“Data Centres-Another Growth Story”

The great communicator, US President Ronald Reagan once famously said that “Information is the oxygen of the modern age. It seeps through the walls topped by barbed wire; it wafts across the electrified borders.” This huge quantum of information available through different means is at the heart of the expansion of data banks available to organizations, governments and the general public. So where does all this information or data get stored?

Data or information is stored in interlinked servers across the world, some in isolated locations and some in server farms or data centres. A data centre is thus used to house servers, computer systems and connected peripheral parts like telecommunications and storage systems. To support its working it is dependent on continuously available power supplies and data communication services.

With the ever increasing quantum of data and consequently data centres there has been an evolution of the data centre industry from a guideline perspective for housing data centres and the business perspective. From the guideline perspective the first major integrated standard guideline for the infrastructure of data centres was the “Telecommunications Industry Association’s” TIA / EIA 606-A “Administration Standard for Commercial Telecommunications Infrastructure” of May 2002. It was followed up by the TIA - 942 Telecommunications standards for Data Centres in April 2005. This was meant for use by Data centre designers in the building development process and covered the following:

• Site Space and Layout
• Cabling Infrastructure
• Tiered reliability
• Environmental Consideration

The tiered reliability mentioned above ranges from Tier 1, which allows upto 28.8 hours downtime annually to the most stringent Tier 4 allowing a downtime of only 15 Minutes annually.

From a business perspective the growth story in India has been quite bright. As per various studies made by the Gartner, IDC and Springboard research the growth till 2014-2015 seems set to be at a rate of upto 39% CAGR (Compounded Annual Growth Rate). Gartner has predicted that the total market capacity would see an increase from about 1.3 Million square feet of data centre space to about 5.1 million square feet in 2012. This figure did not include data centres in less than 1000 square feet area which were numerous as well.

IDC meanwhile predicted the size of the market as 10,000 crores by end of 2011 against a market valued at 6000 crores in 2009. It is further predicted that India has the potential to be the hub for markets in the Middle East, East Africa and Southeast Asia.

One driver for the growth of the third part data centre industry has been the deficiency of skilled manpower and technical skills within most organizations to manage captive data centres and the associated budget constraints. While there are drivers, there are challenges too.

The growth story is just beginning and evolving. It presents enormous opportunities in the IT / ITES space.

Can the Cloud (IAAS) Replace RIM?

“No one would dispute that information technology has become the backbone of commerce. The point is however, that the technology's potential for differentiating one company from the pack - its strategic potential - inexorably diminishes as it becomes accessible and affordable to all”

- Nicholas G Carr, in an article titled “Does IT Matter?” in the Harvard Business Review, May 2003.

Cloud Computing has turned that vision to reality by providing awesome computing power, much as a Utility service like power or water, to be consumed in the quantity and time of ones choosing, avoiding the setting up of substantial captive IT infrastructure.

Thus a question which arises is that would Cloud Services replace the booming RIM business? This is a fear in the minds of many companies pursuing or in the process of pursuing the RIM business. This fear stems from the mistaken belief that the cloud and RIM are interchangeable services.

The cloud is a public access environment albeit with many flavors, typically with multiple customers accessing the same infrastructure. It’s a great service for many small and medium sized businesses which could otherwise never have had the wherewithal to setup sophisticated IT infrastructure. However “Cloud” services can hope to replace captive IT Infrastructure only to a limited extent. This arises due to the following reasons:

a) Legal and compliance issues especially regulatory requirements such as accounting and auditing standards, banking regulation and information provision requirements such as SOX.

b) Data Export limitations. Certain rules like the Data Protection act in the UK and the Data Protection Directive (Directive 95/46/EC) of the European Union prohibit the transfer of personal information of customers outside certain jurisdictions.

Risk Mitigation. While using the cloud is a great way of achieving cost benefits, the downside is the risk associated with having only a single source of service. One of the most famous examples of cloud services, “Saleforce.com” has had its customers locked out of their data during server outages. In 2009 bookmarking site Ma.gnolia crashed and ultimately went out of business.

d) Security Issues: Cloud services face a challenge between making their services user friendly and having a robust security. Since there will be multiple customers using a cloud service, weak password setting at one client could leave the door open for hacking for other customers.

Unlike the cloud environment which provides Infrastructure as a service (“IAAS”) RIM actually allows an outside organization to take care of a company’s own infrastructure. So IAAS is outsourcing the complete IT department while RIM is typically outsourcing just the manpower while keeping physical control of the infrastructure.

