Amazon Web Services says it will build a Region in New Zealand
. AWS plans to start operating local cloud data centres by 2024.
An official press release telling us about this runs to more than 3200 words. It’s long, wordy, poorly written and hard
Despite the torrent of words, it is light on details.
MysteryIt doesn't answer key questions.
Such as: "Where will Amazon locate its promised data centres?"
That’s not mentioned anywhere in the 3200 plus words.
It’s an important question. New Zealand is on a fault line. That has implications.
Our biggest city, Auckland, is closest to the submarine cables piping in data from around the world. That's handy. Yet
because it sits on an active volcanic field it may not be the best site for a $7.5 billion investment.
Auckland has a large workforce, although the construction skills needed to build a data centre are in short supply. Does
Amazon propose to bring that expertise in?
ElectricityThere’s an undersupply of electricity in the Auckland region. In winter Huntly's dirty old coal-based power plant kicks
in to top up the power supply.
Will AWS be using that power?
Meanwhile, at the other end of the country there is, or soon will be, an oversupply of low cost, clean, green power. Is
that in the plan? It should be.
New Zealand’s south has a cool climate. Cooling is a major operational cost for data centres. Locating in a cooler
climate not only reduces costs, it smartens up green credentials, an important part of any cloud marketing programme.
Data transitIf Amazon locates in or around Auckland, it won’t have to pay much in the way of transit charges for data travelling up
and down the nation's backbone.
Nor will it pay for the cost of bringing in the power needed to run a hyper-scale data centre.
New Zealanders subsidise moving power around the country. There is a limit to how much of that is possible without
network upgrades. Who pays for that?
AWS' numbers look as they have been polished up for maximum press release impact.
From the press release:
AWS released an economic impact study (EIS) that estimates it will create 1,000 new jobs through investment of NZ$7.5
billion (US$5.3 billion) in the new AWS Asia Pacific (Auckland) Region with an estimated economic impact on New
Zealand’s GDP of NZ$10.8 billion (US$7.7 billion) over the next 15 years.
Jobs for who?We can assume many of the 1000 jobs will be temporary roles for people building the data centres. It’s rare for a giant
data centre to employ more than a handful of people and that includes security guards.
Once the ball is rolling there won't be many data centre jobs. There could be development work piggybacking off the data
centre. AWS doesn't say. Nor does it say where the people to fill those roles will come from.
Amazon doesn’t tell us enough about its plans for any sensible analysis of its $7.5 billion investment claim.
We know AWS is a worldwide hyper scale cloud business. Any comparison with Spark is always going to look odd. Yet, Spark
operates New Zealand’s largest existing data centre at Takanini. That makes it the closest we have to a benchmark.
Spark's original project cost $60 million. Subsequent expansion means that price will be a lot higher. It won’t be
anywhere near $7.5 billion. It won’t be one tenth of that amount.
Market shareIDC Research says Spark and Datacom have a 43 percent share of New Zealand’s Infrastructure as a Service market. Amazon
has a 23 percent market share. Microsoft is a touch behind on 19 percent. In other words, the four are all roughly the
As a rule, the large, hyper scale cloud providers AWS and Microsoft Azure
take 70 to 80 percent market share in any territory.
Their lateness to build here is one reason they have less share at the moment. The lure of winning that additional
market share could be part of the reason both Microsoft
and AWS have made big New Zealand cloud announcements in recent months.
Sure, there is more to cloud than IaaS. Yes, the market is expanding fast. Yes, Amazon is hyper scale. Does it need to
spend 20 or 50 times as much as Spark?
DatagridDatagrid is a $700 million project to build what may still be New Zealand’s first hyper-scale data centre. The business
is headed by Remi Galasso
and Callplus founder Malcolm Dick
The pair know a thing or two: they got the Hawaiki cable off the ground.
Datagrid has chosen a Southland site.
Interestingly, Amazon has invested in Hawaiki. It’s likely the Datagrid team has talked to AWS about potential
Part of Datagrid’s plan is to build a new submarine cable connecting Invercargill to Australia. There will also be a
domestic submarine cable linking the site to major New Zealand cities.
Will Amazon build a similar cable to distribute its data?
ScaleAt first Datagrid will be a 60 megawatt, 25,000 square metre data centre. Over time it will grow to 100 megawatts and
40,000 square metres. That’s a lot of data centre.
Assuming data centre costs scale better than linearly and Amazon can call on its worldwide economies of scale, its
project will build more than ten times Datagrid's capacity.
Which brings us to another question. How big is New Zealand’s cloud market?
That figure doesn’t square with AWS’s $7.5 billion build budget over 15 years unless AWS anticipates the market
continuing to grow at a fast rate.
Assuming AWS doesn’t capture the entire market and intends its New Zealand operation to be profitable, either the local
market would need to grow at about 40 percent a year for the next decade or the company expects to host a huge amount of
international business here.
UnknownsThere are plenty of unknowns. Too many unknowns to make a careful analysis of AWS’s plans. Yet there are four possible
conclusions one could make about the $7.5 billion announcement.
The first is the most cynical: that it is pure public relations hype.
Mentioning a big enough number and promising lots of jobs is a sure fire way of seeing off any resistance and buying-in
political good will. AWS can rest assured no-one is going to look back in 15 years to check it spent $7.5 billion.
Big technology companies like AWS have plenty of form when it comes to talking things up.
EfficientA second conclusion, is that Amazon throws money around like water and is hugely inefficient. It overpays for
This is implausible. It doesn’t square with anything we know about Amazon which is famous for trimming costs to the
bone. Operational efficiency is key to making money from the cloud.
The third possibility is that AWS expects to scythe through the local cloud market. It has done this before. It’s
possible, but wise cloud customers are wary of dealing with a single international ecosystem. Many will seek alternative
service providers as a back-up.
That’s going to limit AWS’ potential market share. And even 100 percent share of a $730 million market doesn't justify
spending $7.5 billion even with heroic growth rates.
A more likely story is that AWS has bigger plans for New Zealand that serving local markets. It has hinted at this
without explicitly saying anything. New Zealand gives, say, Australian AWS users a viable alternative location with, if
not always similar, at least readily understood local conditions.
One last point. Until now, the big global cloud companies stayed away from New Zealand
. They didn’t like it when there was only one submarine cable network. They didn’t like what they saw as a hostile and monopolistic telecommunications market
. It took ten years of industry reform.
As far as technology is concerned, no-one thinks of us as a smug hermit kingdom.
A speculating person might wonder if Datagrid will become part of AWS.
Unpicking AWS' New Zealand numbers
was first posted at billbennett.co.nz.