Office space in Silicon Valley isn’t the only real estate
that’s gotten scarce in the booming technology market. The U.S. organization
that distributes some of the Internet’s most important virtual property is
running out of inventory. Some savvy companies have been stocking up, but the
shortage could mean headaches—and significant costs—for U.S. businesses looking
to expand on the Internet.
IP addresses are the Internet’s equivalent of telephone
numbers. These numerical codes are different from the familiar top-level domain
names that end in .com or .org. They are used behind the scenes anytime data
moves over the Net—when a laptop requests a Web page, a smartphone posts an
Instagram photo or a Nest thermostat downloads a software update.
The shortage puts companies that maintain their own large
and growing Internet presence at the biggest risk, especially providers of
cloud-computing services. Such companies could find themselves saddled with unexpected
costs, technical problems or simply an inability to serve new customers. Those
that aren’t building out their own data centers won’t face the shortage
directly, but their online providers likely will.
Last November, Salesforce.com Inc. picked up
262,144 addresses. But the company needs new IP addresses to fuel continuing
expansion of the data centers that deliver its growing suite of Internet-based
business apps. Microsoft Corp. spent $7.5 million in 2011 on 666,624
addresses formerly owned by the bankrupt networking company Nortel
Networks.
Facebook Inc. took a different tack. The social
network moved 90% of its network from the old-school IPv4 system to the
next-generation IPv6, which offers a much larger number of addresses. The
volunteer engineers who invented the Internet created 4.3 billion addresses in
1981 as part of the IPv4 specification. IPv4 was the first version of the
Internet protocol; there were no versions 1, 2, or 3.
The billions of addresses seemed like plenty at the time.
Five regional affiliates took on the job of doling them out, free for the
asking, to anyone who could prove a need. Now those IP addresses are nearly all
in use. Only about 3.4 million are available in the American Registry for
Internet Numbers, said John Curran, the group’s president and chief
executive. ARIN manages the about 1.3 billion addresses assigned to North
America. That’s about 30% of the world supply. Mr. Curran predicts his organization
will stop handing them out by the end of summer.
The shortage isn’t as dire as it may appear. The 4.3 billion
limit applies to IPv4. But IPv6, approved in 1998—IPv5 never caught on—allows
for a mind-boggling increase in addresses to 340 undecillion, or 340 followed
by 36 zeroes, enough to assign an IP address to every atom on Earth. Companies
that run out of IPv4 addresses can upgrade to IPv6 by purchasing new network
switches and routers. About 9% of the Internet has done that so far.
But the upgrade isn’t cheap. Research firm Gartner says a
companywide migration costs about 7% of the company’s annual IT budget.
Companies spent $2.2 trillion on IT in 2014, according to the researchers at
Forrester. Eventually everyone on the Internet will have to make the leap, but
businesses with a big Internet presence have an incentive to put it off.
Meanwhile, companies that aren’t ready for the big upgrade must find addresses
where they can, often from companies that took advantage of early giveaways and
got more than they could ever use.
The hot market for IP addresses has made space for smaller
operators as well. Last year entrepreneur Elvis Velea brokered $22
million of IP transfers, totaling 2.5 million IP addresses. Mr. Velea got into the Internet business more
than a decade ago in his native Romania, buying a fiber-optic link from a local
telecommunications company and stringing network cables over his balcony to
bring his neighbors online. Now, he sees opportunities to make money
transferring IP addresses from the U.S. to Europe and the Middle East, where
demand is much higher.
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