Microsoft Taps into India’s Booming Cloud Market

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By Benedict Lynn

Last week, Microsoft announced that it will be investing over US$200 million in cloud computing infrastructure in three Indian cities. New data centers will be set up in Mumbai, Pune and Chennai, as the technology giant seeks to boost its competitiveness by tapping into one of the world’s fastest growing cloud markets.

It is easy to see why Microsoft has made this move. According to IT research firm IDC, the Indian cloud market is expected to be worth US$3.5 billion by 2016; up from US$688 million in 2012. In the past year alone, the number of small businesses in India using cloud hosting service Google Apps has jumped by 70 percent.

India is also the world’s fastest growing smartphone market. There are some 250 million smartphone users among India’s billion-strong young and tech-savvy consumer base; a number that’s fast rising with the influx of affordable handset manufacturers. The Indian e-commerce market is also booming, with its US$16 billion value in 2013 a staggering 88 percent higher than the previous year.

RELATED: Enterprises Adopt Cloud Computing to Boost Business Efficiency in Asia

Whether generated by online transactions or insurance records, increasingly connected India has a vast and growing amount of data that needs to be managed. Microsoft has seen its cloud services revenue there grow by over 100 percent in the past year, but has been limited by government pressure on organizations to maintain data sovereignty by storing locally.

The banking and telecom industries in particular have been under pressure to store data locally, and have long bemoaned the absence of any on-the-ground infrastructure from trustworthy major IT multinationals. As such, they will now likely be flocking to sign up as clients to Microsoft’s familiar cloud service.

India’s small businesses stand to benefit hugely from cloud computing, and with only one percent of them currently online, they offer an excitingly unsaturated market.

“Historically, small companies had poor tech choices,” Ricky Kapur, managing director of Google Enterprise Asia, told CNBC. “They could either use expensive software designed for large companies or inexpensive software lacking functionality. Today, cloud is leveling the playing field.”

RELATED: India set to Experience Surge in Low-Cost Smartphone Market

The public sector also presents plenty of opportunities. The Indian government has long been keen to leverage cloud technology for its ambitious e-governance initiative. In February it launched its MeghRaj project to “utilize and harness the benefits of cloud computing” for its multi-billion dollar mission-mode projects, which cover various aspects of e-governance.

Microsoft is not the only major foreign multinational to express an interest in India’s nascent cloud market. Among others, IBM and Oracle have both made investments and in September Jeff Bezos, CEO and founder of Amazon – the world’s biggest cloud infrastructure provider – visited the country.

It is the increased attention of these major household names that is fanning the flames of demand for cloud services in India. The nature of the technology means that clients’ data can be managed using less manpower, which means home-grown software and outsourcing companies are having to alter their business models. Rather than trying to compete with their western counterparts and create their own clouds, major Indian players like Infosys, Tata Consultancy Services and Wipro are securing contracts from organizations to facilitate their shift to the cloud.

RELATED: Is India’s E-Commerce Industry Too Regulated for Foreign Investment?

“They are playing to their strengths, which is services,” Arup Roy, research director at IT research and advisory firm Gartner, told Forbes India. “Even in the cloud, they are in the services [area], specifically focused on services brokerage.”

Gartner forecasts the Indian cloud-based services market to reach US$557 million this year, and more than triple that by 2018.

The world is evolving and so is the face of business in India. Prime Minister Narendra Modi, himself a vocal champion of a “free and open” internet, has been pushing his US$17 billion “Digital India” initiative that aims to turn the country into a connected knowledge economy. It was these investments into improving India’s infrastructure that caught the attention of foreign software giants like Microsoft, whose CEO Satya Nadella sees a “US$2 trillion opportunity” in the country’s burgeoning cloud market.

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