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Q: DrPeering -

How can one estimate the financial value of a colocation center or an Internet Exchange?

Jamal Horga'hn

A:

The value of the IXP (to the population) is proportional to the number of participants (the how many), the routes available at the IXP (the who there), and the volume of traffic peered (the how much), as shown mathematically as follows:

Value of the IXP = ValueDerived - CostToParticipate

Value of the IXP = f(p, r, v, m) - c

where on the value side:

p = the number of participants at the IXP—the "How many?"

r = the number and uniqueness of routes available at the IXP—the "Who there?"

v = the volume of traffic that is peered at the IXP—the "How much?"

m = the match of the service to the market needs and stickiness—the “Why are they there?”

and on the cost side:

c = the cost of participation at the IXP (colocation, switch ports, equipment, cross-connect, membership fees, etc.)

All of the IXP Playbook tactics in The Internet Peering Playbook: Connecting to the Core of the Internet manipulate one or more of these parameters.

Those facilities that have a positive value are past the critical mass point and generally have a provable value proposition to offer to their clients. Beyond this point they have the ability to justify increased pricing.

The calculus and various tactics are a collection of the researched manipulations applied by IXPs around the world to build, grow and maintain critical mass.

In later articles I will go through some of the manipulations to build critical mass at an IXP:

Tactic 1. Bluff the Size of the Population

Tactic 2. Build a Network Umbilical for Later IXP Migration

Tactic 3. The Group Buy-In

Tactic 4. Buy-In Key Players

Tactic 5. Divide and Conquer

Tactic 6. Beachhead Verticals and Niche Markets

Tactic 7. Extend the Dominant IXP.

Tactic 8. Prevent Rogue IXPs.

Tactic 9. Swim with the Fishes

Tactic 10. Bundling

Tactic 11. Build and Maintain Population Stickiness

Tactic 12. Strengthen Peering Population

Tactic 13. Demonstrate Leadership

Tactic 14. Purchase Data Center During Downturns

Tactic 15. Drop Peering Cost

Tactic 16. Price on Value

Each of these gets its power by manipulating one of the variables in this equation.

The Value of an IXP

August 18, 2011

The 2014 Internet Peering Playbook

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The 2013 Internet Peering Playbook

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