Friday, 6 February 2009

The value of an internet exchange (roughly)

An internet exchange generates value for the market parties connected to it and to the wider community. The components of this value are:
  1. the value of transit traffic saved for the ISP's and telco's via the exchange
  2. the value of transit traffic saved via direct peerings, without the IX being in the middle, in the collocation facilities where the IX is present. (also known as private peerings)
  3. Increase in quality of traffic exchanged through more direct connections
  4. Presence of multiple transit providers generates competition on price and quality of transit connection
  5. The benefits will be passed on to business and communities  and that will generate a multiplier effect.

The first one is the easiest to calculate. For instance AMS-IX is generating more than 600 Gbit/s per second every day. Transit is at  $10 per mbit/s/month according to Telegeography, but at $4 according to friends who attended the Global Peering Forum  in the Dominican Republic. The benefit of peering is between 28.8 million and 72 million each year. With AMS-IX having a 9 million euro budget, it's clear that the members of AMS-IX benefit more from it than it costs them. Euro-IX stats show that in August 2008 total traffic exchanged was at 1.765Gbit/s. The total value of internet exchanges is therefore at least 86 million a year. Amsterdam boasts the lowest transit prices in the world, therefore the benefits easily exceed that. 

The second one is much harder to calculate. There are no reliable estimates of how much traffic is passing through private peerings at peering point locations. LINX  tried it a couple of years ago, but they stopped. Their last guestimate was that 25% of traffic didn't pass the IX. 

Quality is even harder to calculate in monetary terms. I'm not going to put a value at it :-)

Transit prices have dropped fastest and deepest in places where internet exchanges were established and were succesful. When the NDIX started in 2001 the costs of some connections dropped by 50% straight from the start. Traffic then was still well above the 500 euro/mbit/month even at major exchanges. 

Multiplier effects. Money not spend on transit can be used for more profitable purposes. A typical multiplier is between 2 and 3. 

With a rough calculation as the one above, the value of an internet exchange like AMS-IX is easily above 100 million. The value of Euro-IX members can be above 500 million

1 comment:

  1. andyd correctly said on Twitter that there are some caveats with this calculation as I've assumed all traffic on an exchange would be settlement free peering. Not all of it is, but the vast majority would be (I assume 90%+)


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