In the three-horse race between global cloud computing providers, Amazon Web Services (AWS) leads in terms of revenue, followed by Microsoft Azure. Google Cloud Platform (GCP) comes in third. The latter, however, was first to drive a stake in the ground of the Indonesian market.

Quite literally, the ground. All three companies are already serving Indonesian clients from overseas locations, like Singapore. But Google’s new Indonesia region, launched on 24 June, means the tech giant is now offering cloud services from physical infrastructure in the country.

This brings key advantages.

For one, the firm can promise customers higher speed and lower latency because data won’t have to travel around as much.

Having servers onshore also helps regulated industries meet their data management obligations. Some sensitive data, like in banking, legally has to be stored within national borders. Although the details of what that means for different sectors still isn’t set in stone, having physical infrastructure in Indonesia is a strength GCP can play up to prospective clients.

Google isn’t the first company to set up physical infrastructure for cloud services in Indonesia. Chinese internet giant Alibaba had planted its flag in 2018 with Alibaba Cloud, although some experts believe the support infrastructure and add-ons that the big three offer are superior, for now. In April 2019, AWS announced announced All Things Distributed An AWS Region is coming to Indonesia Read more plans to set up a cloud region in Indonesia soon. Microsoft also revealed revealed Channel Asia Is Microsoft building data centres in Indonesia? Read more similar intentions earlier this year. Indonesia’s cloud wars are on.

Southeast Asia’s cloud market will be worth US$40.3 billion by 2025, according to market research firm Adroit. There’s an increased demand for cloud computing not just among tech unicorns that are early adopters, but also large, traditional enterprises and SMEs SMEs . Adroit hasn’t singled out data for Indonesia, but as the region’s largest digital economy— projected projected Google, Temasek, Bain SEA Internet Economy Report 2019 Read more to be worth US$130 billion—its data needs also outweigh those of some smaller countries.

The basic offering of cloud computing providers is fundamentally similar. Competition occurs over price and add-on services, like customisable tools and technical support. It’s a dynamic market, too. One client could use several services at once, depending on specific needs, and choose to switch if there is a better offer. No wonder, then, that companies go out of their way to win and retain clients.

A sky full of clouds

Narratives of the global cloud race are dominated by US firms Amazon, Microsoft, and Google. Reality isn't quite as clear cut. IBM is another big player. Alibaba Cloud is also an ambitious contestant. In this competitive environment, company announcements often mirror each other: Right on the heels of Google’s cloud region launch in Indonesia, Alibaba Cloud said it would increase its capacity in the country by adding another cloud data centre.

In Indonesia, GCP’s offer is currently “20-25% lower than competitors,” says Vishal Parpia, chief executive of Cloud Cover, a service that helps companies migrate to the cloud. Google also packages its cloud offer with training and certification programmes. This addresses Indonesia’s lack of developers with the specific expertise of migrating data to or between cloud platforms. Google has programmes tailored to the needs of staff within customer organisations, as well as public ones accessible to the developer community.

Based on these promises, Google won high-profile Indonesian clients like unicorns Traveloka, Bukalapak, and Tokopedia; state-owned BRI bank; and XL Axiata, one of the three big telcos. GCP also has a particularly tight relationship with Gojek, Indonesia’s most valuable tech company. Gojek is a GCP client, and Google is an investor in Gojek.

Local data storage and cloud computing services won’t be able to keep up with an escalating cloud war in the region, but they can partner with the global players. GCP, for example, is parking its servers at a local firm’s premises—the location has been kept secret. This means the local partner is taking a share of the business. Local cloud experts can also offer consultation and integration services to the increasingly complex data management needs of Indonesian clients.

The customers GCP wins now in Indonesia also won’t necessarily stay exclusive. However, it does give Google first dibs at locking in big contracts in a market with 260 million people. This will give it a leg-up in the global cloud race and grow revenue of its Indonesia operations.

Courting clients

Indonesia’s digitally native tech firms are already using cloud services, says Yam Ki Chan, Google’s cloud policy lead for Southeast Asia.

It’s now about turning the next batch of companies into clients: the big private and state-owned enterprises in retail, telco, and banking, as well as SMEs from a variety of sectors. “The traditionals are coming, but currently they’re still thinking how to do this,” adds Chan.

