Japan-based NTT Data recently took a step towards expanding its IT capabilities in India, acquiring a 74% stake in Netmagic Solutions. This marks another important event in the third-party datacenter services market in India. In early 2011, Tulip Telecom acquired a data center facility in Bengaluru at a value of approximately US$46 million. This year, with this deal, NTT Communications not only gets access to Netmagic’s seven Indian data centers, a platform offering public, private and hybrid cloud services, but also inherits the capability to address the fast-growing South Asia data center services market.

Netmagic’s acquisition has long been speculated. The firm has the right set of service offerings, technical capabilities, and local coverage, but it lacks the financial muscle power of its competitors (including Reliance Communications and Tata Communications). Netmagic would have had a tough road ahead in the Indian market without external help. So I believe that this acquisition also comes at the right time for Netmagic Solutions.

Here is a quick look at what this acquisition brings to both companies:

NTT Communications

  • Stronger foothold in the Indian market with access to 1000-plus customers.
  • A critical piece for its Asia-focused cloud strategy and a step closer to its objective of having 20% of its total revenues outside of Japan in 2013.
  • Better servicing capabilities for NTT’s global accounts based out of India.

Netmagic Solutions

  • Financial muscle to compete in and penetrate further the India market.
  • Access to knowledge base and technology from NTT Data and its numerous IT subsidiaries.

Post-acquisition, NTT Data has more than 130 data centers across globe with more than 1,500,000 square feet of server area/raised floor. NTT Data continues to target midsized to large enterprises and the acquisition will let the firm be even closer to the long tail of SMBs in the region.

US$13 Billion-Plus Gorilla Takes On Indian Giants

With this acquisition, NTT Data jumpstarts its third-party data center services (DCS) operations in India, inheriting approximately 7% of the total market share. Forrester estimates the third-party DCS market in India at US$400 million for 2011, growing at a CAGR of 29% to be a billion-dollar-plus market by 2015.

Moving forward, I expect NTT Data to give tough competition to the incumbent behemoths — Reliance and Tata Communications that together make up more than 60% of the market. What’s interesting to note is that while both Tata Communications and Reliance have maximum revenue coming from colocation, Netmagic has a significant share coming from higher value managed hosting services.

In addition I strongly believe that this move by NTT will force other global and regional giants like NaviSite, Colt, Digital Realty Trust, CSF, and Basis Bay to rethink and chalk out their entry strategies in India in order to have a pawn on the game board rather than just being spectators.