If you’ve been tracking data center trends in India, you’d know that there has been a lot of ‘activity’ in this space in the past 18 months. Companies in India have been building new data centers and pouring in truckloads of money for land, compute and building infrastructure. While researching this story, the editorial team at InformationWeek visited three popular data centers in India, and spoke to data center heads and solutions providers. We saw state-of-the art infrastructure and came within spitting distance of the latest technology. We traversed high-security areas, touched the racks, and sniffed the carefully conditioned air in the hot and cold aisles.

There were two main observations made during our visit to these data centers. Firstly, the people who plan and design data centers are obsessed with redundancy (at all levels). Can’t blame them though, for if their data center is down, their customers’ business comes to a grinding halt. It’s unthinkable to have a situation where the ATM network of a top private sector bank is down, or a vast cell network goes silent, because a rack of servers in a data center went kaput.

Secondly, designing a data center comes close to building a submarine or a space ship. All are mission-critical projects. Engineers and architects need to consider every little detail while building a data center. Overlook something (small) and that could spell disaster. For instance, one data center in Mumbai was affected during the city’s mega floods one monsoon, simply because they overlooked a little detail. In the absence of electricity, you need a portable diesel generator (genset) to activate pumps at the fuel station; but if there’s no diesel for the portable genset, you can’t draw diesel from the sub-terrain fuel reservoirs. After that incident, the data center company went out and bought hand pumps (they also keep 48 hours supply of reserve fuel).

Investments

Let’s talk about the investments in the data center space, and the demand. The latest example is Tulip Data City (TDC) in Bengaluru, commissioned in February 2012. TDC is considered as Asia’s largest data center with an area of 0.9 million square feet. Tulip is investing Rs 900 crore in TDC over a three-year period. Tulip earlier built five data centers across the country, and plans to update these with the latest technology. And that’s an additional investment.

Says a confident Lt. Col. H S Bedi, Chairman and MD of Tulip Telecom, “I do believe that the return on this investment should be good. We should have revenues of Rs 1,000 crore per year and EBITDA of 40 percent per year — but this will happen after four years.”

Another example is Reliance Communications. It has been hosting customers like HDFC Bank for the past11 years. With prospective international customers and local companies knocking at its doors, it is fast utilizing its data center capacity. It has four data centers (IDCs) at the Dhirubhai Ambani Knowledge City in Mumbai, and will commission the fifth IDC in June 2012. Reliance Communications has already built nine data centers across four cities. Reliance did not give details about investments.

And then there’s Netmagic Solutions, now partly owned by NTT Com (74 percent stake). Netmagic has seven data centers, including two in Mumbai. Since it’s data centers are filling up, it is building a third facility in Mumbai to meet demand. When we asked a spokesperson at Netmagic about investments, he could only say that it is between Rs 20,000 – Rs 25,000 per square foot. Its Chennai data center, which has an area of 30,000 square feet, runs up a bill of Rs 75 crore for one data center alone (and they have seven).

So, building a data center requires massive investment. Tata Communications (TCL) estimates this business requires investments of Rs 1,500 crore over five years. That’s why TCL plans to hive off its data center business into a separate subsidiary. There are others who are building new data centers or upgrading existing facilities. For instance, Trimax-ITI will roll out its new data center in Mumbai this June. It is also planning to expand its facility (Phase 2) in Bengaluru this year.

Demand drivers

The demand for data center services in India has suddenly picked up. But why? The short answer is, businesses want to focus on core competency and their respective markets. Leave the IT stuff to someone else. The huge costs associated with real estate, IT infrastructure, and the manpower to manage it has been a worrisome overhead that eats into a company’s profits. And this is a recurring investment due to technology obsolescence. When a business grows, it has to make additional investments in IT infrastructure. Add to that the huge cost of maintenance and the skills to manage the IT infrastructure (salaries for full-time staff are another huge overhead).

It has been proven that hosting a company’s IT infrastructure in a professionally managed data center (where investment-heavy resources like power are shared), and in a centralized rather than distributed manner, works out to be more cost-effective in the long run.

Because of the scale of the business and the shared services model, data center companies are in a position to make huge investments in power and cooling infrastructure. Chiller units, monstrous generators, large banks of batteries and UPS units, Power Distribution Units (PDUs) and specialized computer room air conditioning units (CRAC) require investments running into several crores. This is economically unviable for most businesses. Also, it is not practical to run a data center in a standard office building.

The other driver is the demand for managed hosting services. This is attracting customers because of huge cost savings. The data center provider will lease an entire server to one customer who has full control over his leased server. Administration (monitoring, updates, application management, etc.) can be offered as add-on services. This works out much cheaper than deploying a server in-house, investing in power and cooling, and having a full-time in-house administrator — or an IT team.

Another option is collocation (colo or coloc). A customer can place his own server in a data center and use shared and redundant resources like power and HVAC. Hence, the customer does not have to make upfront investments for such resources. Data centers also offer locked cages for customer servers, monitored by IP cameras at the customer’s end. Customers can also visit the site and do server administration from a cubicle.

According to Gartner, the key growth driver for the data center market, is the ongoing investment in large captive data centers coupled with the capacity growth witnessed within the data center provider space.

“Indian organizations are making a big shift from a distributed IT setup to a more manageable and efficient centralized model, leading to consolidation of branch and remote IT resources into fewer, but larger data centers,” says Naresh Singh, Principal Research Analyst, Gartner. “Data center site consolidations are happening and relocations are happening, especially for the in-house data center owned by organizations.”