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Government Regulations & Initiatives, Colocation Market, Cloud, and SaaS Market to Drive Growth

The Kingdom of Saudi Arabia is rapidly transforming all sectors to achieve the goals laid down by Saudi Vision 2030 and the National Transformation Program. Improving the quality of service and delivering innovative solutions are at the forefront of this agenda. As enterprises across sectors embark on this journey, we see a huge uptake of new technology and solutions to enable this transformation. However, to deliver and utilize these technologies with scale and agility, both end-users and technology providers rely heavily on Saudi Arabia’s datacenter infrastructure.

To tap into this opportunity, we have seen large-scale investments by local telecom operators, technology providers, traditional datacenter players, as well as non-traditional eco-system players such as real estate developers, educational institutes, and Government Ministries in building new datacenters and upgrade existing ones. This is evident from the fact that in 2020 there were more than 22 commercial (non-captive) datacenters in Saudi Arabia, summing up to a whitespace of ~29,000 sq.m – This is expected to reach ~43,000 sq. m by 2024.

Each player has had a unique approach: Real Estate Developers are building whitespace for wholesale, while Government Ministries are building large hybrid datacenters where one part is captive, and the remaining stays commercial. End-users, Software as a Service (SaaS), and cloud solutions providers are looking to colocate their infrastructure to save costs, go to market faster or deploy solutions quicker.

The key question here is what makes the datacenter business in Saudi Arabia so lucrative, and how big is this opportunity? The datacenter services market stood SAR 904 Mn in 2020 and is expected to grow at a CAGR of 7.54% over the next four years to reach SAR 1.3 Bn by 2024. The datacenter opportunity in Saudi Arabia is unique and driven by several factors that have fueled this market’s growth.

  • Impact of Regulations and Government Initiatives: The policies and regulations laid down by the Saudi Government around cloud migration, data localization, and cybersecurity are favorable for datacenter players. Policies such as KSA Cloud First Policy, Cloud Cybersecurity Controls, and Essential Cybersecurity controls have mandated both Government and private sector organizations to ensure that sensitive data stays inside Saudi Arabian territory and encourages cloud services adoption. These data sovereignty regulations and policies are unlikely to be changed in the future, thus creating a huge demand for locally present datacenters.
  • Profitable Colocation Market: Colocation service remains profitable, which is evident from the insignificant change in the price of colocation services over the last few years. In 2020, pure-play colocation revenue (exclusive of connectivity and shared/dedicated hosting) contributed to 33% of the total datacenter revenue in Saudi Arabia. This pure-play colocation revenue is forecasted to reach SAR 530Mn by 2024, 38% of the total Datacenter revenue.
  • Cloud and SaaS Market Driving Growth: Public cloud spending in Saudi Arabia stood at SAR 1.5bn in 2020 and is expected to reach SAR 4.3Bn growing at a CAGR of 23.45%. Of the total public cloud spending in 2020, 76% was driven by the SaaS market. The contribution of SaaS to the overall public cloud market will continue to grow even in the future as technology providers deploy new solutions.

The favorable market dynamics driven by Government initiatives and the growing demand for Cloud and SaaS solutions in Saudi Arabia has created an opportunity for local Datacenter providers to scale up and be ready for the future demand – from a wholesale perspective. With Hyperscalers also looking to leverage the opportunity, they will be seeking wholesale deals with mega datacenter (typically 50 MW+) providers. Additionally, the advent of 5G, IoT, and data analytics will create opportunities for the Datacenter players in the coming 4-5 years. There is no better time to invest for enterprises looking to benefit from the datacenter opportunity in Saudi Arabia than now.

For more information or to schedule a dialogue with our analyst, please email Nimisha Iyer at nimisha.iyer@frost.com

This insight has been published in 5G Tribune and other Arabic publications based in Saudi Arabia

Mohamadsami ShaikhMohamadsami Shaikh

Mohamadsami Shaikh is a Consultant with the ICT Practice at Frost & Sullivan

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