Return addresses: A look inside the thriving IPv4 resale market

What’s it like buying and selling IPv4 addresses? And who is responsible when geolocation or blacklisting challenges emerge from reselling addresses? These and other questions flooded my inbox after my earlier article on this subject appeared here on TechGenix. It seems that article raised more questions in people’s minds than it answered as many readers of WServerNews, our popular newsletter that goes out each week to more than half a million IT professionals around the world, contacted me privately and directly asking if I could provide more information on how the IPv4 resale market works in practice. Not being that much of an expert concerning the workings of that market, I reached out instead to someone who is actively involved in the business end of procuring and providing customers with blocks of IPv4 addresses they need for their businesses. Gabe Fried is the CEO of IPv4.Global,a marketplace created by Hilco Streambank to address the global shortage of IPv4 space. IPv4.Global provides buyers and sellers with the most transparent transaction platform available, and interested parties can look at price information by block size and region with just one click. I recently chatted with Gabe about the IPv4 reseller market, some of the challenges customers face when they buy preowned addresses, and why it’s best to purchase addresses through a broker or reseller. The following is an excerpt from the conversation I recently had with Gabe.

ipv4 resale
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MITCH: Thanks, Gabe, for agreeing to let me interview you about how the IPv4 resale market functions and the challenges customers can face when using preowned address blocks. Let’s start out with the basics. Why does the marketplace for reselling IPv4 addresses even exist nowadays? What’s holding customers back from simply deploying IPv6?

Gabe Fried

GABE: The marketplace for IPv4 addresses exists simply because IPv6 deployment initiatives didn’t start early enough. The Internet as an organism continues to grow, adding users and content at a significant rate each year. The IPv4 protocol is still dominant, and so in order to address both the growth overall and the desire to deploy IPv6, many organizations are deploying some form of dual-stack (using both IPv4 and IPv6), which means they still need IPv4. In purely economic terms, IPv4 and IPv6 are not perfect substitutes for each other, although much of the press around IPv4 scarcity and IPv6 deployment treats them as such. Many organizations are still only in the “thinking” stage about IPv6 deployment, and others are further along. For all of these organizations the diversion of resources to deploy IPv6 doesn’t rank highly against competing alternatives for those resources.

The marketplace for IPv4 addresses exists simply because IPv6 deployment initiatives didn’t start early enough The Internet as an organism continues to grow, adding users and content at a significant rate each year.

The business case is not yet there for many firms. Many of our early IPv4 buyers have come back and made repeat purchases, which suggests that whatever they are doing with respect to IPv6 deployment isn’t far enough along for them to start turning off IPv4.

MITCH: OK, let’s say you’re an enterprise and you no longer need a block of IP addresses that was previously assigned to you by a registrar. How can you put it up for resale? And is it worth the time and effort to try to find a buyer?

GABE: The first step is to understand what the rules are for your address space. Space allocated in AFRINIC and LACNIC are not yet transferrable to other regions. In all regions, there is some burden on the buyer to demonstrate that they are a “qualified recipient” for the space. Qualification criteria vary by region. Much of the value we create for buyers and sellers at IPv4.Global is bringing those parties together. By aggregating buyers and sellers we eliminate the search costs for market participants. We also have a continuous flow of both sellers and buyers which makes it much easier to find a match for size, region, and timing. Many of our sellers have fiscal year end targets, and many of our buyers have budgets available only during some portions of their fiscal year. Most organizations don’t have a dedicated person in charge of either buying or selling IPv4 space. Some of the very large buyers have a small team dedicated to that effort, and most sellers do not. For many of them this is a one-time project for which it isn’t worth allocating a resource to acquire a lot of market knowledge and develop a network of buyers and manage a competitive sale process. We do that work, and facilitate the post-transaction reassignment of resources much in the same way a real estate broker would help you find new office space or a new home. Or sell what you have.

MITCH: What sort of customers are buying IPv4 addresses?

GABE: Our customers vary from small ISPs and small hosting companies all the way to the largest cloud services providers. In the middle there are a large number of end-user organizations operating distribution businesses with multiple locations, wireless carriers, government agencies, and much more. Many of our customers were getting addresses from upstream providers before coming to buy for their own account. While ISP and hosting companies are obvious customers, we find customers in industries as diverse as trucking, manufacturing, legal and financial services, and SAAS companies.

