Get in touch
Get in touch

Please enter a few details

I agree to the terms and conditions


Hyper-Cloud: a new Russian Revolution?

The recent success of the FIFA World Cup may bring back memories of Fifa Young Player Award winner Kylian Mbappe slotting home France’s fourth goal in the final. Yet with the cost to host the tournament estimated at $14 billion – the most expensive football competition in history – it has raised the question of what’s next for Russia?

With nearly $1.3 trillion in GDP, the country is becoming an ICT force on the planet, armed with over 80 million internet users and speeds close to 100mbs into Moscow. Furthermore, by 2025 every Russian is expected to possess three connected devices.

Figures from SSC suggests that the data centre market is forecast to accelerate with a compound annual growth rate (CAGR) of 3.7% up until 2021, driving the industry to a value of $4.6 billion.

With the rise of the new digital Silk Road, Russia and its capital city Moscow are firmly rooted as a connectivity pitstop between Asia and Europe.

Expanding Moscow One

Earlier this year IXcellerate announced the opening of its third expansion to its Moscow One data centre campus, touted as the largest data hall in Russia. Designed to house 1100 racks within a single, undivided space of 2500 square meters, investment into the new module surpassed $20 million.

Following an approval for campus development within the current site, the Moscow One data centre can be increased up to 16,000 square meters with a capacity to house an additional 5000 client racks. The DC has been certified fully compliant with IBM Level 3 reliability, ensuring 99.999% service level agreements (SLA) to its customers.

IXcellerate CEO Guy Willner believes hyper-cloud is the next logical step in Russian data centre market evolution.

“There was no hyper-cloud until 2018 in Russia. So imagine even some smaller countries now in terms of population, like Canada or Australia, are getting hyper-cloud. Then you look at Russia which doesn’t have hyper-cloud – there’s a massive explosion going to happen. So far, it’s been restricted by the lack of access to capital, partly as a result of the sanctions, which has caused nervousness in the investment community. However, the first cloud players are moving in now and we’re going to see pressure grow for supply of more datacentre capacity.”

Internet speeds

Data protection

While the EU got to grips with GDPR over the Spring and Summer, with its citizens ironically being inundated with multiple emails in the run up to the deadline, in Russia the talk of the town was very much on its own Yarovaya Law, signed by President Putin back in 2016.

From July, telecom operators were ordered to keep media logs of all users for 30 days. Reports suggested that compliance costs for three of the country’s biggest telecoms companies (MTS, MegaFon and VimpelCom), could run to a total of 100 billion roubles ($1.8 billion) in 2018 alone.

On top of Yarovaya, Russia has enacted its own version of GDPR, the Information Law Amendment FZ242, which sets similar data sovereignty constraints on companies operating in the Russian market: any personal data harvested must be hosted on servers within the Russian Federation. Companies such as Thomson Reuters, Apple, Microsoft and have been mentioned in the Russian press as examples of international companies which have taken steps to become compliant.

Willner says this change is good for business in Russia.

“There are two main reasons why existing data centre capacity is moving back to Russia. Number one is the Russian GDPR. And the second is the fallout from the rouble crash (directly linked to the oil price crash) a few years back. And so, as an Internet player in Russia, if you’ve got stuff offshore, it’s now costing you twice the price in rouble terms. You just can’t afford to use a Swedish hosting provider, or a datacentre in Germany, because your revenues are in roubles whereas in Sweden or Germany, you’re being charged in Euros.”


From Vostok with love

To put Russia’s data centre shortfall, or the size of the untapped market into perspective, across the whole of the Russian Federation there is less commercial data centre capacity than in Luxembourg, says Willner. As a quick comparison, Luxembourg is just over 2,500 km2 with a population just over half a million. Russia, in stark contrast, is 17.1 million km2 with a population exceeding 144 million.

“If you multiply data centre capacity in Russia by about 20, you’ll be getting close to the average across Europe so there’s a way to go” adds the IXcellerate CEO. “On top of that there are 19 cities with over a million population, spread across almost a dozen time zones. When it comes to it, with such a vast land, delivering Internet content to Vostok from Moscow, which might well have come from Tokyo just around the corner, is kind of illogical. So I think in the medium term, we’ll see data centres right the way across Russia.”

Concluding, Willner, who has over 20 years’ experience in the data centre industry, believes there is a great potential in Russia for the hyper-cloud but is frustrated with the investment community focusing their efforts on large scale data centre facilities across mainland Europe.

“The sad fact that we have is that every day, there is a new data centre popping up in Germany, France, UK, Netherlands, US, Canada, Australia,” he says. “Everybody is pounding these markets to death at the moment, with data centre and megawatts, because the money is easy, because the investors think, “Oh, it’s just data centre. I’m going to make a great return.” And the dirty little secret is a lot of these investors are not making any return at all, because they’re a bit naive and they may be very property focused, and they don’t have much experience in the market.”

Willner adds: “And so it’s a bit like the hotel industry. It’s kind of the second or the third owner who actually makes the money, because they bought the asset at a discount. So that’s what’s happening in the western markets where money is cheap, and interest rates are 3%. It’s admittedly harder to build out projects in newer untapped markets such as Russia but with higher risk comes higher reward.”