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Data is an invaluable asset in the era of digital transformation. Indonesia, with its large population and growing number of connected devices, is strategically positioned to generate an extraordinary volume of data and lead its use for good. For example, data can be used to identify patterns in research experiments or analyze symptoms of emerging diseases to develop innovative solutions that not only create new economic value but also address the most pressing challenges of daily life. This is where datacenters play a pivotal role: helping to store, manage, and distribute digital data more securely and efficiently.
Given this potential, the domestic datacenter industry holds immense promise. According to Mordor Intelligence, Indonesia’s datacenter market is projected to grow at a compound annual growth rate (CAGR) of 14%, reaching USD 3.98 billion by 20281. From a capacity perspective, the demand is estimated to grow significantly from the current need of 2,000 MW. These figures indicate the critical role datacenter development will play in accelerating Indonesia’s digital economy. However, what exactly are datacenters, and why are they so important?
What is a Datacenter?
A datacenter is a physical facility designed to store, manage, and process large volumes of data. Think of a datacenter as a “digital brain” that powers applications, social media platforms, online banking services, and artificial intelligence (AI) systems. Inside, it houses servers, storage devices, and networking infrastructure to ensure data is always available, secure, and accessible.
“With the rapid pace of digital growth in Indonesia, datacenters are not just technological infrastructure; they are the key to creating a new AI-driven economy and enabling inclusive digital transformation,” said Dharma Simorangkir, President Director of Microsoft Indonesia.
Why are Datacenters Crucial for AI’s Future in Indonesia?
According to a report by Microsoft, Access Partnership, and ELSAM, the growing adoption of generative AI in Indonesia is projected to have a significant economic impact, unlocking USD 243.5 billion in economic production capacity—equivalent to approximately 18% of Indonesia’s 2022 GDP2. The report also highlights how AI can improve productivity, create new jobs, and accelerate growth across various sectors, fostering a new AI-driven economy.
This growth is supported by several factors. One of these is the government-driven digital transformation through initiatives like the Electronic-Based Government System (Sistem Pemerintahan Berbasis Elektronik/SPBE)3 and the roadmap “Making Indonesia 4.0.” Additionally, Indonesia’s digital ecosystem is rapidly adopting generative AI, as seen in companies like BUMA, DANA, and TELKOM, or developing their own solutions with generative AI, such as BRI, Telkomsel, and Universitas Terbuka. Furthermore, Indonesia has 353.8 million active mobile connections, significantly outpacing other Southeast Asian countries. The population’s increasing reliance on online activities, along with the growth of cloud computing, big data analytics, and IoT applications, underscores AI’s critical role in Indonesia’s digital economy.
To unlock this immense potential, AI technology has specific requirements. It relies heavily on the ability to process data quickly and efficiently. AI requires significant computing power to run machine learning algorithms, perform complex data analyses, and make real-time, data-driven decisions. Datacenters, especially those with larger capacities, are the core infrastructure needed to meet these demands and fully unlock AI’s potential.
Addressing Indonesia’s Datacenter Capacity Gap
Unfortunately, the growth of datacenters in Indonesia has yet to align with the country’s needs and the vast potential of its digital economy. Currently, total “AI-ready” datacenter capacity—those capable of supporting cloud computing as the foundation for future AI solutions—is approximately 200 megawatts, or just 10% of the estimated demand.4
However, this capacity is expected to grow with modern datacenter innovations. The latest datacenter designs of Microsoft, for example, are purpose-built for these AI workloads so that every megawatt of power can be used effectively and responsibly to drive down the cost of AI and the power draw. The company is also incorporating advanced datacenter cooling techniques to fit the thermal profile of the workloads and match it to the environment in the location where it operates.
Prospects for Growth in Indonesia’s Datacenter Ecosystem
In recent years, many technology companies have demonstrated their commitment to building datacenter infrastructure in Indonesia. One of them is Microsoft, which is not only building its first datacenter in Indonesia, but a cloud region called Indonesia Central. This cloud region includes three availability zones, with each zone consists of sets of datacenters that are fully isolated from each other. Each zone has distinct physical locations that are close enough to ensure low-latency connections to other availability zones, but are far enough apart to reduce the likelihood that more than one will be affected by local outages or weather. Learn more at aka.ms/indonesiacloudregionplaybook.
Indonesia Central is also connected to Microsoft’s global wide area network (WAN), providing high-bandwidth, low-latency connectivity to other Microsoft cloud regions internationally. This enables Indonesian companies to expand internationally more seamlessly while offering global businesses a gateway into Indonesia with integrated technological readiness.
Preparing Digital Talent for the Future
As infrastructure becomes the backbone of innovation, digital talent must be ready to leverage this technology optimally. One strategic step is developing digital talent through initiatives such as elevAIte Indonesia, launched by Microsoft and the Ministry of Communications and Digital (Kemkomdigi) in late 2024 to upskill 1 million Indonesians in AI technology.
The development of the Indonesia Central region and the implementation of elevAIte Indonesia are part of the Berdayakan Indonesia initiative, which Microsoft has driven since 2021. This initiative was further strengthened by the announcement of a USD 1.7 billion investment in April 2024 by Microsoft Chairman and CEO Satya Nadella—the largest investment in Microsoft Indonesia’s 29-year history.
Security and Compliance in Data Management
Amid the growth of datacenters, security and compliance are critical elements. Modern datacenters must handle various types of sensitive data, from customer information to financial data, with high levels of security. The security of the Indonesia Central region that Microsoft is establishing, for example, meets stringent security requirements, including physical access to datacenters, network security, and hardware and software layer security throughout the entire Microsoft cloud environment—the same as other Microsoft cloud regions. Moreover, data stored and processed in the Indonesia Central region can help customers meet local data regulatory requirements, including data residency obligations.
Indonesia’s AI-Driven Future
Building datacenters, particularly cloud regions, is not just about technology—it’s about creating a digital ecosystem that is inclusive, secure, and sustainable.
“Indonesia has a tremendous opportunity to become the hub of AI growth in Southeast Asia by leveraging the creativity and innovation of its young population. Microsoft is committed to supporting Indonesia in this digital transformation journey through strategic investments in infrastructure, talent development, and innovation support. With these strategic steps, Microsoft is ready to help Indonesia enter a brighter future,” concluded Dharma.
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Featured Image: Datacenters are the foundation of AI’s future. This illustration is created with Microsoft Designer.