Pricing and Efficiency in the Market for IP Addresses

Edelman, Benjamin, and Michael Schwarz. “Pricing and Efficiency in the Market for IP Addresses.” American Economic Journal: Microeconomics 7, no. 3 (August 2015): 1-23. (lead article.)

We consider market rules for transferring IP addresses, numeric identifiers required by all computers connected to the Internet. Transfers usefully move resources from lowest- to highest-valuation networks, but transfers tend to cause socially costly growth in the Internet’s routing table. We propose a market rule that avoids excessive trading and comes close to achieving social efficiency. We argue that this rule is feasible despite the limited powers of central authorities. We also offer a framework for reasoning about future prices of IP addresses and then explore the role of rentals in sharing information about the value of IP address and assuring allocative efficiency.

Aspira Networks Charging Merchants for Traffic That’s Otherwise Free

Affiliate marketing is supposed to be low-risk for merchants: in theory, merchants only pay affiliates when a user makes a purchase. Specifically, an affiliate should earn a commission only if 1) the user browses the affiliate’s site, 2) the user clicks the affiliate’s specially-coded link to the merchant, and 3) the user makes a purchase from the merchant. But rogue affiliates find ways to bypass these requirements — be it cookie-stuffing, adware popups, typosquatting, or network-based traffic interception. In this piece, I show Delaware-based Aspira Networks approach: configuring its partners’ networks so that if a user makes a purchase from a targeted merchant’s site, the merchant has to pay Aspira an affiliate commission — even though Aspira did nothing to cause or encourage the user’s purchase.

The method is straightforward. Aspira partners with network operators to monitor and reroute users’ browsing. If a user requests a targeted merchant, Aspira intercedes — redirecting the user to an "finder" page, through an affiliate click link, then back to the merchant. The affiliate redirect causes merchants to conclude, mistakenly, that Aspira caused users’ subsequent purchases.

See examples of Aspira’s redirects in action, targeting the following merchants:
   GoDaddy – video, packet log
   Home Depot – video, packet log
   Travelocity – video, packet log

In testing, I found that Aspira targets roughly a quarter of large mainstream US affiliate merchants. I found Aspira systematically using CJ publisher account 3965551. In testing, I did not find Aspira currently targeting merchants using LinkShare, though an early Aspira investor pitch (dated August 2009 in metadata) indicates that Aspira has worked with LinkShare as well as Google Affiliate Network.

Merchants have no reason to pay for Aspira’s traffic. Though affiliate network reports may attribute sales to Aspira, Aspira does not actuallycause additional or incremental purchases. Rather, these are purchases that merchants would have received anyway. Aspira tells prospective merchants that they will "sell more products" by working with Aspira, but I see no evidence to support that claim. Quite the contrary, in fact; in my testing, Aspira did not genuinely promote any merchants. Aspira claimed commission only after a user had already reached a merchant’s site.

Notably, Aspira’s networks violate longstanding and broadly-applicable network policies. For example, the Commission Junction Publisher Service Agreement indicates that commission is only due for "clicks through links" (provision 3.a). Aspira’s automatic redirects entail no genuine user "click" on any link; there’s an automatic redirect but not an actual click. Other CJ rules disallow "transactions … not in good faith" including all manner of automatic and nonincremental leads (provision 1.d.ii). Here too, Aspira falls short.

In August 2011, Zhang et al. uncovered Paxfire similarly redirecting users through affiliate links. Under litigation pressure and media scrutiny, Paxfire found itself banned from Commission Junction, LinkShare, and Google Affiliate Network. I suggest the same resolution for Aspira.

Aspira’s site focuses on public installations (coffee-shops and the like) where, in principle, one might imagine that network access was made available by payments from Aspira. But I found Aspira redirecting traffic from an ordinary office served by Indiana ISP Smithville Communications. So far as I know, Smithville never notified its customers that it would be monitoring their communications, redirecting them through affiliate links, or sharing their browsing activity with Aspira. (Smithville’s privacy policy makes no mention of Aspira or sending users’ browsing to third parties.) Nor did Smithville offer customers a discount for allowing Smithville and Aspira to monitor and redirect their browsing. Other users report (and criticize) similar redirects when using standard residential and commercial ISPs Access Media 3, Arvig, and OnShore Networks.

Aspira’s site gives little detail about its revenue from redirecting users through affiliate links. Partner Cash4trafik says "typical operators have realized historically …. about $1.00 – $10.00 per subscriber per year." Notice that revenue must be shared among affiliate networks, Aspira, Cash4traffik, and ISPs — so if an ISP gets $5, the others might take another $15 along the way. Indeed, early Aspira financial projections — posted to the web and readily found by web search — indicate that Aspira planned to retain a 40% to 67% share of affiliate commissions.

