Can there be a “secondary market” for a scarce resource, when that resource was available to its original market for free?

It’s merely a question of semantics. Whatever you call it, any company that possesses unused internet addresses — that is, internet protocol version 4 (IPv4) addresses — can very likely sell them at a high profit margin.

That’s because IPv4 numbers were distributed for free by the Internet Assigned Numbers Authority and its five regional registries. Now, with the availability of free IPv4 addresses all but extinguished, the secondary market for them is heating up.

The current going price is about $10 to $15 per address, according to Janine Goodman, vice president of Avenue4, a broker for IPv4 transactions. Even a smaller company with, say, a few thousand addresses to sell could get a nice return.

Sellers can pocket most, but not all, of the proceeds from the sales. There may be commissions owed to a broker that matches sellers with buyers. Avenue4 represents only sellers and gets its commissions from them. Other brokers represent buyers that may pay the fees. In some cases both the buyer and seller work with a broker and pay commissions.

Brokers aren’t always necessary for the execution of a transaction. If two parties know and trust one another, they may not need one. However, lots of brokers are looking to profit from the IPv4 market. The American Registry of Internet Numbers (ARIN), the regional authority for North America, has registered 24 of them, including Avenue4.

Additionally, there may be labor costs for renumbering a company’s addresses — both those in use and those not in use — so that the unused ones can be sold in consecutive-number blocks, which address buyers prefer. Depending on how many addresses a company has and how it has doled them out for internal use, that effort could be resource-intensive, Goodman says.

Market Landscape

The market for IPv4 addresses is not a new one. The sales have been transacted for almost a decade. Microsoft made news in 2011 when it spent $7.5 million on more than 600,000 addresses owned by bankrupt Nortel Networks. Most recently, the Massachusetts Institute of Technology sold half of the 16 million addresses it owned; at least some of them went to Amazon.

Some large companies may still have a million or more unused addresses, Goodman says, and they are likely well aware of the secondary market. However, she notes, “a lot of smaller companies might not know about it.”

Given the intense demand for the addresses (see chart), prices are on the rise and will continue to in the mid-term, according to Goodman. Eventually, though — maybe within about five years — the market will dry up.

17Jul_IPaddressChartThere are only about 4.3 billion IPv4 addresses, the mathematical limit given that the protocol uses 32-bit numbers. The next-generation internet protocol, IPv6, can accommodate an almost unimaginable number of addresses: 340 undecillion of them. Those may last forever, because there’s enough for every atom on earth to have its own internet address.

But while IPv6 was approved way back in 1998, the pace of the transition to the new protocol has been uneven. “It depends on how you define the scope of the transition,” says John Curran, CEO of ARIN. “If you’re talking about mobile operators, major data centers, and major online services, there has been very good progress. If you’re talking about getting everything transitioned including your printer, that’s going to take some time.”

Google says that 18% of the world’s internet traffic today is IPv6. About 25% of the world’s top 1,000 websites are IPv6-accessible, according to Amazon subsidiary Alexa. Mobile operators generally have the highest end-user deployment rates, with Verizon Wireless leading the way at 83.8%, followed closely by T-Mobile USA (80.7%).

On a country-by-country basis, Belgium has the greatest end-user connectivity, at 48%, followed by the United States (32%) and Greece (30%), according to Google.

Pros & Cons

But there aren’t even enough IPv4 addresses so that every computer and device that currently uses the protocol can have a unique one. Address-sharing — for example, cable companies use what’s called “network address translation” to share the addresses of customers that are offline at a particular moment with others that are online — has extended the use of IPv4 far beyond what would have otherwise been its capacity. “But you can only do so much of that before you start running into performance and security implications,” Curran says.

While technology behemoths like Amazon, Facebook, Google, and Microsoft have upgraded to IPv6, the average enterprise has not, which has various implications. For one, website traffic figures may be at risk.

“If your IPv4 corporate website is accessed by someone on T-Mobile, who is almost surely using IPv6, the traffic goes to a data center to be translated into a query for the IPv4 address, and the response goes back to the data center to get translated back,” says Curran. “Not only does everything get slower, but when you look at your traffic reporting you’ll see all those connections coming from that data center rather than from your customers. You won’t have accurate traffic statistics.”

Furthermore, there are security concerns, as someone in the data center “can see traffic that really has no reason to be there,” Curran says.

So why don’t companies en masse get on the ball and transition to IPv6?

In many cases, they may not see a compelling reason to take on the costs that would be involved. While IPv6 addresses themselves are available for free, the change will require the purchase of new network switches and routers, and IT staff will need training. If a company has, say, 100 public-facing servers and needs to add 10 more but is out of IP addresses, the most expeditious and efficient move may well be buying a small block of IPv4 addresses.

That approach can be problematic, however, such as when the company has a business opportunity with a potential partner that will only work with the company if it’s on IPv6, Curran points out. “Then you don’t have people who are capable, you don’t have equipment that’s capable, and the net result is that you’re very poorly positioned,” he says.

What companies should do, Curran counsels, is work a measured transition to IPv6 into their normal activities around IT product lifecycles. “Companies spend a lot of time designing, testing, and building a system,” he says. “If you incorporate IPv6 into that, there will only be a small amount of testing work at the end.”

To Sell or Not to Sell?

But company executives may not have a grasp of such issues if IT doesn’t inform them, Curran notes.

In fact, according to Goodman, it’s not uncommon for companies’ network engineers to keep management in the dark about unused, potentially salable IPv4 addresses. When management does get wind of it, a tussle over whether selling the address is advisable often ensues, she says.

“When we started our business we thought network engineers were the people we wanted to talk to, because they would know what’s going on with these addresses,” Goodman says. “But an engineer’s mentality is that if you have an asset that’s potentially valuable, you shouldn’t get rid of it. So we started talking to the C-level, and I can’t tell you how many times we heard that the head engineer had told them that they can’t sell these numbers.”

When the CFO gets involved, attitudes loosen, she notes. One large company Avenue4 worked with had two million IPv4 addresses available, which at the time were worth up to $15 million.

“They told us they couldn’t do anything with those numbers,” Goodman recalls. “Then the CFO started saying, ‘Wait, how much money is this? Do we really need all those numbers that we haven’t used in 20 years?’ ”

Many companies Avenue4 has worked with have used the proceeds from address sales to meet their quarterly goals, according to Goodman. “When CFOs get involved and understand what’s going on, they usually end up winning those arguments,” she says.

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