When New Zealand went into lockdown in early 2020 companies sent staff home to work. Schools and other educational institutions sent students home to continue their studies.
Many of those people used advanced technologies like video conferencing, cloud computing and collaboration software for the first time. Away from work, there was a surge in online shopping, streaming entertainment and video games.
Technology adoption leapt forward. McKinsey, a management consultancy, reported: "Recent data show that we have vaulted five years forward in consumer and business digital adoption in a matter of around eight weeks". Growth in online shopping was more dramatic. By some measures, the sector advanced 10 years in three months.
Early 2020 was a one-off step change, yet technology adoption continues to move forward at a faster pace than before the pandemic. Since then there has been an investment boom, with technology companies putting in the infrastructure to meet burgeoning demand.
In February, Digital Economy and Communications Minister David Clark launched the Government's draft Industry Transformation Plan for the tech sector. He placed the sector's importance in context: "Despite the ongoing impact of Covid, the digital technologies sector is thriving, growing at nearly twice the rate of the general economy. It is now a major exporter for New Zealand and contributed $6.6 billion to the economy in 2019".
Much of the recent investment boom supports cloud computing. Last month Amazon announced plans for an Auckland AWS (Amazon Web Services) Local Zone. It's the latest move in what AWS country manager for commercial Tiffany Bloomquist says will be a 15-year, $7.5 billion investment in local infrastructure.
"We're doing that because we believe we are just at the beginning of the cloud journey," says Bloomquist. "There is an incredible opportunity in New Zealand for growth. The companies that we are working with here are not just supporting New Zealand customers, they have ambitions to innovate, drive change and impact customers around the world. On the basis of what customers tell us, this is the right time to be investing."
She says that investment will create more than 1000 new jobs.
Amazon's Local Zone is a way of bringing cloud services closer to the point where they are used. That's critical for applications like video streaming, gaming and virtual reality. They use a lot of data and it needs to turn around fast — in engineering speak the applications require "low latency".
It takes many milliseconds for data to travel overseas or even the length of the country. That's a noticeable lag if you are exploring a virtual world, controlling a drone or shooting aliens in a game. By locating in Auckland, it means single-digit millisecond latency around town.
Emily Lynch, senior market analyst at IDC, says New Zealand is seeing astronomical growth in cloud.
Emily Lynch. Photo / Supplied
"Like everything at the moment, it ties back to Covid. The pandemic is a huge contextual driver, to the trends that we're seeing. There are a few reasons for that. We're increasingly seeing the convergence of information technology and business when it comes to commercial operations in New Zealand.
"Instead of IT functioning as a unit of an organisation, it's now integral. IT is really ingrained and entrenched in the way organisations are doing business, regardless of the industry they operate in.
That was illustrated starkly with Covid: the only way many New Zealand organisations were able to continue operating was thanks to the IT capabilities they had in place."
Lynch says the key is that investment in IT is now a business conversation, not a technology conversation. "Cloud is a key business enabler. It gives organisations a competitive advantage and allows them to focus on operations and serving customers." She calls this 'next gen normal' which symbolises a new age in the way companies conduct business.
"New Zealand was relatively advanced in cloud adoption before Covid. We were trending well ahead of other Asia-Pacific countries. We've always liked to push the envelope and adopt technologies early, but this is on another level. It's driven by demand and our scarcity of resources in this area."
IDC's research numbers show local public cloud revenue grew 20 per cent in 2020, 22 per cent in 2021 and is expected to grow a further 21 per cent this year. Lynch says Platform-as-a-Service, which allows business customers to run applications without buying physical hardware and Software-as-a-Service (that's cloud-delivered applications like Xero or Gmail), are the fastest-growing sectors.
Patrick Quesnel, who heads Microsoft's Azure Business Group says New Zealand is one of the few countries in the Asia-Pacific where public cloud adoption has matured from initial disaster recovery and backup services to driving digital transformation and innovation.
