Speed is where margins increase in Data Center Solutions

Rich Miller at Data Center Knowledge has a good post on the value of a millisecond for competitive carriers.

More Speed, at $80,000 a Millisecond

January 24th, 2011 : Rich Miller

A panel at last week’s PTC ’11 conference in Honolulu provided a glimpse at the startling economics on the shifting frontier of low-latency trading. The difference in pricing between the fastest route and runners-up can be dramatic, according to Will Hughs, president and CEO of Telstra Americas.

“On the Chicago to New York route in the US, three milliseconds can mean the difference between US$2,000 a month and US$250,000 a month,” Hughs said. “The financial traders will pay a premium.”

This data fits well with what I have been telling some clients that speed is where margins increase.  Federal Express expanded its capacity by buying a bunch of 727 from United Airlines cargo operations.  In the conversation with a United executive and FedEx executive, the United person was so glad to get out of the cargo business.  FedEx was charging $3.60 a pound, United $0.20 a pound.  A big difference if you sell next day delivery (speed vs. capacity).


Note most are focusing on low latency financial trading.

That premium illustrates the value proposition for the network operators who can provide those extra milliseconds and microseconds. That’s why we’ve seen new fiber builds like Spread Networks’ recent trenching of a route connecting  key trading hubs in Carteret and Secaucus, which could also provide some customers in an Equinix data center in Secaucus with faster routes to exchanges in Chicago. Meanwhile, Hibernia Atlantic has announced plans to build a trans-Atlantic submarine fiber optic cable that will provide faster connections between New York and London than any available today. These illustrate how capacity isn’t the only metric driving fiber economics.

But, you know where else the money is?  Gaming.

However, online gaming demands low latency so as not to disadvantage players with low latencies due to highly varied ping times among fellow players - for this reason, game server applications generally favor players with lower latencies by determining the data relating to a player as known to the server, and allowing players to act on that, not the data as known by the fellow player's client.

Low latency is currently a hot topic in the capital markets, particularly where trading based on algorithms (Algorithmic Trading) is used to process market updates and turn around orders within milliseconds. Low latency trading refers to the network connections used by financial institutions to connect to stock exchanges and Electronic communication networks (ECNs) to execute financial transactions. With the spread of computerized trading, electronic trading now makes up 60% to 70% of the daily volume on the NYSE and algorithmic trading close to half of that. Trading using computers has developed to the point where millisecond improvements in network speeds offer a competitive advantage for financial institutions.

Low latency is also being discussed in the advertising community, as a form of advertising that responds rapidly to consumer inputs, often from tweets.

And as this wiki post mentions, advertising is a big area too.

Not a bad market group to go after – Securities trading, Gaming, and Advertising.

Thanks Rich for an informative post that helps me prove my point that speed is worth a bunch of money.