The Russian market is driven by two primary trends: its population and the ability to do business.
With 146.7 million people as of H1 2019, Russia doesn’t offer the world’s largest market, but it is a captive one. The median age is 39.6 years, with a predominantly younger generation that is open to new technologies and, in 2018, 81% of the total population was online.
On the second point, things are a little more complex.
“It is very difficult for European and American companies to assess how to do business based on the geopolitical climate and the environment around investment in Russia,” says Caroline Puygrenier, director strategy and business development connectivity at Interxion (pictured below).
“When you consider Russia as a business market you need to do a lot of background work either in terms of local knowledge you can trust or finding ways to do business with Russia without being present in Russia,” she adds.
Recently the list of essential business knowledge expanded to include Russia’s data localisation law. Originally introduced in 2015, it wasn’t until December 2019 that a financial penalty was attached to and now it carries very expensive consequences for both legal entities and responsible managers, its contents are the industry’s new handbook.
Not dissimilar to laws enacted across Europe and the US, Puygrenier says Interxion is examining five specific impacts, determining both the potential scenarios and their solutions.
"One impact we are looking at is what it means for all the parties that want to access this data. Do they need to create an environment that would be local in Russia or can there be some agreement with some locations such as Europe or places that border Russia, to exchange some of that data?
“With what we know so far, I think the law will impact all the content providers as well as the connectivity providers. The content providers will potentially have to work out how they are going to generate that data by being present in the local market, if they are not already. For the connectivity providers it means potentially having to strengthen or increase their location or their presence in Russia, or going into Russia, and therefore some potentially new projects coming too,” she adds.
Data growth
Most in the industry are familiar with the IDC’s prediction that there will be 175 zettabytes of data in the world by 2025 –quite what that means for data storage has yet to be fully figured out. What is known is that the data centre will have to undergo a rapid and radical evolution.
Add to this the requirement that most territories have now legislated the localisation of data held on their citizens, and the decision of how to find a suitable data centre location becomes quite complex.
However, thanks to its unique geography ticking all boxes in Russia isn’t that difficult.
Puygrenier’s first criteria is for the data centre to be near a population centre and while Russia has St Petersburg and Moscow not too far from its regional and European borders, on the East side it has locations that also border Asia – another critical market. She also advises considering the content of the data – that which isn’t latency-sensitive can be located further away from population centres and end users, providing there is some connectivity.
Secondly, assess the connectivity: Where do the major international/ local backbone/ cyber provider/mobile operators meet and where do they have the capability to receive the traffic and send it to the end user?
“I would say for any project or plan to implement new data centres, or what you would call data residences, in Russia you definitely need to investigate where the connectivity lands to make it freely accessible between inbound and outbound,” Puygrenier says.
“This is something that applies not specifically to Russia but the rest of the world, too and when you look at data centre locations to distribute the traffic that’s critical criteria.
“If you look at Russia, there are some very specific Russian networks and all the maps are available on the websites of the connectivity providers. There are also a lot of existing connectivity providers that do trans-Russia capacity and border places like Kazakhstan, and there are quite a few projects in the pipeline too,” she adds.
The moving Edge
The final piece of the puzzle is one that, although in part defined by its location, has moved several times in recent years.
The bulk of Edge computing currently takes place in tier one cities, many of which happen to be major capitals, with large population centres and strong GDP growth. But, Puygrenier says this trend will swing over coming years in the name of latency and, as always, user experience. As a result, data centres will sit closer to the end user as a necessary means to deliver 5G and other future technologies.
“The way the market is evolving and the way the architectures are evolving such as gaming, such as things like autonomous vehicles, e-health and remote surgery, they will require much lower latency and much faster access between the two end users, which means that to access the information necessary you will have to get the Edge closer to the end user,” she says.
As the adjustment occurs, tier two cities will likely see an influx of data centre developments. However, what is constructed may not necessarily reflect the data centre as we know it today.
“If you look at the data centre market today you will see for example, that in Europe, Asia and a little in Russia too, you have data centres that are routinely 10,000 sqm. They are fairly large data halls with a high density of power, high connectivity, all the equipment that goes with it.
“For Edge computing and for the applications going closer to the end users, we are now looking – and the US is at the forefront of this technology – at potentially much smaller data centres, of 100 to 500 sqm. They would be far less demanding in terms of power compared to the large data centres, and they would be located in the next tier cities, which are much more regionalised,” she says.
The developments don’t stop there.
“In the future, in the US, Europe, Asia and Russia, we see Edge computing getting much closer to the end user and therefore residing either in the network of the connectivity providers to be able to get the traffic again closer to the end user, or in what we would call micro data centres,” she adds.
New markets
The business potential of a market of Russia’s size may sound tempting, but as Puygrenier cautioned, it isn’t without its challenges.
“The Russian market is so specific and difficult to grasp. If you are not local, I would recommend for any party looking for implementation in the market to definitely use some local knowledge so as not having to second guess what local laws are. That is something we have seen to have a major positive impact for those working in and with Russia,” she reports.
From the connectivity providers to global advisory firms and local authorities on the ground, the sources of such trustworthy insight are numerous and many of the larger carrier brands are also present in the European market, making them easily accessible.
Puygrenier advises that research should focus on regulations – specifically around traffic content and internet traffic – working with international networks and, crucially, what data can and cannot leave Russia.
However, Puygrenier’s primary focus for now is the sheer growth in traffic that is around the corner. As M&A activity continues to reshape the global industry – vertically integrating content generation with service and last mile delivery at ever greater frequency – collaboration between all players at each point of the chain will become paramount.
To tackle the required infrastructure development and planning approval, that is likely to soon include urban planners and local authorities.
As Puygrenier’s says: “There is a lot of cooperation between different authorities that will be required – government, regulators, private sector – they all need to work closely together in the near future to deliver and improve the traffic and the end user experience. That is what a lot of business will be judged on and that is how the success of gaming and other content for example will be judged: on customer experience and how well that is delivered to the end user.”
