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When the cloud comes to Aotearoa

12 June 2020 - By Damian Funnell

Microsoft plans an Azure Data Centre in New Zealand... Will others follow?

Despite all of the bad news resulting from COVID-19 and the effects of the lockdowns, social distancing measures, travel restrictions, etc, there have been some notable positives, particularly in the technology industry, where COVID-19 has – both directly and indirectly – driven significant creativity, innovation and investment.

In law we saw the mass adoption of technologies that everyone else was already using. The courts started accepting submissions via email (one of our customers said he was actually starting to miss the ritual of sprinting down to the courthouse to submit before the deadline), everyone started working from home and videoconferencing suddenly became mainstream.

A lot of us used the extra time that losing our social lives gave us to better ourselves or to create something new. I and a bunch of associates decided to write a new smartphone app (“roastr”) for cafes – something we simply wouldn’t have had the time for if we hadn’t been under house arrest along with the rest of the country.

Impressive work by ‘the cloud’

As well as forcing us all to work from home, COVID-19 also forced most of us onto the cloud. And what an impressive job ‘the cloud’ did in responding to this unprecedented shift in our behaviour.

The Cloud

Millions flocked to cloud-based apps such as Zoom, Teams, Google G Suite and, of course, the entertainment and social media apps that helped keep us entertained and in touch with each other. Many of these apps saw their utilisation go through the roof, yet there were very few reported instances of high-profile collaboration or social media apps struggling (or crashing) as a result.

US firm Flexera reported that 57% of businesses surveyed reported their cloud usage had increased as a result of COVID-19 and I think this is conservative, as it primarily reflects the shift of ‘back office’ systems to the cloud and ignores changes in user behaviour.

This is great news for the Amazons and Microsofts of the world. The cloud hosting industry was already growing rapidly before COVID-19 and it was forecast to keep doing so for the foreseeable future. COVID-19 lit the afterburners on that growth.

It’s unclear how much this contributed to the timing of their decision, but in early May, after years of rumours and speculation, Microsoft announced that they were building a new Azure data centre (or ‘region’) in Auckland.

Here come the behemoths

This is huge news for the land of the long white cloud as it will mark the first entry of the cloud behemoths into our little corner of the world.

We have a number of local cloud infrastructure service providers, such as Datacom and Spark, but they’re infinitesimally small compared to global industry leaders such as Amazon AWS and Microsoft Azure, with 42% and 29% of the ~$120 billion global market accordingly (source: Cloud Security Alliance 2020 report).

The industry leaders, especially Amazon and Microsoft, are in a pitched battle for market share and the scale of their resources, technology and expertise is simply unmatchable by local operators. According to Zdnet, AWS has an estimated 1.3 million servers worldwide and Azure has 1 million – numbers that are increasing rapidly. Both provide advanced features, such as data analytics and artificial intelligence tools, in addition to the server and storage hosting services that they’re known for.

There’s just no comparing local cloud hosting providers with these behemoths. Unfortunately local cloud providers can’t provide anything even close to the functionality, ease of use and value of AWS or Azure. For many businesses (including mine) this means that we currently host most apps and services overseas where the big players have data centres (most of our apps are hosted within AWS data centres in Sydney).

Part of Microsoft’s strategy to take on Amazon is to build more Azure data centres (regions) than their much larger competitor and to put them closer to customers. As at time of writing Microsoft Azure has 58 regions around the world, including four in Australia, while Amazon AWS has 25 (one in Australia).

This is a good idea too. In my experience AWS provides a superior product to Azure. AWS is simply cheaper and better than Azure by any measure I can think of. The variety and quality of services that AWS provides is simply astonishing and they’re releasing innovative new products all the time.

But we certainly will use the local Azure region when it comes online (for some customers at least) for the sole reason that it’s in New Zealand. Customer data will be subject to local privacy and data protection laws and we won’t have to worry about potential disruption if international communications links are broken.

Some likely impacts

Performance will also be significantly improved due to the lower latency of local fibre optic networks as compared to international links.

Azure Auckland is likely to be one of the most expensive regions in the world to use (if not the most expensive), as cloud providers charge for resources based on their underlying cost structures and the local Azure region will lack scale. Microsoft is also unlikely to roll out all of the advanced Azure services that they offer in larger countries for the same reason.

Despite all of this, the local Azure region is likely to provide a far superior yet less expensive service to anything else on the domestic market.

It will be of particular interest to the public sector, where data sovereignty and privacy issues (related to hosting data overseas) have seriously hampered cloud adoption.

As a side note, when I worked for the New Zealand subsidiary of an American IT company during the early days of the Patriot Act, we were instructed to tell customers that our local staff were subject to domestic laws, which forbade us from accessing confidential customer information without authorisation. We were also expressly forbidden from telling those same customers that local laws wouldn’t stop our American colleagues from accessing their data, even when stored domestically, without warrant if instructed to do so under certain provisions of the Patriot Act. I left that company shortly after, but it does demonstrate that data sovereignty is only part of the equation when it comes to data protection.

Microsoft’s entry into the New Zealand market will also put pressure on Amazon and others to build data centres here too, which could be hugely beneficial to us as we build our knowledge economy.

Personally I’m happiest about this announcement because it clearly demonstrates how much we punch above our weight in little old Aotearoa. Microsoft has just one region in all of South America (population 423 million) and two in Africa (population 1.22 billion). Soon there will be one in the land of the long white cloud, despite our population of just under 5 million.

Damian Funnell is founder of an IT services company and, a cloud software company. He has provided advice on technological matters to lawyers and law firms for a long time.

Last updated on the 12th June 2020