Until recently, Malaysia and Indonesia were often overlooked in the global data center landscape. That is quickly changing as both 
countries are becoming major regional and global data center markets. The two countries combined have a population of over 310 million people, a rapidly growing GDP of nearly $1.8 trillion, and an incredibly savvy user base catered to by a widely expanding suite of services. As internet penetration scales and more individuals gain more comprehensive access as incomes grow, these two nations will pull the broader region of Southeast Asia further ahead.
Major cloud platforms have provided backing for many of the applications utilized throughout these markets, driven to date by individual consumers and those firms that cater to them. Online shopping is a key driver, with delivery on demand an attractive feature whether in a dense urban core hemmed in by traffic or in a more rural area with limited local selection. E-commerce is expected to be a leading growth driver for Indonesia in 2025, with a projected gain of 15%, while more specialized online travel is projected to grow in Malaysia by 28% over the same period [source: e-Conomy SEA 2023, Google, Temasek, Bain & Co]. Entertainment, such as video streaming, continues to gain adherents as in other global regions: single- and multi-player gaming is of particular interest in Indonesia, as just over half of Indonesians currently pay for some form of gaming and represent a major growth market [source: Let’s Play, Indonesia: Video gaming and eSports 2022, Deloitte]. Ride-hailing and food delivery services have continued to scale in large cities, and large social media networks based in both the US and China tightly link users across the region, particularly group text and chat applications.
Super-app Initiatives
From an institutional perspective, the Indonesian federal government aims to provide services more efficiently to citizens, removing duplicated online applications and streamlining identification, financial, and exchange services. A recent regulatory shift is leading to the creation of government “super-apps”, all of which must go live later this year. While Malaysia already offers a robust array of government services online, the country is increasingly home to data stored locally for use in other nearby areas, leading to a rapid increase in local data center needs and more robust connectivity to other nations.
In addition, regional connectivity will undergo a rapid transformation for Malaysia and Indonesia over the next three years. This is due to five new undersea cables, funded by some of the world’s largest online platforms and telecommunications firms. These systems will link both countries to other growing markets across Southeast Asia, as well as more established locations in East Asia, the United States, Australia, India, and beyond. The extra bandwidth these systems provide will lead to more opportunities for online expenditure and more time spent across many global applications, ushering in a new era of connectivity and possibilities.
The digital transformation across Malaysia and Indonesia is not just a trend but an ongoing and significant shift that will continue to scale over the coming decade. With an ever-increasing amount of online spending on items and services, improved and more cohesive access to government requirements and entertainment options, and faster connectivity to the region and beyond, the pace of change is accelerating. The recent explosion of interest in both nations is just the beginning, and it’s crucial to keep up with these changes to stay competitive in the market. The time to adapt and innovate is now.
Malaysia has reached 97% internet penetration, suggesting that further growth of online services at the consumer level will come from a greater array of options and spending rather than access. Only two-thirds of Indonesians have consistent internet access; this is a growth market of over 90 million people yet to get online!
As with many markets that have emerged after the advent of mobile telephony, Indonesia and Malaysia combined have just 17 million fixed broadband connections. Both countries have far more mobile subscribers than there are people, suggesting that as Indonesians in rural areas gain greater incomes and upgrade from basic phones to smartphones adoption of online services will accelerate rapidly.
What New Undersea Cables Mean for the Region
As noted in the chart to the right, the five cables arriving in each Indonesia and Malaysia over the next three years will spur further investment, with the ability to reach all the way to Europe, North America, Africa, and beyond from one or both countries. Expect further cable announcements in coming years as a wider spread of services are adopted regionally.
The AI Surge
Lastly, Malaysia and Indonesia are on the cusp of a digital renaissance driven by advancements in e-commerce and AI. As these nations consolidate their positions as interconnected hubs in the global data center landscape, they also emerge as key destinations for AI deployments. The rapid adoption and integration of AI applications will significantly contribute to their growth trajectories.
However, with the increasing demand for AI-enabled data center capacity, it is crucial to ensure that these infrastructures are future-proofed from both power and density perspectives. Meeting the rapidly growing workload densities without imposing burdens on the electrical grid and water utilities will be paramount. This necessitates innovative approaches in designing and operating AI data centers to minimize their impact on existing infrastructure. The crucial challenge lies in effectively managing AI’s growing demands while upholding sustainable practices. It’s essential to explore innovative ways to design AI data centers that do not disrupt the grid or water resources.
By continually innovating and adapting, Malaysia and Indonesia can uphold their status as global leaders in the digital transformation journey. Keeping pace with these advancements while ensuring sustainability will be the cornerstone of their long-term success.