The Rising Value of IP Addresses as a Global Commodity 

The internet as we know it today is built on the backbone of IP addresses. These critical digital assets act as identifiers that enable connectivity and communication across networks worldwide. However, with the IPv4 address space nearing exhaustion, leading to scarcity, IP addresses have transformed from being purely technical resources to becoming valuable financial commodities.  

Our recent analysis by the Data Analytics Team of historical IP address pricing data has revealed intriguing correlations between trends in IP address valuation and broader economic indicators like the S&P 500 or FTSE 100 indices. Although the specific metrics and data points remain confidential, the overarching patterns that emerge offer insightful perspectives on the global value and commodity status of IP addresses. 

Key Takeaways

• Internet Protocol (IP) addresses have evolved from purely technical resources for network communication to valuable financial commodities. As the IPv4 address space nears exhaustion, they are actively bought, sold, and leased, making them an essential part of the digital economy.
• IP address pricing dynamics correlate with broader economic indicators like the S&P 500 and FTSE 100. When stock markets are doing well, there is heightened demand for IP resources, resulting in higher prices.
• It is safe to say that IP addresses are now an integral asset class in the global economy and can influence Monthly Recurring Revenue (MRR) for IPv4 providers and IP-related companies.

From technical assets to financial commodities  

During the early decades of the Internet’s evolution, IP addresses were viewed merely as technical enablers fulfilling a basic purpose – allowing devices and networks to communicate. Obtaining IP addresses during this period was relatively easy, requiring simple requests to Regional Internet Registries (RIRs).  

However, this picture changed dramatically over the past decade as the internet expanded exponentially, and the IPv4 address pool started nearing exhaustion. IANA, the global authority overseeing IP address allocation, officially ran out of IPv4 addresses to distribute back in 2011.  

This was followed by North America, serviced by ARIN, exhausting its free IPv4 pool in 2015. More recently, in 2019, the RIPE NCC serving Europe depleted its reservable IPv4 inventory and APNIC, which serves the Asia Pacific region, also ran out of new IPv4 addresses to allocate. 

This increasing shortage of IPv4 addresses, coupled with continuously growing internet usage driven by smartphones, IoT devices, and COVID-19-induced digitalization, has transformed IP addresses into highly coveted digital assets.  

Instead of being viewed as purely technical network resources, they are now financial commodities, actively bought, sold, and leased on the open market, with extensive investments dedicated to their acquisition and management. 

The psychology of scarcity 

The profound psychological influence of scarcity is particularly significant when it comes to IP addresses. This psychological factor is intricately tied to the perception of value. We can draw parallels with precious commodities such as gold, diamonds, and artwork, all of which derive a substantial proportion of their financial value from their limited availability. Their worth significantly exceeds their intrinsic utility due to their scarcity. 

Now, with the IPv4 address space entirely exhausted, we have essentially entered the era of peak scarcity concerning these critical internet resources. The stark contrast between an extremely limited supply and steadily growing demand has led to a continuous surge in the trading prices of IPv4 addresses over the years. 

To put this in perspective, in 2014, IPv4 addresses were trading at relatively modest prices, averaging around $15 per IP address. Within five years, by 2019, this average sale price had doubled to $30 per address. The climb steepened even further post-2019, with average address prices exceeding $40 in 2021.  

Fast forward to 2023, and current IPv4 address valuations range between $44 to $50, with some sales anomalies touching $60 per address (based on IPv4.Global information, as of October 16, 2023).

This constant upward trajectory in sale and lease prices of IPv4 addresses testifies to their progression from ordinary technical assets to scarce digital commodities that organizations covet.

IP address pricing mirrors trends in the broader economy 

Thorough analysis by our Data Analysis team in the fourth quarter of 2023 revealed intriguing correlations between IP address pricing dynamics and larger macroeconomic trends over the past decade. We’ve observed a strong connection between IP address sale prices and fluctuations in major economic indicators like the S&P 500, NASDAQ, Dow Jones, and FTSE 100.  

