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Business of Datacenters - An India perspective #1

A few months ago I had a word with my friend Kumar Aakash about our views on AI's future, specially in the context of Indian startup opportunities. One thing which came up was a lack of any serious specialized AI datacenter infrastructure at that time. Some of the key challenges we noted were

  • GPU/TPU datacentres and the high tarrif to even import these.
  • Infererence datacentres too end up going to Mumbai or Chennai across the indian internet backbone.
  • Its hard to control where new startups host their AI services. Controlling data leaving India is hard.

Cut to last month, another friend of mine called me with an inquiry. He was approached by folks to invest in a Datacenter business. Their model was peculiar. They were selling fractional units of the datacenter in 1TB increments. You invested an amount of Rs X for 1TB of capacity which was leased to you for a persiod of 10 years as a depereciating asset. The datacentre folks would then turn around and rent out this capacity and return the investor a monthly rental revenue.

I digress as this blog isn't gonna cover the novelty/loopholes in the per TB datacenter business. Thats another can of worms which we will open some other day in an errata.

Today I wanted to ask a first principles question which has been bothering me for a while.

Is India ready to host its own AI revolution? If not, what steps can we take to be ready in the coming decade.

State of the Union : India's DC landscape

India accounts for about 4% of the worlds datacenter capacity as of 2023. It goes without saying that we account for a whole lot more humans in the world than 4% would account for.

We have decent connectivity for our countryment with 46.3% indians online as of 2021. And we do fare pretty well at bandwidth of our network connections jumping 72 places up to be 47th world wide as of 2023 .

Lets just say, with JIO lighting the match to rock bottom pricing, even with recent corrections, India's connectivity story is a net win!

I will admit, we do have swathes of land, underserved communities and patches of silence all across our geography which still dont have a decent reliable network backhaul. But I don't see this as an impossible to solve situation. I am confident products like starlink would drive the cost and feasibility of satellite internet down as soon as we have local playes and regulatory hirdles covered. We also need to think of services we would offer once we connect these brand new users. This could well be a topic for another day, but lets just say, LEO and MEO are gonna get crowded soon. Keep an eye out for Mukesh Ambani's JIO space, Sunil Mittal backed OneWeb along with longtime incumbent Hughes and INMARSAT pivoting to satellite broadband in the next 5 years.

In short, India's bandwidth usage has seen significant growth over the past few years. Here are some key points:

  1. Average Data Consumption : As of 2023, the average data consumption per user per month in India was around 24.1 gigabytes³. This is a substantial increase from previous years.

  2. Total Data Usage : The total volume of wireless internet data usage in India surged to 32,397 petabytes in 2021, up from around 4,200 petabytes in 2018⁴.

  3. Internet Penetration : By 2024, the internet penetration rate in India rose to over 52%, meaning more than half of the population had internet access².

  4. 4G and 5G Traffic : 4G data traffic contributes to 99% of the overall data traffic, while 5G was launched in India in October 2022³.

This rapid increase in data usage is driven by affordable mobile internet plans, widespread smartphone adoption, and the growing digital ecosystem in the country.

So far so good, but lets look at our internet consumption patterns.

India's internet usage is driven by a variety of services, both for consumers and businesses. Here's a breakdown:

Consumer Bandwidth-Intensive Services

  1. Streaming Services : Platforms like Netflix, Amazon Prime Video, and Disney+ Hotstar are major contributors to data consumption. Video streaming accounts for a significant portion of internet traffic[^6].
  2. Social Media : Apps like YouTube, Instagram, Facebook, and TikTok also consume a lot of bandwidth due to video content
  3. Online Gaming : Games like PUBG Mobile, Call of Duty Mobile, and other multiplayer games require substantial data for real-time interaction.
  4. Video Conferencing : Services like Zoom, Microsoft Teams, and Google Meet have seen increased usage, especially post-pandemic⁶.

Business Bandwidth-Intensive Services

  1. Cloud Services : Businesses rely heavily on cloud platforms like AWS, Microsoft Azure, and Google Cloud for storage, computing, and other services⁶.
  2. Enterprise Applications : Tools like Salesforce, SAP, and other SaaS applications are widely used.
  3. Data Analytics : Big data and analytics platforms consume significant bandwidth for data processing and transfer.
  4. Remote Work Tools : VPNs, remote desktop applications, and collaboration tools are essential for business operations.
  5. AI! With Generative AI sticking to text at the moment, we are still in a slow bandwidth growth phase. But sooner rather than later,, audio and multimodal models will start demanding much bigger piece of the bandwidth pie. AI service providers also need DC capacity to host inference and training hardware in India which has created a high demand for GPU and NPU compute. Yotta data centers and Jarvislabs are two new players in this space with their GPU offerings as their USP and claim to fame

Hosting Locations

  • Domestic Hosting : Many Indian companies and services host their data within India. This includes local data centers operated by companies like Reliance Jio, Airtel, and Tata Communications.
  • International Hosting : Some services, especially global platforms like Netflix and AWS, have data centers both in India and abroad. However, a significant portion of their infrastructure is still based internationally

Data Flow and Undersea Cables

India, like most countries relies on undersea cables to connect to global internet infrastructure. These cables are crucial for international data transfer, especially for services hosted outside India. However, there is a growing trend towards increasing domestic data center capacity to reduce latency and improve service reliability. This trend is driven by the needs of two of the most ubiquitous and dataintensive services which consumers love! Streaming and Social Media!. Snappy snacable video needs to be cached and served from as close to a user as possible or else we incur a penalty of moving bits over expensive undersea cables. There's also a growing need to keep Indian user generated content withing our national perimeter for reasons as simple as national safety and as far fetched as abuse of indian data for AI training by foreign actors.