Traditional enterprises, especially those from heavily regulated industries such as banking and insurance, have been held back by regulatory uncertainties around where their data needed to be physically stored.

A 2019 government regulation brought much-sought clarity. The rules laid out that enterprises can use cloud services, as long as “certain critical data, such financial data resides in Indonesia for auditing purposes,” says Tony Hartono, an IT consultant who advises firms on how to make effective use of cloud services.

It’s no surprise that the big, foreign cloud service providers firmed up their Indonesia plans since that government regulation. Google had been talking about the possibility of an Indonesian cloud region since at least 2018. The new GCP region in Indonesia helps enterprises meet compliance on localised data rules, says Chan.

With the regulatory path cleared, enterprises and SMEs can make the switch. For example, Amar Bank, a local bank that owns fintech lending platform Tunaiku, chose GCP to launch an entirely cloud-based digital banking service called Senyumku.

Local data centres and cloud computing services wouldn’t have been able to serve these types of needs. They’re already reaching capacity limits, and local solutions simply don’t stack up to the global brands in terms of reliability, scalability and add-on services, according to Hartono.

Still, moving large amounts of data poses a risk, and enterprises have to think through their options carefully.

To sweeten the deal and win contracts, cloud providers come up with steep discounts or attractive bundles with other services. In India, for example, Microsoft has packaged packaged The Ken Ahead in the clouds, AWS tries to change engines mid-flight to enterprise Read more Azure with its office collaboration tool, Teams. In Singapore, Microsoft has invested invested TechCrunch Microsoft invests in Grab to bring AI and big data to on-demand services Read more in ride-hailing firm Grab, with credit for Azure services making up a significant share of this deal, according to an executive in the ride-hailing industry.

Cloud Cover’s Parpia says he’s seen enterprise deals worth US$400 million, but US$100 million of that was essentially given for free, in the form of cloud credit. This kind of offer isn’t uncommon, adds Parpia, although most clients wouldn’t be booking deals worth several hundred million.

“Up to US$100 million is what we typically see,” he says. “Deal structures are complex. There are deals where they tie other ecosystem services together, such as ads and marketing. They are getting extremely creative in terms of deals.”

AWS, the cloud computing-as-a-service pioneer in the market since 2006, benefits from a multi-year head start. It’s also got the most established suite of tools and services, and can afford to be priced more conservatively than competitors. AWS still owns a third of the global cloud market share, according to estimates by research firm Canalys, although it is starting to feel the pressure pressure CNBC AWS generated revenue of $9.95 billion in Q4, up 34% from a year ago Read more of competition.

One thing still holding cloud adoption back in Indonesia is the lack of experts when it comes to large-scale migrations and other implementations. “There’s a talent gap,” says Chan.

Google has used this as another angle of attack to tie Indonesia to its services: it has invested into training programmes to get developers up to speed with its latest GCP tools. The company believes it will have conducted 150,000 training sessions by the year-end in Indonesia. The more know-how exists in the ecosystem about how to use GCP tools, the more likely it is they’ll be adopted in companies.

Not a dead end for local providers

With global companies one-upping each other to win clients, local competitors have to adjust. They can’t compete head-to-head with foreign companies, which are better in terms of services and scalability, says Hartono.

But local data centre businesses and data management experts can survive, even thrive, as companies are spending more on cloud services.

One avenue is to partner with the big firms.

Google says it doesn’t operate its own data centre in Indonesia, which means its GCP servers are hosted with another company. Even if it wanted to, it wouldn’t be allowed to fully own such a facility.

“According to Presidential Decree No 44/2016 about Foreign Investment in the ICT sector, the maximum of foreign investment is 67%,” Hartono says.  If Google chose to partner with another firm, it would likely be one of the big IT infrastructure companies that already operate data centres in the Greater Jakarta area and offer colocation colocation Colocation Centre A colocation centre or carrier hotel, is a type of data centre where equipment, space, and bandwidth are available for rent. services. Some of the better-known names in this space are Equinix and NTT.