During periods of robust economic growth and rising share prices, there is a corresponding increase in demand for IP addresses, resulting in higher trading and lease costs. Notably, our analysis highlights a correlation between the S&P 500 index and average IP address prices. Conversely, during economic downturns and recessions that lead to declining stock indices, IP address value tend to decrease due to reduced demand.

These findings point to a remarkable stability in IP address pricing dynamics, with a notable exception observed during a summer period when the economy grew while IP prices declined. The interlinkages between IP address price movements and the broader economic landscape provide clear indicators of the perceived financial value of these digital assets, further affirming the notion that IP addresses have become an integral asset class within the global economy.

Stock market influence on MRR 

The relationship between IP address sale prices and the broader economic landscape not only highlights the perceived financial value of these digital assets but also reveals a connection between our role as an IPv4 provider and Monthly Recurring Revenue (MRR), and how it relates to stock market fluctuations.

Our Data Analysis Team conducted a comprehensive evaluation of various key metrics, including MRR, customer churn, Lifetime Value (LTV), and customer acquisition cost. While industry standards provide guidance for many businesses, our unique niche presented challenges in setting precise LTV targets due to variations in products and our distinctive business model.

The analysis of churn rates and the potential for customer cross-sell highlighted difficulties stemming from inconsistent historical data, while MRR exhibited recurring fluctuations despite the passage of time. A notable finding was the alignment of our MRR with the FTSE 100, the UK’s largest index, distinguishing itself among various financial indices.

Our clients, who primarily operate on a project-based model, are sensitive to economic conditions. Their demand for IP addresses is closely tied to project execution, leading to fluctuations in churn rates and our MRR.

These insights into the connection between stock markets and MRR offer valuable understanding for other IPv4 providers and IP-related companies seeking to comprehend their performance within the global economy.

IP addresses as stable and predictable assets  

In contrast to volatile stock markets where share prices fluctuate dramatically in reaction to news, macroeconomic risks, and speculation, IP addresses are demonstrating remarkable stability, characterized by highly predictable demand and pricing.  

This stability arises from the integral role IP resources play in the technical and economic framework that underpins the Internet. Today, both technology companies and digital enterprises perceive IP usage not as arbitrary expenses, but as planned budget allocations, akin to office rentals, equipment procurement, or employee salaries. 

Furthermore, the anticipation of Amazon’s hourly IPv4 pricing model, amounting to nearly $43 per address per year, reinforces this stability. Amazon’s pricing model effectively sets an industry benchmark for what constitutes a “fair” annual IPv4 leasing rate. The alignment of other market players with this benchmark solidifies Amazon’s position as a leader in price determination. 

Additionally, the slow adoption of IPv6 after 20+ years of availability, combined with the continued reliance on IPv4, reinforces the enduring demand for the latter. This stability in the IPv4 market indicates that IPv4 resources will remain a go-to choice for the foreseeable future, further contributing to their status as stable and valuable digital assets.  

Preparing for an evolving digital economy 

While IP addresses have historically been viewed as technical resources facilitating networked communication, the evolving internet economy necessitates recognizing their financial significance. In this digital age, understanding the financial dimensions of IP addresses is crucial for companies aiming to thrive. 

We now grasp our pivotal role within the broader economic landscape. IPv4 addresses have transformed into tangible and valuable assets, mirroring fluctuations in overall economic indicators. This revelation carries substantial implications, emphasizing IPv4’s role as a significant component of the economic cycle. As a result, it has become an integral consideration in the long-term cost-planning strategies of forward-thinking businesses. 

To prepare for the digital future, organizations must proactively enhance their IP address governance frameworks. Effective IP management should be seamlessly integrated into core financial strategies and investment plans. While forecasting IP address valuation trends might initially seem complex, businesses can rely on the fundamental market dynamics of demand, supply, and scarcity as a reliable foundation for making informed predictions. By doing so, they can ensure their readiness to navigate the evolving digital landscape with financial foresight and success.