Therefore depending on many factors some of them listed above, each of these services (RIM and Cloud) would have their own markets and would not be competing for business. One needs to differentiate the hype from the need.

The $ 37 Billion LPO Opportunity

“While we stop to think, we often miss our opportunity” Publilius Syrus

Globalization and outsourcing between them have created a huge pool of opportunities for India. From the simple all-encompassing BPO model we have arrived in the era of specialization. We have the KPO, RPO, LPO, and we have online Tutors and what have you. In this period of economic recession another opportunity for the LPO industry valued at around $ 30 Billion would emerge spread over the next 5-7 years?

The LPO is a well known concept and has been much written about. I would like to point out a specialized area for the LPO business revolving around services related to the CDS or Credit Default Swap.

The total value of CDS outstanding, world wide issued by banks, companies, hedge funds, HNI etc is to the tune of $ 62.2 Trillion, as per the Bank for International Settlement. The composition of the United States outstanding CDS contracts is about $ 15.5 trillion as of Q2, 2008. The Maturity value is as follows:

http://www.occ.treas.gov/ftp/release/2008-115a.pdf

Maturity Value of CDS by Aug 2009 is $ Trillion 0.93
Maturity Value of CDS by Aug 20014 is $ Trillion 10.075
Maturuty Value of CDS after Aug 2114 is $Trillion 4.495

Estimated Market size for KPO

Assuming that if 5% of that entire amount ends up in litigation (because of the nature of these financial instruments) we are talking of potential litigation of more than $ 750 Billion dollars spread over the next 5-7 years. All those law firms would need back end services to fight out their claims. Assuming nominal fees of 5% towards back-end research work etc, the market for this specialized research in the next 7 years would be in excess of $ 37.5 Billion.

What is a Credit Default Swap?

A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument goes into default or on the occurrence of a specified credit event occurs. The salient features of a CDS are:

It is a new financial instrument developed in 1997,

You need not own the credit instrument like the mortgage or loan, so in a way it is like a gamble for getting benefit on some event happening like a third company going into default or bankruptcy,

There is no centralized exchange or clearing house for CDS transactions; they are all done over the counter (OTC) and a CDS can be bought by anyone, including an individual Investor.

Why there could be extensive litigation over the CDS is because off the unregulated sales, and numerous failures and bankruptcies which have occurred. In the words of General Douglas McArthur “There is no security on this earth, there is only opportunity”

The $141 Billion eLearning Opportunity

“The foundation of every state is the education of its youth.” - Diogenes Laertius

President Obama certainly believes it, that is why he has budgeted $ 141 Billion for Education as part of the American Recovery and Reinvestment Act (ARRA) of 2009. Everyone will wonder where the $141 Billion eLearning opportunity came from!!! That was to get the eyeballs. The actual figure would be much lower, but considering that the total market for eLearning in the US was about $5 Billion in 2007, the opportunities are enormous.

The US economy is seeing radical change in employment opportunities or the lack of them. The stimulus package has been created with the avowed aim creating or preventing the loss of 3 million jobs. Since the availability of manpower would be lopsided in different verticals, retraining would be in great demand.

Why do I think that Learning and eLearning specifically could benefit greatly from this stimulus package? The above were the figures, the other details are below:

The Reasoning:

Training Need in Education : The school sector is in dire need for modernization and spend on capital purchases makes sense. Elearning would enable greater coverage, more consistently then manpower as enhanced manpower can not be consistently budgeted for. Rep. Harry Brooks, Chairman of the House Education Committee, has opined “school systems should not use the federal stimulus funding for personnel ….If you were to use the money for a staff person, that staff person goes away in two years or you have to find the money to continue it, which may not be possible.” Coupled with this is a Graying Teacher Population fuelling shortage of Manpower. As of Aug 2002, more than 60% teachers were above the age of 40, and it was projected that in about a decade more than 2 million teachers would need to be hired. There is already a shortage of teachers. ELearning would bridge the gap as a force multiplier. There would be potentially
Language Issues : As per the US Census, at http://www.census.gov/ there are more than 31 million US residents age 5 or older who speak Spanish, which is almost 1in 10 Americans, of whom only about half speak English well. Content available in 2 languages would enable greater coverage and cover a shortage of bilingual teachers.
Healthcare Training Needs: There is a shortage of trained manpower in the healthcare field and with more than $153 Billion in stimulus funding specifically targeted at Healthcare, the emphasis would be to retrain Unemployed American citizens to fill those opportunities
Information Technology : This saw the least job loss in 2008. With growing emphasis on modernization, including an additional $ 20 Billion in Healthcare IT, Internet and Broadband Infrastructure generally, and raft of new legislation in the Offing, coupled with resistance to programs such as the H1B, there would be a huge shortfall of skilled manpower.

