Volume XXV, Issue 93 |

Public cloud platforms and services in SEA: unwavering growth and potential

The Southeast Asia (SEA) region has seen a recent, rapid growth in the number of organisations moving to public cloud platforms as they modernise and digitise their businesses.

This trend received a huge boost through the COVID-19 pandemic, which acted as a catalyst around the world to push organisations to shift their business activities to digital, cloud-based applications.

Typically, these have been provided by global, hyperscale vendors such as AWS, Microsoft and Google Cloud, and within SEA by Ali Baba and Huawei (who have found the region an easier market to penetrate, given the restrictions on their operations in other parts of the world). All these vendors have taken advantage of the increased spend on public cloud computing in SEA countries like Singapore and Indonesia since the start of 2020, as shown in Figure 1.

But another factor is also at play in the SEA market: the growing need for regionally based, scalable infrastructure to handle this shift to the cloud and service this rising number of internet and cloud-services users in SEA countries.

These factors make SEA cloud services a particularly dynamic space. Additionally, as organisations in SEA increasingly migrate to the cloud, they are drawn to regional CSPs who appear poised to take a position as providers of choice in the region.

Who is leading the pack in cloud-based activity across the SEA region?

SEA nations are at different levels of cloud adoption, depending on a range of social, economic and political factors, some of which are outlined in Figure 2.

At the forefront of this is Singapore, which is deeply committed to cloud computing and technology generally. Malaysia, Indonesia and Thailand are close runners-up and hugely enthusiastic about the transformational potential offered by cloud computing.

All these countries have fast-growing digital economies, with governments that support digitisation and infrastructure that encourages rapid digital start-ups. Indonesia in particular has seen a rapid rise in the number of regional tech ‘unicorns’, fuelled by that country’s commitment to growing its technology base.

Conversely, the Philippines and Vietnam are in more nascent stages of their cloud journeys. Although they are grappling with various infrastructure and regulatory challenges, their untapped digital markets provide huge opportunities for CSPs to expand and grow their operations in those countries.

Going back a step: how cloud service providers give their customers an edge

Organisations looking to move their operations to the cloud typically face a six-stage process that can span seven or more years to scope, implement and take to full operational effectiveness.

Figure 3 outlines a typical cloud journey. It starts with an organisation developing its business case and strategy for cloud migration and use, before assembling the internal resources and scoping the project and individual tasks. As an organisation moves to the cloud and develops the necessary infrastructure and applications to support this, it also needs to implement effective data security and governance processes, while optimising its cloud performance and making good analytical use of the wealth of data gained through the entire process.  

When they embark on their journey to the cloud, organisations have three paths to choose from in making this move a success. They can rely on their own in-house IT teams to shift them to the cloud, or they can deal directly with cloud vendors, or they can choose to use third parties (CSPs)—either the global hyperscalers or regionally based providers.

Whether global or regional, CSPs can provide customers with a range of services across the various stages of a cloud journey. Typically, they are engaged in the early stages to help their customer with assessing its operating environment and cloud-related ‘needs’ before working with them on the remaining stages of the cloud journey.

In the process, CSPs assist clients in achieving peak cloud performance, ensuring their cloud operations and apps are optimised, and facilitating the extraction of actionable insights from available data, enabling businesses to maintain a competitive edge in this evolving digital landscape.

What does the competitive landscape look like for cloud services?

There are four main types of cloud service providers: GSIs (global system integrators), large consulting firms, general IT CSPs (who typically provide a broad set of IT outsourcing services) and a long tail of small to mid-market regional CSPs (e.g. Cloud Ace, Rhipe, Fixer, CloudMethod, GoPomelo and CloudComrade).

As Figure 4 shows, SEA customers in this increasingly complex market are moving more towards using regional CSPs, thanks in part to their deep local expertise, highly personalised approach and ability to be responsive and nimble. These regional CSPs are also closer to their customers and their needs, enabling them to deliver more tailored solutions and a heightened level of customer service. 