Meanwhile, Aspira’s financial projections show a particularly brazen attempt to claim payments despite minimal effort. As of 2010, Aspira projected 2013 revenue climbing to $63 million with expense reportedly to stay below $7 million. Business plans are often overly optimistic, but an 89% profit margin is difficult to reconcile with genuine efforts to find incremental customers. In contrast, it’s wholly consistent with the practice I observed in which Aspira claims commission without any expense to find or attract users.

Whatever the benefits to Aspira and its partners, the effect on merchants is clearly negative: Aspira causes extra advertising expense without providing incremental purchases. Affiliate merchants should reject Aspira’s approach, save their marketing budgets for publishers with genuine incremental value, and encourage Aspira to shift to other activities.

Thanks to Thomas Rice for bringing this practice to my attention and facilitating my collection of proof of Aspira’s practices.

Guidance from ARIN on Legal Aspects of the Transfer of Internet Protocol Numbers

Edelman, Benjamin, and Stephen Ryan. “Guidance from ARIN on Legal Aspects of the Transfer of Internet Protocol Numbers.” Business Law Today (May 2013).

Every device connected to the global Internet needs a numeric identifier, an “Internet Protocol” address (“IP address”). The Internet’s continued growth presents a challenge: most IP addresses have already been assigned to networks and organizations, leaving few left for newcomers and growth. In this context, some networks seek to sell the addresses they previously received–sales that can usefully transfer resources to the networks that most need them, but with certain risks that must be handled with appropriate care. We examine the legal basis of applicable rights and identify the circumstances in which such transfers are permitted.

Towards Efficiencies in Canadian Internet Traffic Exchange

Edelman, Benjamin, and Bill Woodcock. “Towards Efficiencies in Canadian Internet Traffic Exchange.” Canadian Internet Registration Authority, September 2012.

Canadian Internet access is heavily and unnecessarily dependent upon foreign infrastructure, especially U.S. infrastructure. This dependence imposes significant burdens upon Canadian Internet users:

  • Service prices are higher than would be the case if Canadian networks more densely interconnected domestically.
  • Network speed is slower than would be the case if Canadian networks more densely interconnected domestically.
  • When data en route from one Canadian network to another passes through other countries, the data is subject to examination by companies and government authorities in those countries. Canadian data-protection laws are understood not to protect data as it passes through other countries.

Despite these challenges, experience in other countries shows a clear way forward. By establishing more Internet exchange points (IXPs) within Canada, Canada can reduce the portion of network traffic that travels from one point in Canada, through the United States or other nations, and back to another point in Canada. The key benefits:

  • By reducing reliance on costly international data transit, additional IXPs will reduce networks’ ongoing operational costs. These cost savings will flow to Canadian Internet users, and unnecessary export of capital will be reduced.
  • By providing high-speed domestic links, additional IXPs will increase the amount of bandwidth available to Canadian users, mitigating networks’ bandwidth shortages and removing networks’ incentives to impose bandwidth throttling and usage caps.
  • By favoring shorter and more direct routes, additional IXPs will reduce network latency, improving the performance of new services like video and cloud-based applications.
  • By allowing Canadian data to remain in Canada as much as possible and as often as possible, additional IXPs will reduce the risk of Canadian data becoming subject to foreign laws and practices.
  • By increasing the richness and density of connections between Canadian networks, additional IXPs will increase the reliability of Internet access in Canada and its resilience to disaster and attack.

Internet Protocol Numbers and the American Registry for Internet Numbers: Suggested Guidance for Bankruptcy Trustees, Debtors-in-Possession, and Receivers

Ryan, Stephen, Benjamin Edelman, and Matthew Martel. “Internet Protocol Numbers and the American Registry for Internet Numbers: Suggested Guidance for Bankruptcy Trustees, Debtors-in-Possession, and Receivers.” BNA’s Bankruptcy Law Reporter (January 5, 2012).

Bankruptcy trustees, debtors-in-possession, and receivers are seeing an increase in efforts to sell Internet Protocol (IP) addresses, also referred to “IP Numbers.” IP Numbers are the unique numeric identifiers associated with computers connected to the Internet. While sales of IP Numbers can deliver value to the estate, IP Numbers are unusual in that their value, use, and transfer are enhanced by applicable contract and policy. Ignoring the contracts and policies can delay the sale process and reduce or negate the value of IP Numbers. This article seeks to provide an overview of issues associated with IP Number sales, as well as suggesting an approach for permissible and straightforward sales to obtain the highest value.

Running Out of Numbers: Scarcity of IP Addresses and What To Do About It

Edelman, Benjamin. “Running Out of Numbers: Scarcity of IP Addresses and What To Do About It.” Auctions, Market Mechanisms and Their Applications 14 (2009): 95-106. (Springer-Verlag Lecture Notes of the Institute for Computer Science.) (Featured in Working Knowledge: When the Internet Runs Out of IP Addresses) (Circulated in 2008 as Running Out of Numbers? The Impending Scarcity of IP Addresses and What To Do About It.)

