19 August 2013

Cooperation is the Future for IXPs

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Internet exchanges have come a long way since the early nineties, when most of these platforms were formed. In the previous twenty years the niche industry of IP interconnection through public peering has seen a number of (r)evolutions. I purposefully use (r) here as in some cases these changes were felt as revolutions and in others these were quickly embraced. Especially those being forward-looking and with a business approach as well as open attitude. But how can Internet exchanges remain successful in the many years yet to come? Especially those with an international focus? Let me first start with the factors that are key for keeping Internet exchanges healthy.

There are a number of key factors in the industry that are important for an Internet exchange in terms of viability and sustainability of the business:
• Fiber/submarine cable density - The geographic location of the exchange should be on/near major land fiber/submarine cable routes
• Availability of carrier neutral data centres and colocations in offering both space and power
• No limitations due to regulation and licensing, and an open economy
• A neutral and independent governance model that enables to build trust
• Sustainable growth model - A model that is built for future growth, that builds reserves for platform investments i.e. I do not believe in 'free' models.
• Distributed infrastructure model that is spread over several data centres, leading to more neutrality and choice for customers
• Professional business focus on service quality & customers
• Cooperative partnering capability and thus enabling the marketplace
• Low-cost offering, but again, future-proof
• Economies of scale to decrease costs and maintain margin for future growth
• International orientation – For those that aim to be regional hubs act accordingly

These factors immediately reflect the different existing exchange models. There are the ones that aim to be a national Internet exchange in their country, serving the local market. This group is important in the Internet economy in keeping local traffic local and costs low. Commercially owned exchanges often deal with non-neutrality and tend to see slower growth because of this. Many IXs in Europe are however (owned by) non-profit organisations. Some are therefore limited in budget and governance rules, which can restrain growth, because fewer parties can join or limited hardware investments can be made. Others are run as businesses and re-invest any profits that are made and/or decrease prices when possible to stimulate growth.

The world’s largest and in that way most successful Internet exchanges are in Europe and all incorporate at least 80% of the points above, if not more. There are over 50 IXs in Europe alone but only a small group can be seen as international hub locations, and they are within a few hundred kilometres of one another. From a business economics measure only a few operate above the average revenue level in the niche industry, which clearly gives an indication of the difference between the national exchanges and the international hubs. The same applies to other industry KPIs, such as the amount of connected networks (ASNs) and traffic exchanged. Again there are only a few that operate above the 400 connected networks and 1,5 Terabit per second levels of traffic. These exchanges are:

• AMS-IX - Amsterdam
• DE-CIX - Frankfurt
• LINX - London

At AMS-IX we focus on developing the e-economy and e-infrastructure that enables the growth of the economy, which in turn will grow interconnection needs and exchange activity. Apart from an Internet exchange in the e-infrastructure, the e-economy needs other services to be successful, such as ISPs and IP transit, transport services, CDN, hosting and content players but also data centre operators and other complementary services. Examples are cloud platforms & services, social and financial platforms, security solutions, gaming and online creative communities. See the below picture.

E Economy Figure

The e-economy is particularly well developed in Amsterdam and the Netherlands. The previous key success factors of the industry are all part of this e-economy. In fact AMS-IX Amsterdam plays a global role, interconnecting many different e-economies with one another and in effect playing an important role in enabling the global digital economy. We believe in the role of both international hubs and national Internet exchanges.

We also believe in the cooperation with other market parties, such as transport providers and carriers. By supporting those to build their business we together built the marketplace. The cooperative reseller model for remote peering that we use shows the success of this view. AMS-IX grew with over 100 new connected networks in 2012 and 59 new networks in the first half of 2013. Never before in the history of AMS-IX this many networks connected within one year or six months, which is a nice achievement within these rough economic times. Of course the data centres are complementary as well, by making AMS-IX easily available through partnerships, and thus adding value to their product portfolio we grow the market together.

Below the AMS-IX cooperative model for partnerships that shows our various market interactions.

Ams Ix Collaborative Model

Under this partnership model AMS-IX started both AMS-IX Caribbean, previously known as CAR-IX, and AMS-IX Hong Kong. CAR-IX started as a ‘For the Good of the Internet’ project, helping set up a local exchange on Curacao in the Dutch Antilles to develop the infrastructure in that part of the Dutch kingdom. Now this platform is evolved into AMS-IX Caribbean and developed into a true regional hub. AMS-IX Hong Kong was the result of the reseller program and is a joint project with Hutchison Global Communications (HGC). We have developed this Internet exchange to keep local traffic in the region rather than transporting it back and forth to Amsterdam. The exchange offers the best of both worlds, local peering in Hong Kong and the opportunity to peer in Amsterdam as an added feature. AMS-IX Hong Kong ultimately has the same potential as AMS-IX Amsterdam, because all of the key success factors of the industry factors are apparent.

To summarise, to be successful on an international scale exchanges need to focus on building their capabilities in the key industry factors. With special note to remain independent and neutral but building a sustainable business. Cooperation will be key to enhancing these capabilities.

Blogpost by Cara Mascini, CMO at AMS-IX