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BW Businessworld

‘We Offer One-Stop Solutions’

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NTT Communications (NTT Com), a wholly-owned arm of Nippon Telegraph and Telephone Corporation, provides network management, security and solutions. The company operates around 160 data centres globally. In January 2012, NTT acquired India-based Netmagic for $128 million. Earlier, IT/ITeS and telecom companies used to be major customers for data centres, but the exploding e-commerce sector is now a big part of the company’s growth. Akira Arima, president and CEO, NTT Com was in India recently to inaugurate the company’s eighth data centre in Bangalore. He spoke to BW about the company’s global ambitions and the challenges of operating in India. He was joined by Sharad Sanghi, MD and CEO of Netmagic. Excerpts:

Despite being a large player, you are over-dependent on the Japanese market. Will the focus and investments shift to emerging markets like India?

Akira Arima (AA): Right now, 80 per cent of our revenues come from the Japanese market. But this will not grow further because of the shrinking population. So, we are focusing on markets outside Japan. We are significant players in North America and Europe, but we realise that they will also not grow fast enough. So, our focus is on emerging markets, especially in Asia-Pacific (A-PAC) areas like India, Singapore, Malaysia and Thailand.

You are in all three parts of the business — traditional hosting, managed services and the cloud. Which part is growing fastest?
AA: Obviously, the cloud (because of the lower base from which it started). In Japan, about 10 per cent of companies are using the cloud, but that will grow faster in future. India has been an early adopter and many companies are already using the cloud here... more than even other A-PAC regions.

Isn’t it also because Indian companies, being smaller, are ready to experiment more?
AA: I don’t think so…

How does your cloud offering differ from what Amazon, Google or Microsoft offer? AA: Not only do we offer cloud servers, we provide data centre co-location, network management, security, and the entire range of solutions, including cloud-based application services. We provide a one-stop IT service to the customer. NTT Data, a group company, offers application services.

Do you have a joint go-to-market strategy with it?
AA: Sometimes, we partner with NTT Data, but generally we collaborate with Accenture, IBM and Infosys for application services in India. There is no compulsion for the customer to use NTT Data for application services. We are happy to work with everybody.
‘In the cloud model, there is no capex, there is only opex, and you pay as you go’ Sharad Sanghi MD and CEO, Netmagic
The Indian data centre market is estimated at $1.2 billion. You have retained the Netmagic brand here. Has Netmagic benefited because of NTT Com’s global relationships?
Sharad Sanghi (SS): Whether it is a Gartner or an International Data Corporation (IDC) estimate, the Indian market is in the same ball park range as you mentioned. Netmagic is not only addressing the Indian market, thanks to NTT Com, it is also offering services like remote infrastructure management (RIM) to NTT Data centres and NTT customers across the world. So, globally, we compete with HCL Infosystems, Wipro and TCS.

Running data centres is a capex-intensive business, where investments go in upfront and returns come later. With eight data centres, what are the challenges of operating in India?

SS: Yes, it is capital-intensive upfront while returns come over time. We set up our data centres in a phased manner, so that we do not have to use our entire capex upfront, and we actually grow along with the customer. Power availability is a big challenge, and another can be the government interference on providing an effective cloud policy. Talks are on. Hopefully, the policy will allow service providers to self-regulate, and will also protect national security. But, that challenge has not yet come.

In India, have small and medium businesses taken to the cloud more quickly?
SS: In the cloud model, there is no capex, there is only operational expenditure (opex), and you pay as you go. That is the essence of the cloud. That is something we have done with multiple small and medium businesses.

Netmagic in India competes with the likes of CtrlS, Reliance Communications, Tata Tele, Sify and others. Globally, NTT Com is known as a top-notch and premium service provider. What is the strategy in a price-sensitive market like India?
SS: The pricing that we offer in India is very competitive. On the cloud, NTT Com has two offerings: one is a premium offering and the other is a service called Cloud N, which is for the kind of market you just mentioned. Our pricing is more on the lines of other global service providers in India like Amazon or some of the Indian players mentioned. I think, our capabilities are far superior in terms of depth of service provided. There are only a few global players who have a range of services similar to what NTT-Netmagic has. Most Indian players only scratch the surface. Whether it is Amazon or NTT, there is a significant research and development (R&D) budget which focuses on product innovation. We have created product offerings that are unique. We brought 10-15 services to India which are the first of their kind — tiered storage, for example. And this was possible only because we invested in innovation, R&D and technology. This sets us apart from the other players in India.

In the past few weeks, a fierce price war has broken out between Google, Amazon and Microsoft over cloud services. Since the data centre market is a commodity business, price is key. How does NTT Com compete with others?

AA: We are not focused on price competition; we are more focused on other scenarios — like providing value through ‘one-stop solutions’. Also, we have the capacity of customising to suit a user’s needs, unlike our competitors.

SS: What NTT-Netmagic offers is more enterprise-grade, mission-critical, high-uptime and high-service-level solutions; basically, it is a one-stop shop. It is purely an enterprise-based service that comes with the requisite support.

In India, the e-commerce vertical is doing well. But globally, telcos, banking, financial services and insurance (BFSI) are the segments that are still growing and contributing to NTT Com’s revenues...
SS: While e-commerce is a large segment for us, BFSI is our number one vertical. IT and IT-enabled services, the partnerships that we have with Accenture, Cognizant, Infosys and IBM, contribute to a significant portion of revenues.

Wherever Toyota, Honda and Suzuki go, you automatically follow?
AA: Our biggest contribution comes from the manufacturing sector, mostly Japanese multinational companies. Wherever they go, depending on the market, NTT follows.

For large enterprises, does a captive data centre make sense as compared to opting for a service provider like NTT Com or anybody else in the market?

SS: If you look at it purely from a co-location perspective, one can argue that when it’s a very large requirement, captive may be a better option from the perspective of economies of a scale. But when you look at it from the point of the client’s core focus and from managing infrastructure services, then outsourcing makes a lot of sense. If it’s a large IT company, whose core focus is IT, then captive makes sense. Google, Microsoft and Amazon started out hosting with someone else, but given their scale and requirements, they soon got their own data centres. But for manufacturing companies, the core focus is not IT. So you have to look at it in a holistic fashion. It could be a hybrid, they could outsource everything, or build their data centres and outsource the management. AA: In Japan, many financial institutions have own data centres. But they began to switch to our data centres because it was more economical. Commercially, we could explain to them the cost benefits of outsourcing over running their own data centres. Besides, the management hassles of a data centre like recruitment of manpower could be avoided.

Apart from remote infrastructure management, where you have an edge, what else are you leveraging in India?
AA: In the field of systems management services, we need Netmagic’s talent for the next global seamless cloud. We currently have an enterprise cloud; the next version of the enterprise cloud will have a lot of inputs from Netmagic. Remote infrastructure management, software development and product innovation are the other areas where Netmagic is contributing.

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(This story was published in BW | Businessworld Issue Dated 11-08-2014)