last updated:August 19, 2010 11-apr-11 6:43

The financial value of the KIXP can be estimated to be the amount of money saved by off loading traffic via peering interconnections at the KIXP as opposed to sending that traffic through a metered transit interconnection. This article attempts to estimate the value of the KIXP by valuing the peering at the market price of transit in the area. We also calculate the IXP Value Ratio - a ratio of the value to the cost of the IXP, and finally, the peering break even point - the point where peering makes sense financially.

It should be noted that we are only looking at the value of the public peering traffic. With private peering, only the two parties that are private peering have visibility into the traffic exchange. Many IXPs embrace private peering as well as public peering, so we are undervaluing these IXPs by estimating value based solely on the public peering traffic. We are applying the Modeling the Value of an Internet Exchange Point methodology -- see this paper for a list of the underlying assumptions.

At the bottom of the paper is a form to submit to add IXPs and their data so you and others can see how they fare in this analysis.

Our latest estimate from the field is that 100 Mbps of traffic is peered at the KIXP, and the market price for Internet transit in this region is about $400.00/Mbps. From this we can estimate the value of an IX to be the amount that the participants' transit fees are reduced : 100Mbps * $400.00/Mbps = $40,000 per month.

ValueofKIXP ~ AmountofMoneyPeeringAtKIXPSaves

*AmountofMoneyPeeringatKIXPSaves = CostOfTransit * volumeOfTrafficPeered*

*CostOfTransit=$400.00 / Mbps * 100 Mbps = $40,000 per month*

*AmountofMoneyPeeringAtKIXPSaves = $
40,000 per month*

The KIXP saves its peering population $40,000 per month. Stated another way, if the KIXP was to disappear tomorrow, the peering population would be $*40,000* per month worse off.

All Internet Exchange Points go through the "S" type growth curve graphed below. For the first few participants, the value of the IXP is zero or negative, because there is no one there to peer with, and there is a cost associted with peering at the IXP. As the population of the IXP grows however, the value of the IXP grows. The value grows because there are more parties to peer with, more routes and more traffic to possibly exchange at a more populated IXP.

At the point where the unit cost of peering at the IXP exactly equals the market price of transit, companies are indifferent between peering at the IXP and simply purchasing transit. We call this point the IXP Critical Mass Point. Beyond this point, an IXP is provably beneficial to its peering population. The value grows exponentially beyond this point, since there are *n* participants that can peer with* (n-1)* others, yielding a value of the IXP of *n(n-1)/2*.

We calculated the transit fees that the KIXP saved the peering population. To calculate the value of the KIXP we need to take into account the **cost** of peering, shown as the green line on the graph above. The difference between the Cost of Peering and the Value of Peering is the surplus value derived from the peers. Now let's look at a useful measure of the proportional value of an IXP to its cost.

To calculate the value of the KIXP to the peering population we need to take into account the cost of peering there. Let's make the simplifying assumption that each of the KIXP peers are paying on average $3,600 per year and $0 per month to peer there. Let us further assume that the alternative to peering there is to send that same 100 Mbps to a transit provider at the market rate for transit, about $400.00 per Mbps. (You can djust these annual and monthly fees in the form below.) With all of this information we can estimate the value of the KIXP public peering fabric as shown below.

ValueofKIXP = AmountofMoneyPeeringAtKIXPSaves

*AmountofMoneyPeeringatKIXPSaves = CostOfTransit - CostOfPeeringAtKIXP*

*CostOfTransit=$400.00 / Mbps * 100 Mbps = $40,000 per month*

*avgMonthlyCostOfPeeringAtKIXP = ( $3,600 / 12 + $0 ) = $300 per month*

*CostOfPeeringAtKIXP = $300 per month *28 peers = $8,400 per month*

*ValueOfKIXP = $
40,000 - $
8,400 = $
31,600 per month*

Under all of these assumptions, the peering population in aggregate benefits from the KIXP about $31,600 per month.

The IXP Value Ratio is a measure of proportional value derived by the average participant of the IXP. It removes the **absolute** traffic volumes from the evaluation, so even if the *volume* of traffic peered is not impressive by world standards, we can see the *relative value *to the participants may indeed be proportionately high.

Here is how we calculate the IXP Value Ratio:

KIXPValueRatioToISP=avgValueOfPeering/avgCostOfPeering

KIXPValueRatioToISP=((100Mbps*$400.00/Mbps)/28 ) / $300.00 per month

KIXPValueRatioToISP=$1,428.57 per month / $300.00 per month=4.76

So we see here that on average, one dollar spent on peering at the KIXP yields $4.76 in incremental value above and beyond the cost of participation there. A ratio value of 1 means that the IXP is right at the critical mass point; the cost of peering exactly equals the value derived form peering there. So, if the avgValueOfPeering was $300.00/month and the avgCostOfPeering was $300.00/month then the KIXPValueRatioToISP would be 1.

KIXPpeeringBreakEvenPoint = CostOfPeeringAtKIXP/costOfTransit

KIXPpeeringBreakEvenPoint = $300.00 per month / $400.00 per Mbps

KIXPpeeringBreakEvenPoint = 0.75 Mbps

The Peering Break Even Point in this scenario is 0.75 Mbps. That is, we can prove that all it takes is 0.75 Mbps to be peered for free to exactly equal the cost of peering ($300.00/month) when transit costs $400.00/Mbps.

Here you can play what-if analysis. If you have any adjustments to plug in, please edit the form below and submit it. A new page will be displayed with the new analysis.

Update the monthly costs to include additional expenses. For example...

We are not taking into account the cost of building into the IX in this simple analysis. No colocation, power, equipment or transport into the IX.

We are aggregating all things into a monthly/yearly expense for simplicity sake. Customers who choose fastE vs gigE vs 10G ports will pay different amounts and realize different values.