BY GABE FRIED, CHIEF EXECUTIVE OFFICER, HILCO STREAMBANK
AFRINIC joined the other 4 RIRs in allowing IPv4 resource transfers between organizations outside of the normal merger and acquisition sphere. Qualifying recipients may now receive IPv4 addresses from AFRINIC region based organizations that have surplus resources. As these resources exist in limited supply, the question on many minds is “what’s the right price for address space?”
Pricing in new markets looks like the footsteps of a child first learning to walk. They may be pointed in different directions, infrequent in their impressions, and somewhat hard to predict at first. As the child learns to walk, the cadence and frequency and direction of the footsteps becomes more clear and easier to understand and predict.
Many participants in the AFRINIC region will use pricing signals from the other regions with robust trading as a guide, but this guide may be somewhat misleading, as these markets are more mature and have very efficient broker networks and therefore the transaction volume is quite high. This creates a clear and consistent set of pricing data when publicly available. Currently, the only public repository of transaction histories of any size can be found on ipv4auctions.com here.
Ultimately, the market clearing price is determined by a fairly efficient negotiating process whereby buyer and seller have access to market information and with respect to current pricing, it’s unlikely that either is going to get a “grand bargain.” Sellers will not give their space away at absurdly low prices in most circumstances and buyers are typically unwilling to pay a premium over market prices absent some additional circumstance such as quick sale, or seller financing.
In the early days of these new markets, sellers will rely on market experts to assemble a constellation, however faint, of market information on which to make decisions on price. This is one of the reasons that auctions make sense in markets with very little activity. Auctions create a sense of urgency around a possible transaction that motivates buyers to move more quickly than they might with a privately negotiated sale, and auctions are considered “self-comping” from a buyer’s perspective meaning that any prior bid can be viewed as a “comparable” transaction in the marketplace because you know there’s another organization that places a nearly identical value on the same asset.
But where should the seller set their reserve price, or opening price? In a liquid market with high transaction volumes, sellers typically choose a price that reflects the current trend line. If prices are rising they may choose an opening price at or slightly above the last closing price. If prices are falling they may choose a value lower than the last closing price to discourage buyers from waiting for further price drops. Choosing a price as one of the first sellers on the marketplace is somewhat risky for a number of reasons. First, if there are insufficient buyers aware of the market, the address range may not sell, but worse than that, it may be unclear if the lack of a sale was related to price or just awareness. If there are a number of qualified buyers looking for addresses then failure to transact indicates the price is too high. Lowering the opening price ought to trigger bidding.
At IPv4.global we are aware of how difficult it can be to launch a marketplace for an asset that previously had no exchange value. In 2014 we launched a public online marketplace for smaller ranges of IPv4 (/18 and smaller) and over the course of our first year we facilitated the trade of approximately a /17 in the aggregate. Hopefully that data was helpful to those who watched those transactions or looked them up as part of their own research into market value. Over that year, we experienced two phenomenons which limited the marketplace. First, sellers with unrealistic price expectations, whose addresses would remain unsold for months while buyers, unclear of the reasonableness of the asking price, sat on the sidelines. Once the volume increased, even just a little bit, the pricing became much tighter and the number of days between listing and selling shrank dramatically.
Finding buyers is the key to reducing the time it takes to create transactions online. We’ve already begun the hard work of finding buyers, with several dozen registrants from the AFRINIC region already on our site, and more registering each week. We’re looking forward to hosting their first transactions. Visiting the site is free and does not require an NDA. An NDA is only required to view specific address ranges. Registering on the site ensures you’ll receive notice of when new address ranges are available for sale. We look forward to working with address holders and network operators in the AFRINIC region and creating enough fluidity in the marketplace to help business people make informed decisions and create meaningful plans for their networks.
As always, we remain committed to operating with the guidelines of the 5 RIR’s respective rules for transferring resources to qualified recipients from verified sellers. We hope to continue to be the leading source of pricing and volume information for market participants to help transacting parties make informed decisions for their organizations.