The Internet’s current numbering system is nearing exhaustion: Existing protocols allow only a finite set of computer numbers (“IP addresses”), and central authorities will soon deplete their supply. I evaluate a series of possible responses to this shortage: Sharing addresses impedes new Internet applications and does not seem to be scalable. A new numbering system (“IPv6”) offers greater capacity, but network incentives impede transition. Paid transfers of IP addresses would better allocate resources to those who need them most, but unrestricted transfers might threaten the Internet’s routing system. I suggest policies to create an IP address “market” while avoiding major negative externalities–mitigating the worst effects of v4 scarcity, while obtaining price discovery and allocative efficiency benefits of market transactions.

Running Out of Numbers? The Impending Scarcity of IP Addresses and What To Do About It

Edelman, Benjamin. “Running Out of Numbers? The Impending Scarcity of IP Addresses and What To Do About It.” 2008.

The Internet’s current numbering system is nearing exhaustion: The Internet’s primary communications protocol, “IP” (more precisely, IPv4) allows only a finite set of computer numbers (“IP addresses”), and central authorities will soon exhaust the supply.

An alternative IP standard, IPv6, would dramatically increase Internet address capacity. But network incentives impede transition to v6. For example, a device with only a v6 address cannot directly retrieve most web sites because most web sites have only v4 addresses. Consider the undesirability of owning the world’s first fax machine (no one to communicate with); to date, v6 has suffered a similar problem, with the additional challenge that existing IPv4 systems boast widespread usage (making an upgrade to v6 appear particularly unnecessary). Furthermore, v4-v6 translation systems are limited at best — allowing v6-only computers to receive some kinds of v4 content, but often failing to support proprietary or nonstandard systems such as VoIP, videoconferencing, multiplayer video games, and custom software.

With these substantial disincentives and limitations hindering v6 transition, v6 deployment has been slow. It seems continued use of IPv4 will remain necessary for the foreseeable future — even after central authorities have no more v4 addresses to give out. Today I’m posting an initial analysis of market mechanisms to reallocate existing v4 addresses and facilitate v4’s continued use. In particular, I consider the possible effects of paid transfers of v4 addresses. I emphasize rules to ameliorate the worst effects of v4 scarcity, while preserving the core principles of existing regulation and avoiding major negative externalities.

Disclosure: I provide advice to ARIN’s counsel on matters pertaining to v6 transition, v4 exhaustion, and possible revisions to ARIN’s v4 transfer policy. But this paper expresses only my own views – not the views of ARIN, its Board, or its staff. I write on my own behalf, not for ARIN, nor at ARIN’s instruction or request.

Akamai Technologies (teaching materials) with Thomas Eisenmann, and Eric Van den Steen

Edelman, Benjamin, Thomas R. Eisenmann, and Eric J. Van den Steen. “Akamai Technologies.” Harvard Business School Case 804-158, March 2004. (Revised June 2010.) ( educator access at HBP. request a courtesy copy.)

As the leading content delivery network, Akamai helps Internet companies deliver Web site content to end users with fewer delays and lower costs. Describes the strategic management challenges facing Akamai in early 2004. The company is poised to offer its next generation of services for enterprise customers, which will allow them to run Internet-enabled applications (“Web services”)—on demand, with minimal capital investment—from Akamai’s network of 15,000 servers located in ISP facilities at the Internet’s “edge”—close to end users. Many large enterprise software companies have developed proprietary platforms for creating and managing Web services. Akamai must decide which of these software companies would be attractive partners and whether it can and should remain uncommitted to a platform as it helps customers deploy Web services. A rewritten version of an earlier case.

Intentionally Invalid Whois Data

Edelman, Benjamin G. “Intentionally Invalid Whois Data.” US House of Representatives, Committee on the Judiciary, Subcommittee on Courts, the Internet, and Intellectual Property, September 2003.

As the DNS is currently structured, registrants are under only an honor system to provide accurate Whois data. Meanwhile, it makes no economic sense for registrars to enforce Whois accuracy. The result is that in terms of accuracy, when compared with other compilations of public data (such as driver’s licenses and trademark registrations), the Whois database is substantially fiction. I suggest 1) a reduction in the lenience of opportunity to “cure” intentionally invalid data, 2) for registrants with multiple domain names with intentionally invalid data, forfeiture of all domains when any are to be cancelled, 3) statistically valid surveys of registrars’ Whois accuracy, with public reporting of each registrar’s accuracy, 4) public reporting of Whois accuracy complaints and their dispositions, and 5) financial and other penalties to registrars with poor Whois accuracy records.

Internet Filtering in China

Zittrain, Jonathan, and Benjamin Edelman. “Internet Filtering in China.” IEEE Internet Computing 7, no. 2 (March/April 2003).

The Chinese government has made few official statements about its filtering of Internet content, but this report explores the scope, depth, and various methods used to selectively bar Internet access through networks in China.