My Blog
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.
A formula captures the essential aspects of the value of an Internet exchange. Understanding this formula is an essential prerequisite to developing strategies to encourage people into a startup IX.
The Value of an IXP
August 18, 2011
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