NTT Com’s acquisition of 74% stake in Netmagic Solutions: Implications for the India Third Party Datacenter Industry

Essentially Netmagic has always had the support of VCs for funds. However, last week’s announcement that NTT Com is acquiring a majority stake in Netmagic Solutions would not only change and enhance Netmagic’s market visibility but also how they go about doing their business.
From an operational point of view, with VC funding there is not too much of day-to-day checks on how business is run. The focus lies on top lines and bottom lines. But when a technology firm buys such a large stake they are likely to play a big role also in the day-to-day governance of the business.
Since late 2010 / early 2011, Netmagic has been very aggressive in building their brand reputation by publishing advertising campaigns in leading Indian business newspapers and similar other media formats. This was reflected in CyberMedia Research studies as well, where Netmagic finds favorable response on ‘brand recall’.
So in a way, Netmagic to a certain extent has got its act right by positioning itself as a major player in the managed services, hosting and cloud computing space. From here on, ideally they would want to build on that and expand their operations in new areas by opening Data Centers in more cities / locations. Having NTT Com’s support would surely help them to do so.
Netmagic has plans to expand and with this funding it would be interesting to note where they plan to expand. They could take two routes. Either expand to Tier 2 cities, or go for regional presence by setting up data centers in the Asia-Pacific region. Given Netmagic’s legacy and with the backing of a Japanese firm it is quite likely they may plan to go for regional expansion. This could also provide a smooth way for a global company like NTT Com to enter a complex market such as India.
What this acquisition may also do is, open up a whole new dimension to the third party data center market. Till now, all third party data center facilities were run by Indian companies. This deal could possibly show the way for other biggies like Rackspace and Amazon to enter the India market.
To sum up, as the business demands on corporate IT to “deliver more, with less” grow, the India markets for cloud services, particularly, Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS) are expected to expand. This would lead to greater interest from vendors, system integrators and service providers in the form of investments in new data center facilities or expansion of existing ones.
However, this may not necessarily translate into a majority stake in all such Indian entities for the overseas partner as in the case of NTT Com and Netmagic Solutions. The equation between the Indian entity and its overseas partner would be largely determined by the maturity of existing markets, expected opportunities in India / other emerging markets, and overall competitive environment. A match in strategic intent of the potential partners, their perceived synergies, and the role of India in the overseas partner’s global IT services footprint would also act as key considerations in any such arrangement.