Although they offer a narrower range of services than their larger global competitors, regional CSPs are frequently experts in niche areas such as next-generation cloud platforms and can deliver specialised solutions in highly technical cloud deployment projects. They also offer a much more cost-effective option than global GSIs, providing skills and resources that deliver quality solutions without a premium price tag.

Partners as well as competitors?

GSIs often partner with regional CSPs to leverage their deep technical expertise. As shown in Figure 5, GSIs will often take the lead contractor role on these projects and then sub- contract niche workflows to the regional CSPs.

This is common in situations where the larger GSIs might not have a specific expertise or capability, or where it makes better economic sense to outsource the work to the regional firm to improve the margins or cost efficiencies on a particular project. Regional CSPs also tend to offer more depth and expertise in next-generation, cloud-native platform services, as opposed to the GSIs that focus on more traditional legacy platforms.

The result is frequently a win-win for both the specialist CSPs and their larger competitors. The specialist CSPs receive regular, high-value projects from the larger GSIs, while enabling the GSIs to broaden their service offering to customers. The specialist regional CSPs might have to reduce their margins as sub-contractors, but as the market evolves and matures, the customer base typically engages directly with the CSP for future cloud projects.

How to pick the winners amongst CSPs in the SEA region

Picking the right CSP businesses as investment opportunities can be a challenge. The answer is to look at how they perform against several measures: the breadth and depth of services they offer, the pace of their employee growth and the service accolades they receive from industry leaders like AWS, Google Cloud and Microsoft Azure.

Regional CSPs in SEA can be further categorised around what they offer—i.e. as specialists in a particular service area or providers of holistic end-to-end solutions—and how many people they employ.

Initially, they tend to focus on a narrower set of cloud specialties, such as cloud set-up and data migration, winning customers through their profound technical expertise or competitive pricing. 

However, as they continue to grow, they also target more extensive enterprise projects that need multiple specialties, requiring them to hire additional employees with those extra skills. As seen in Figure 6, regional CSPs that offer a wider array of cloud service specialisations usually boast a more substantial company headcount.

End to end solutions—but across one preferred platform

The winners at this point are the SEA CSPs that can provide comprehensive end-to-end service offerings, outpacing peers that focus on delivering ‘upstream’ services such as cloud strategy and platform setup.

These end-to-end providers of cloud and data solutions are taking advantage of the growing market shift towards a seamless cloud customer journey. This involves providing advice and services that start with advising customers on their initial strategy as they begin their cloud journey, through to ensuring their cloud-based operations are fully optimised for efficiency and effectiveness.

To improve on this even further, leading regional CSPs typically commit to a single cloud platform that their teams can be experts in, rather than diluting their strengths across multiple cloud environments. This ‘single cloud’ expertise summarised in Figure 7 is key to a CSP’s market growth: their customers are happy for them to concentrate their expertise in a single platform rather than stretch too thinly across multiple platform options.

The future is positive, although volatile

The growth in local CSPs across SEA will continue to gather pace, as cloud computing—and its supportive technological and social infrastructures—increase their penetration in the region.

Regional CSPs that provide the right combination of end-to-end services with specialised abilities will be best placed to take advantage of these opportunities. But they will need to remain competitive in a dynamic market, against competitors big and small, regional and global. They and their investors will need to be ready to move fast to continue as leaders, in a region with huge potential, but also with much volatility. They will likewise need advice from business consultants who know and understand the local market and the dynamics behind succeeding as a CSP in the region.

L.E.K. acknowledges the contributions of Pei Guan Oon, Associate Consultant, and Jocelyn Hiranyajinda, Associate, in the analysis and writing of this Executive Insights.

L.E.K. Consulting is a registered trademark of L.E.K. Consulting. All other products and brands mentioned in this document are properties of their respective owners. © 2023 L.E.K. Consulting

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