Local cloud experts and service providers can also emphasise their understanding of local clients’ needs. They can act as intermediaries and systems integrators between different cloud providers, says Hartono.

“Companies are not likely to run on one service alone. They’ll have one app here and one app there, depending on the specific need, and they’ll consider switching if there is a cheaper offer,” he adds.

Lastly, local data centres can cater to specific data needs, such as the ability to instantly do backups.

“With the support structure in Indonesia, if a client wants to do a backup they can serve them,” says Hartono. If it’s involving one of the global cloud providers, maybe this won’t be so easy.”

Google’s cash cow in Indonesia?

Google has a good reason for rushing to be the first mover in Indonesia’s global cloud business. In India, it was Amazon’s AWS, which became the market leader in the country, although it now finds itself having to defend defend The Ken Peak AWS? Read more that position.

AWS has been extremely important to the health of Amazon’s bottom line. For example, in the quarter ended December 2019, AWS single-handedly contributed contributed CNBC AWS generated revenue of $9.95 billion in Q4, up 34% from a year ago Read more 67% to Amazon’s overall operating income.

Google’s cash cow has traditionally been advertising. But just as much as Amazon is starting to gnaw at the ad revenue that used to be so firmly in the hands of the Google-Facebook duopoly, GCP is keen on taking a bite out of AWS’ dominance.

GCP may help improve revenues in Indonesia, a country where ad revenue for Google hasn’t been overwhelming. Google hasn’t released exact ad revenue figures in Indonesia, but when the government was at loggerheads with the US firm over tax payments two years ago, a few figures had circulated: According to The Wall Street Journal, Google and Facebook together owned owned The Wall Street Journal Google, Indonesia Near Tax Deal for $73 Million or Less Read more 70% of Indonesia’s US$830 million digital ad market.

Even if we assume that Google got the same share as Facebook, it doesn’t amount to much in the grand scheme of Google’s ad revenue, which was at almost US$135 billion in 2019. Especially considering Indonesia’s population size. In the end, Google got away with paying just US$73 million in taxes.

Indonesia’s average cost-per-click (CPC) rate—an indicator for how much a potential customer is worth to advertisers—for Google’s AdSense service, is among the lowest in the world. It’s 62% lower lower Worldstream Average Cost per Click by Country: Where in the World Are the Highest CPCs? Read more than the average CPC in the United States. Singapore’s is 58% lower.  This means, in effect, that brands aren’t spending that much on Indonesian customers through Google’s ad network.

In short, Indonesia currently isn’t the most lucrative market for Google’s ad business. Nonetheless, it’s an important market for the company because of its population size and the large number of Android users. Apple’s iOS plays virtually no role in the Indonesian mobile apps ecosystem.

Google has invested in Indonesian tech firms (most notably Gojek); it has spent time and effort on engagement and training of the developer community.

Through its Launchpad accelerator and partner accelerators in Indonesia, like Digitaraya, Google has been cultivating relationships with the tech community for years. Those programmes are a way of getting startups to make use of Google services, including GCP. Once these companies grow, they’re more likely to keep using Google’s services, because of existing ties.

The bigger challenge, and bigger draw, however, is going after established clients with massive data needs. Like companies in the finance and telco sectors.

The launch of GCP’s Indonesian region makes it possible to lure those clients with the promise of low latency and faster speeds, as well as regulatory certainty that local data storage compliance can be easily met.

If GCP locks in contracts worth hundreds of millions of dollars and can defend itself against competition from Amazon and Microsoft for the time being, Indonesia can be a springboard for Google in the global cloud wars. At the same time, it can be a new way for Google to cash in on its Indonesia operations.

Clarification: An earlier version of this story quoted Parpia on specifics of a GCP deal. Parpia says he was speaking more generally. We’ve updated the quote since. We regret the error.

Lead image credit: Mark Kamalov/Unsplash.

AUTHOR

Nadine Freischlad

Nadine is based in Jakarta. She likes stories that capture the impact of digital transformation in Indonesia, with a special fondness for "clicks and bricks" businesses and platform economics. Previous stints with Tech In Asia, KrASIA, bylines in VICE, SCMP, CNN.

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Google fires first volley in Indonesia’s cloud wars