MITCH: Why is it better to buy addresses from a broker like Hilco Streambank than do a private deal with an enterprise wanting to sell their address block?
GABE: We specialize in this, so buyers can take advantage of the expertise we’ve developed over more than seven years and well over 1,000 transactions. This includes:

  1. Real time pricing information
  2. Use of our transaction documentation
  3. Our relationships with registries to smooth out any bumps in the process
  4. Free escrow services
  5. The availability to substitute another address range if the seller has challenges in the transfer process,
  6. And, most importantly, the use of our customer’s time

For sellers, we do all of that plus we can run a private sale process or put the addresses up on our online platform. All of this is designed to let our customers spend their time at their regular jobs with the confidence that we will complete their transaction quickly and efficiently.

MITCH: Let’s move on and discuss the problems that can arise when you buy a preowned address block. Personally, I prefer to buy a new automobile than a used one because I’m afraid I might end up with a lemon. What kind of lemons can customers who purchase previously assigned IPv4 blocks end up with that can cause them nightmares?

GABE: The overwhelming majority of the address space we transact doesn’t create any post-closing issues for the buyer. Once in a while, buyer diligence before the transaction identifies stray announcements or blacklisting, which can be dealt with prior to a sale. We check these as well, but since they can change overnight we strongly recommend that our buyers scan the space and check the various blacklist sites before they make a purchase decision. Geolocation issues that come up after a purchase can be dealt with by sending a letter to the three or four firms that maintain geolocation databases.

IPv4 addresses

MITCH: How can a company like Hilco Streambank help prevent customers from struggling with the geolocation and blacklisting challenges that can arise with preowned address blocks they purchase? I would guess it involves vetting address blocks before you agree to handle the resale of them, right? Anything else?

GABE: We do investigate the space before we agree to represent the seller. Our primary concern is that they are who they say they are and that they are authorized to represent that address space. This dovetails with the requirements of the Registries, all of whom are working in concert to prevent fraudulent sales of address space. After that, we do look at blacklisting but geolocation needs often vary by buyer, and they can and should check if that is important to them. The way our online platform works, registered buyers can preview the address ranges before they bid. The diligence is up to them because not everyone cares about the same things. The overwhelming majority of our address space has either never been announced at all, or not used for email. Our buyers who are not planning on using their newly acquired address space for email or for ISP end-user assignment are relatively insensitive to spam and geolocation issues.

MITCH: What other sorts of issues are important for customers to keep in mind when they consider purchasing blocks of IP address that were previously assigned to other parties?

GABE: I think you’ve covered the most frequent issues that we have come across. One thing that is important is whether the seller, or the broker you are working with, is willing to step in to resolve any issues that might arise during or after closing. We will do that whenever we can because we are committed to our customers. Reputation is extremely important to us and we guard that very carefully with our buyers, our sellers, and the Regional Internet Registries we work with each and every day.

It almost defies belief when we tell people outside this industry that there is an asset class that has largely been allocated to tens of thousands of organizations, for free in most cases, that now has approximately $90 billion of value.

MITCH: Tell us more about Hilco Streambank. How did you get into the IPv4 brokerage business in the first place, and why?
GABE: Streambank (before we were acquired by Hilco Global) was an asset valuation and disposition firm whose expertise was principally intangible assets and we operated almost exclusively in the domain of insolvency and bankruptcy. In 2011 we learned about IPv4 as an asset in the Nortel bankruptcy and at the time we were getting engaged by the estate of Borders Group (Borders Books) to sell their intangibles. We asked our client to allow us to sell their IPv4 addresses and they added that to our mandate. At the same time, we were also doing work for the Circuit City Liquidating Trust, and discovered that they had IPv4 addresses as well. We did some research, spoke to network operators, and concluded that there was going to be a need for brokerage firms. Fast forward seven-plus years and 1,000-plus transactions later and we’ve become the leading global marketplace for IPv4. Our core asset valuation and disposition business is also strong and growing and the two business lines benefit from each other because we often find IPv4 with our core customers.

MITCH: Anything else you’d like to add to wrap things up before we finish?

GABE: I’m really glad that you’re bringing attention to this marketplace. It almost defies belief when we tell people outside this industry that there is an asset class that has largely been allocated to tens of thousands of organizations, for free in most cases, that now has approximately $90 billion of value (4.3 billion addresses at $21/each). The daily trading volume is obviously a small fraction of this because most of the address space that has been allocated is deployed on an operating network, but the numbers are staggering nonetheless. At the other end of the spectrum, there are a lot of members of the Internet community who would like to click their heels three times and magically be in IPv6-land. Spend a few minutes reading the mailing lists of the various registries and ‘NOGs and you’ll quickly appreciate that this is a complicated evolution that will take a long time to work itself out. Thanks for spending the time on this. It is an important and oft-overlooked part of the story of the Internet.

MITCH: Gabe, thanks very much for giving us some of your valuable time!

GABE: Thank you, Mitch. Hopefully, this proves to be valuable to your readers.

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