Who Could Benefit:

1. Content Providers in the K-12 segment, IT, Healthcare and OSHA.
2. Content Providers with capability for multi-lingual support and / or Section 508 compliance capabilities.
3. Providers of small to mid level learning systems or LMS.

The Challenges:

For Schools the funds would be given to state and local bodies, so the marketing efforts would be greater. About half the funds would be distributed in the next forty days and the remaining would be given in six months, therefore the marketing burst would have to be really fast.

My desire to share this is to help organizations focus on the positives, and try to go beyond the negativity in the current economic situation. There will always be opportunities, as has been said by Brian Koslow,

“The freedom to move forward to new opportunities and to produce results comes from living in the present not the past”

Economic Outlook - Opportunities in the Crisis

When written in Chinese the word crisis is composed of two characters. One represents danger, and the other represents opportunity.

A lot of people would have been happy to see the end of 2008 and would have heralded the advent of 2009 with a bit of trepidation. It’s only human due to the bleak economic situation staring at everyone. I would like you to remember the words of Charles R. Swindoll

“We are all faced with a series of great opportunities brilliantly disguised as impossible situations.”

First the background for the US market. The IT industry employment was at 3,876,200 which were up 2.1 percent over the past year (Nov.2007 – Nov. 2008) as per the National Association of Computer Consultant Business.

http://www.naccb.org/employment-index/december2008_it_release.pdf

Of the 30 fastest growing employment opportunities in the US, 6 were in the IT related space such as Network and system admin, Systems analysts etc as per US Dept. of Labor. The complete list is available at

http://www.bls.gov/news.release/ooh.t01.htm

In a survey carried out for hiring prospects for 2009 , more than 60% felt it would be flat, while the remaining were equally divided amongst those who thought there would be gains and the others who felt that there would be losses.

President Elect Obama is scheduled to take over as President on the 20th of January 2009. To meet the vast economic challenges currently faced, he has plans to provide stimulus to the US economy to create employment to the tune of two million plus jobs. The initial figures being discussed are in the region of $ 700 Billion in federal spending. Information technology applications should stand to benefit immensely from this.

1. Engineering

The single largest new investment in national infrastructure since the creation of the federal highway system in the 1950s is planned in the US. For such development specialized engineering solutions would be desperately needed. These would be in areas of Computer Aided Design and GIS (Geographic Information Systems) to support infrastructure development. Visualization applications would greatly help in reducing costs.

2. Energy Consumption

This is a top priority of President Elect Obama, to reduce energy consumption in Federal establishments. Companies with experience in designing green buildings, renewable energy, can partner US companies.

3. School Education

“We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools”.

Those computers will require networking solutions, content for CAI, Content Management Solutions as education departments at the local level would use federal funds, but would have decision making abilities.

“It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the internet, every child should have the chance to get online, and they’ll get that chance when I’m President – because that’s how we’ll strengthen America’s competitiveness in the world”

There would be increased usage of online learning solutions. Since there is a shortage of trained teaching staff “Distance Tutoring”, Learning Management Solutions should find enhanced demand.

4. Library and Medical Services

“In addition to connecting our libraries and schools to the internet, we must also ensure that our hospitals are connected to each other through the internet.”

These functions would require increased digitization of content and other outsourced services.

Over and above President Elect Obama’s stated vision for the stimulus, would be enhanced development to fulfill new legislation which is bound to be introduced.

New Legislation in the BFSI segment would force companies to upgrade technology and redo programming, much as the Sarbanes Oxley act after financial Irregularities in 2002. Some of these changes would be on the lines of the Glass-Steagall Act (GSA) of 1933. This act demarcated the functioning of commercial banking and Investment banking. The GSA had been repealed by legislation called the Gramm-Leach-Bliley Act (GLBA) in 1999. The large number of mergers would necessitate seamless integration of technology platforms which would create newer job opportunities.

The above are just some of the opportunities which will be arising in the near future. I would like you to remember the following words of Orison Swett Marden

“Don't wait for extraordinary opportunities. Seize common occasions and make them great. Weak men wait for opportunities; strong men make them.”