"There's a huge hunger for public and multi-cloud services in this country. While Covid has been an accelerator, this is a trend that's been building for some time, as organisations look to become more sustainable, drive higher productivity and innovation and scale-up into new markets."
He says New Zealand is recognised internationally as a digital innovation hub. "We were named one of the top three standout digital nations in a global study by the Fletcher School. We're also in the top 25 countries for ICT usage. Statistics like that show we're ready to take our economy to the next level, with huge potential to grow local businesses and boost innovation through digital technologies as well as the mentality to embrace change."
Microsoft is investing in multiple local data centre sites including what the company describes as the nation's first hyperscale facility. As the name suggests, a hyperscale data centre is much larger than a usual facility and can house millions of individual servers or virtual machines at a single location.
Typically they are more cost-effective than smaller data centres.
Sophisticated infrastructure isn't much use if people don't have the skills to exploit it. Cloud expertise is in demand from across the economy. Microsoft is working on a series of schemes and initiatives to help people into careers using the cloud. It teams with partners Auldhouse and Ace to provide Azure — Microsoft's cloud brand — training that leads to certification.
Microsoft employs Māori and Pasifika interns through a partnership with TupuToa. Last year it provided money and support for the TupuToa to work on Hikohiko te Uira, a skills programme. There is also the #10KWāhine, a programme to give 10,000 women digital technology training by the end of this year.
Cloud is not restricted to global giants. Local companies Spark and Datacom have significant investments in the sector. Canberra Data Centres (CDC) which is 48 per cent owned by NZX-listed Infratil has built large data centres in Silverdale and Hobsonville. They are due to start operating early this year.
Data communications are the other essential ingredient for a vibrant digital economy. The Key Government's 2010 decision to start building ultrafast broadband means urban areas had a modern network in place by the time the nation went into lockdown in 2020.
It helped that telecommunications companies boosted their investments in preparation for Spark's streaming video coverage of the 2019 Rugby World Cup.
Rural broadband has been slower to arrive. During the pandemic, the Rural Connectivity Group, a joint venture between Spark, Vodafone and 2degrees began a programme to fill in coverage gaps.
Recently the RCG switched on a mobile tower at Coroglen bringing the total so far to 300 new sites. By the end of next year, there will be 500 rural towers. The month saw Minister Clark announce further upgrades to rural coverage with the Rural Capacity Upgrade that aims to improve capacity in areas with poor coverage. It means by the end of 2024, 99.8 per cent of New Zealanders will have fast, modern broadband.
Datagrid — a giant data centre in Southland
Investment in cloud infrastructure doesn't stop with the international technology giants. Last year Datagrid New Zealand announced plans for a $700 million hyperscale data centre near Invercargill.
The location was chosen in part because of the climate, data centres get hot, cooling them is expensive, the other reason is cheap renewable power.
Despite these advantages, until now the South Island failed to take off as a data centre location because it has poor connectivity with the rest of the world.
Datagrid has the answer.
The project is led by telecommunications entrepreneur Remi Galasso and Callplus co-founder Malcolm Dick. The pair first joined forces for the Hawaiki Cable project, which links New Zealand and Australia to the US.
Remi Galasso. Photo / Supplied
A new cable, Hawaiki Nui, will connect Invercargill to Dunedin and Christchurch while giving the South Island a direct international link to Australia, Singapore and the US.
Galasso says the sudden surge of investment in data centres is global.
"The need for data storage is exponential and the industry is desperately looking for renewable energy and especially hydropower which is the most stable electricity.
On top of green power, political stability and security is mandatory. Cool-weather is a plus.
"New Zealand has all the ingredients to become an international digital safe box.
"And it is perfectly well located in the middle of the Singapore-Chile route that will soon connect Southeast Asia to South America and that we call the Great Southern Route."
This keeps international data away from potential points of geopolitical tension in the Northern Pacific.
Says Galasso: "This is the reason why we strongly believe in the potential of Invercargill and Southland, and have decided to develop strategic digital infrastructures: Hawaiki Nui submarine cable and Datagrid carbon neutral hyperscale data centre."