I say far fetched, but its already happening. A sizeable chunk of content created by Indians lands up on services run by US megacorps. For a brief period, we did indulge Chinese social media apps but a very swift regulatory push saw that door shut pretty quickly. With recent push by OpenAI to collaborate with 3 letter agencies within USA and play a more direct role with development of AI as a national security tool, its natural to conclude we may have given up a lot of our users data in lieu of all the cat memes.

India has made significant strides in expanding its data center (DC) capacity to host popular services like streaming, social media, online gaming, and video conferencing. Here are some key points:

Current Data Center Capacity

  1. Growth in Data Centers : India has seen a rapid increase in the number of data centers. Major players like Reliance Jio, Airtel, Tata Communications, and global giants like AWS, Microsoft Azure, and Google Cloud have established or are expanding their data centers in India.
  2. Government Initiatives : The Indian government has been promoting data localization, encouraging companies to store data within the country. This has led to increased investment in local data center infrastructure.
  3. Capacity and Scalability : The current data center capacity is growing, with several new projects underway. For instance, Adani Group and Hiranandani Group are investing heavily in building large-scale data centers.
  • Streaming Services : Platforms like Netflix and Amazon Prime Video have started hosting content locally to reduce latency and improve user experience. Hosting services are incentivized to host local content close so sooner or later pareto 80% of data would be hosted on our soil.

  • Related to streaming, Youtube is another big player backed by hyperscale infrastructure. Its hard to curb them to one geography. And they usually build up their own infrastructure rather than buy capacity on the market.

  • Social Media : Companies like Facebook and Instagram are increasingly using local data centers for better performance and compliance with data localization laws. While this promotes players like Meta to start with keeping data local, hyperscalers have a global mesh of interconnects and there's no stopping where the data would eventually get copied to, for operations, redundancy and strategic reasons.

  • There's strategic partnership between Jio and Meta and recently Reliance chairman Mukesh Ambani has gone on to announce an AI cloud hosted in India powered by Meta AI.
  • Online Gaming : Gaming companies are also setting up local servers to provide a smoother gaming experience with lower latency.
  • Video Conferencing : Services like Zoom and Microsoft Teams have been optimizing their infrastructure to include local data centers.

Challenges and Future Prospects

Its abundantly clear that the DC sector is gonna see a windfall over the next decade.

  • Infrastructure Development : While significant progress has been made, continuous investment in infrastructure is needed to keep up with the growing demand.
  • Energy and Sustainability : Data centers require substantial energy, and there is a push towards sustainable and energy-efficient solutions.
  • Regulatory Environment : Compliance with data protection and localization laws is crucial for both domestic and international companies operating in India.

Overall, India is on the right path to becoming self-sufficient in hosting its own data for popular services. The ongoing investments and government support are likely to further enhance the country's data center capacity in the coming years.

I have compiled a few important resources if you are inclined to look at the technical aspects of a datacentre, with an intention to write about this as I dive deeper. Till then, this Board should be self explanatory.

If you are someone who's working in the DC space in India, or planning on diving into this space, I would love to hear from you. More specifically, what are you building and what's your play? What's your biggest challenge? I would love to connect over linkedin or twitter and hear your unique perspective and add to this series of blogs.

(1) India: average data consumption per user per month 2023 - Statista. https://www.statista.com/statistics/1114922/india-average-data-consumption-per-user-per-month/. (2) India's Internet Data Usage Shoots Up To 14.1 GB Per Month. https://inc42.com/buzz/indias-internet-data-usage-shoots-up-to-14-1-gb-per-month/. (3) India: internet penetration rate 2024 | Statista. https://www.statista.com/statistics/792074/india-internet-penetration-rate/. (4) Internet usage in India - statistics & facts | Statista. https://www.statista.com/topics/2157/internet-usage-in-india/. (5) Massive data usage growth in India: Economic survey. https://economictimes.indiatimes.com/industry/telecom/telecom-news/massive-data-usage-growth-in-india-economic-survey/articleshow/89245236.cms.

(6) 52% of Indian population had internet access in 2022, says report. https://economictimes.indiatimes.com/tech/technology/52-of-indian-population-had-internet-access-in-2022-says-report/articleshow/99964704.cms. (7) US tech giants fight Indian telcos’ bid to regulate internet services, pay for network usage. https://www.msn.com/en-us/money/technology/us-tech-giants-fight-indian-telcos-bid-to-regulate-internet-services/ar-AA1p66j8. (8) India adds 7.3 cr internet subscribers in FY24. https://www.fortuneindia.com/macro/india-adds-73-cr-internet-subscribers-in-fy24/118083. (9) India's internet user base grows 8% YoY to 95.4 crore. https://www.newsbytesapp.com/news/science/india-s-internet-user-base-up-8-in-a-year/story. (10) Internet usage in India - statistics & facts | Statista. https://www.statista.com/topics/2157/internet-usage-in-india/. (11) Digital 2023: India — DataReportal – Global Digital Insights. https://datareportal.com/reports/digital-2023-india. (12)https://www.blackridgeresearch.com/blog/list-of-top-ten-largest-data-center-companies-in-india