Finance leaders at large companies have been buying and selling internet protocol (IP) addresses for as long as the internet has been around, but one company that brokers these deals says leasing is the better approach.
IP addresses are part of the backbone of the internet, but they're invisible to most users. Consumers or small businesses that use the internet mainly for browsing or hosting a simple website get their IP addresses automatically assigned to them through what's called a dynamic host configuration protocol (DHCP) when they set up their router.
But for big companies and other large users of internet capacity, IP addresses are allocated in blocks by a handful of organizations, including the American Registry for Internet Numbers (ARIN) in the United States.
Up until a few years ago, IP addresses were known as IPv4, Internet Protocol version 4, and were allocated for free. But the addresses are all gone now.
The addresses are based on a 32-bit protocol, which limits the number of potential addresses to roughly 4.3 billion — a limit that's fueling the buying and selling of the assets. When the Massachusetts Institute of Technology put half of its 16 million IP addresses up for sale in 2011, for example, the addresses were a hot commodity for a big user that needed as many as it could get. The buyer was Amazon.
To address the shortage of addresses, the Internet Engineering Task Force in 2017 deployed a new version, called IPv6, which uses a 128-bit protocol, which grows the universe of potential addresses to 340 undecillion — an infinite number, for all practical purposes.
These addresses are also free, but only about a third of big users have adopted the new standard, and most of these users are among the most sophisticated technology companies in the world.
The relatively slow adoption rate stems from the infrastructure changes companies would have to deploy to accommodate the new addresses.
For that reason, big mobile companies like Verizon and tech behemoths like Google and Amazon have led adoption. For most other companies, it makes more economic sense to continue using IPv4 until broader technology changes make widespread adoption more affordable.
In the meantime, the market for buying and selling IPv4 assets continues flourishing, with the market price of an IP address reaching a record high of $36 in May, according to IPv4.Global. That means a company with hundreds of thousands of excess IP addresses can generate a cash infusion in the millions of dollars if it puts its overage up for sale.
But companies can make far more if they lease their addresses, said Paulius Judickas, head of sales at IP address broker IPXO. The key is the higher yield gains companies can get from the global IP market, which today averages 25%.
Assuming an average selling price of $30 per IP address for a specified quantity of subnets, which are the type of addresses that are commonly traded, a company can increase its revenue by 43% by leasing, even if at first appears leasing would produce a smaller gain, Judickas said.
"We're looking at a $1,966,080 revenue [for that specified quantity], compared to leasing annual revenue of $353,894," he said. "However, people tend to forget to assess the global IP market yield gains, which average around 25%. This means that if a company decides to lease, instead of sell, IPs for at least a year, they would be looking at approximately $2,811,494 — a 43% increase in revenue."
Leasing has long played second fiddle to selling. Critics consider the process cumbersome because it lacks the sales process' transparency when it comes to finding reliable lessees, assessing the IP reputation and policing abuses. But Judickas says the market has matured and the process is closer to the traditional sales process now.
"Leasing was considered a gray zone," he said.
It only takes a few minutes these days for the IP owner to set the price and administer the lease, Judickas said. "The technical side of things, such as IP reputation and abuse management, finding reliable lessees, are all taken care of" by the broker.
More innovation is in the works. Among other things, brokers are developing the infrastructure to limit the amount of back-and-forth that goes on between IP holders and Internet registries.
"This will enable managing all of the resources via a single interface, streamlining the process even further," he said.
To sell or lease their IP addresses, CFOs should work with their organization's IT team to identify their excess addresses and gather up what's needed to show ownership. The American Registry for Internet Numbers maintains a list of IP address brokers.