compound annual growth rate (CAGR) of 3-5 percent from 2019 to 2023.
According to Arizton Advisory and Intelligence, estimates of the GCC data center market size in 2020 are between US$350m to US$400m (excluding IT infrastructure) prior to the impact of COVID-19. As a result of the pandemic, it is believed the market will grow faster than predicted given the pressing needs to bolster IT performance, flexibility and security across the Gulf region.
Furthermore, greater scrutiny over IT budgets and changing corporate preferences towards usage-based payment models has made data center service propositions more attractive.
Continued migration of enterprise IT platforms to the private and public cloud was also driven by the need to improve cybersecurity measures. Public Cloud data center solutions typically reside behind secured firewalls that are maintained and tested by the service provider on a regular basis. For companies, this reduces the burden of having to provide continuous updates to infrastructure security.
A new report from the Mimecast Threat Intelligence Center, 100 Days of Coronavirus, tracks cybercrime activity since the start of the outbreak. It found that between January and March 2020, global monthly volumes of spam and opportunistic cybercrime detections increased by 26 percent, impersonation fraud detections increased by 30 percent, malware detections increased by 35 percent and the blocking of URL clicks increased by 56 percent. In addition, over 115,000 COVID-19 related spoof domains designed to steal personal information were detected.
With respect to the Middle East and North Africa (MENA) region, the Threat Intelligence team saw notable increases in malware (22 percent) and spam (36 percent) during February and March when the virus started to spread rapidly across the region.
Variations in customers’ requirements and available IT solutions from service providers have resulted in many types of cloud solutions for customers. However, all are predicated on the effective use of infrastructure housed in a data center, which will remain the backbone of all enterprise IT.
The COVID-19 pandemic has brought about changes in how companies operate during a crisis. Companies have to revise their operating model to incorporate the following:
- Enhanced health and safety provisions;
- Increased support for mobile and remote working;
- Further requirements to automate business processes and functions;
- Improvements in cybersecurity arrangements;
- Migration to pay-per-use commercial models.
These changes are reliant on flexible IT architectures and changes to vendor commercial arrangements.
A well-designed and configured cloud service can be the ideal option for a company’s enterprise IT requirements, providing a cost-effective solution with enhanced flexibility and security.
An uncertain environment
However promising the future may be, data centers currently face a number of challenges:
Safety and availability
- How can staff, customers, vendors and other stakeholders access the data center safely and securely?
- How do data center operators ensure they have adequate on-site staff to support clients?
- What are the changes to customer requirements in light of the COVID-19 pandemic?
- Which service offerings need to be adapted or introduced to meet these requirements?
- How do data centers take advantage of shifting preferences for colocation delivery models?
- What do these aforementioned changes mean in terms of customer purchasing habits?
- How do data centers respond to customer project delays and capex reductions?
- What types of partnering and solution co-development initiatives need to be considered?
Implications for data center strategy
In light of these challenges, it is critical for data centers to clarify their strategy and long-term objectives to effectively compete in the marketplace.
Across the Gulf region, data centers have adopted different strategies depending on type of facilities offered and target client base. Some have forged arrangements with enterprise software providers to provide cloud platforms. While they offer similar capabilities, there are differences in operating model, services and pricing strategy. The choice of platform provider depends on the specifics of the business requirements.
Based on Deloitte’s experience working with leading data centers across the region, we have summarized the main considerations for data center providers:
Across the region, corporates are migrating their infrastructures to cloud solutions at a rapid pace. Yet to be successful in an increasingly cloud-centric world, you need a clear understanding of how cloud adoption affects organizational strategy, structure and operations from customer-facing through to back-end operations.
The COVID-19 pandemic has shown employees can be productive when working remotely, and for many companies, their business continuity plans are not what they thought they were. It also means large internet companies are likely to purchase and utilize more spaces in data centers, making collaboration between providers of enterprise software, network infrastructure and facilities more integral to their respective strategies.
by Zaid Selman, Assistant Director, Financial Advisory, Deloitte Middle East