Internet exchanges continue to advance with new growth tactics



19 Bealtaine 2016

By: Mike Hollands

Since their inception in the early 90s, Internet exchanges have been dealt a few blows to their profitability. As market prices for internet connectivity have come down, the prices for exchange services have also experienced a significant decline. This has forced exchanges across Europe to seek new revenue streams in order to maintain their profitability. They’re now doing everything from expanding into new markets, enhancing their service offering, and broadening their membership by connecting a wider variety of businesses.

In the past, Internet exchanges used to operate only in their home markets and facilitate local interconnectivity. There was an unspoken ‘gentleman’s agreement’ among operators that they wouldn’t compete on each other’s turf, and each exchange had a level of dominance over its native market, or shared dominance with other local exchanges.

But now many of the larger Internet exchanges are expanding into new markets. The prime destination is the U.S and LINX, AMS-IX and DE-CIX have all expanded there recently. Dutch exchange AMS-IX has operated in the Netherlands since the early 90’s but in the last few years has expanded to the Bay Area, Chicago and New York. The German Internet exchange DE-CIX has set up exchanges in Dallas and also in New York, where traffic exchanged is reaching new heights each day. And DE-CIX have expanded South and East-wards too by creating outposts in Dubai, Istanbul, Palermo, Madrid and Marseille. While this means greater competition between once-friendly market peers, expansion is a necessary move for many of these larger exchanges if they are to succeed.

Exchanges are now also diversifying their services. For instance, exchanges are offering connectivity to cloud service providers through partnerships with network providers that use their exchanges. This enables their members to maximise benefits from membership by getting cloud connectivity on top of traditional peering. AMS-IX’s recent collaboration with Megaport is an example.

Internet exchanges are also providing their customers premium security services, aiming to protect their members from DDOS attacks and other potential threats that could arise on shared networks. DE-CIX for instance offers a black holing service to members, and FranceIX has created a market place for a wide variety of services in addition to peering.

And, while it hasn’t happened yet, it won’t come as a surprise to close observers if the moniker ‘Internet exchange’ is abandoned altogether for a term more inclusive of the broader range of services now offered. A term like ‘Interconnection point’, for example, might speak to the broader array of customers and services over and above the Internet providers that the exchanges were marketed to historically.

Perhaps the biggest change to their structure is that exchanges are no longer only just offering interconnectivity between Internet Service Providers. Rather, these exchanges are now marketing to a range of businesses that can take advantage of the services they offer.

Content providers such as Twitter, LinkedIn and Google have been members of Internet exchanges for some time, enhancing the efficiency by which their content reaches end users. Enterprises can also derive significant benefits for their employees by utilising Internet exchanges – for example quicker response times on applications located in the public cloud. Schneider Electric is a case in point – one of the first enterprises to join France-IX. While content providers have the internal expertise to engage with Internet exchanges, enterprises rarely do. However, exchanges are making it simpler for enterprises to interface with their platforms with new automated portals, and so will enjoy increased revenue streams from this developing customer segment.

With market prices for Internet connectivity continuing to decrease over time, we can expect Internet exchanges to continue to evolve as they strive to stay competitive in an increasingly crowded market.