Are we past peak IPv4?
Value of IPv4 address blocks has dropped sharply in the last year
From February 2024, Amazon will be charging customers for every public IPv4 address they use. The move is of course driven by the shortage of IPv4 address blocks and the continuing escalation in their cost. However, if we look at the prices fetched by address blocks currently traded, we see that their value plateaued about 2 years ago, and has actually fallen significantly in the last 12 months. What's more, the price drop appears to be structural, suggesting that we may have already passed peak IPv4. That's a clear (economic) signal that IPv4's significance is in decline, as IPv6 becomes increasingly commonplace.
From February 2024, Amazon will be charging customers for every public IPv4 address they use. Traditionally, a customer's first IPv4 address has been "free" – i.e. included in the price of a Virtual Private Server (VPS). Under the new pricing structure, however, there'll be a charge of 0.005 cents per hour, or 3.60 per month. That's the same as the current charge for each extra IPv4 address, if you want any for systems running in the AWS cloud. It's also broadly in line with the IPv4 address rental prices for Microsoft Azure and Google Cloud.
Sharp price drop
Amazon's move is of course driven by the shortage of IPv4 address blocks and the continuing escalation in their cost. However, if we look at the prices fetched by address blocks currently traded, we see that their value plateaued about 2 years ago, and has actually fallen significantly in the last 12 months. A year ago, the typical price of an IPv4 address was still about 50 dollars, whereas IPv4.Global now puts the figure at about 35 dollars.
Figure 1: IPv4 address prices. Source: IPv4.Global.
Structural decline
Prices have, of course, always been subject to fluctuation, Also, for reasons of routability, larger address blocks inevitably command higher prices than smaller blocks. Nevertheless, the context and sustained nature of the downward trend definitely suggest that the decline is structural.
IPv4 market watchers point to several possible reasons for the downturn:
Over time, the blocks being traded have become smaller, leading to a drop in the average price per address. However, analysis of trading in similarly sized blocks shows that prices have fallen across the board. Only the very biggest blocks – i.e. /16 blocks (containing 216 = 65,536 addresses) and bigger – still fetch more than 50 dollars per address. And, even in that size bracket, prices seem to be on the way down.
Figure 2: Prices of IPv4 addresses (address blocks /16 and larger). Source: IPv4.Global.
The economic climate has changed.
The price jump seen in 2021 was driven by the post-COVID economic restart
Peak IPv4
Although no one is saying it, we may now be past peak IPv4. As the adoption of IPv6 progresses, there will inevitably come a point where the demand for IPv4 addresses goes into decline and prices follow suit.
IPv6 users now account for 45 per cent of Google visitors. What's more, that percentage has for some time been increasing by about 5 percentage points a year. If it continues to do so, IPv6 will achieve a 60 per cent share of Google visits quite soon.
Figure 3: Global client-side IPv6 use. Source: Google.
IPv6-only with IPv4aaS
Interestingly, RFC 9386 (published in April this year) says that access providers should switch to IPv6-only when IPv6 traffic accounts for 50 to 60 per cent of total traffic (not quite the same thing as visitor numbers). We recently published an article exploring the technical implications of reaching that tipping point: Internet providers, most of whom run dual-stack set-ups with (CG)NAT and DS-Lite, will need to migrate to IPv6-only architectures. Access to IPv4-only servers will then be realised by means of IPv4aaS, based on the latest generation of transition mechanisms: NAT64, DNS64 and 464XLAT. Many mobile service providers have already gone over to 464XLAT because of their large customer bases.
Not only does an IPv6-with-IPv4 architecture reduce the number of client-side IPv4 addresses needed, but IPv6-only also implies fewer server-side IPv4 addresses. Access to IPv6-only servers for IPv4-only clients is realised using (reverse) proxies. Combining the proxies with Server Name Indication (SNI) means that the number of IPv4 addresses required comes down in step with the decline in inbound IPv4 traffic.
In its announcement, Amazon recommends accelerating the adoption of IPv6 and cutting back the use of IPv4 addresses. At the same time as unveiling the new pricing policy, the company launched 2 new tools designed to help customers optimise their public IPv4 use. However, the accompanying recommendations make no mention of IPv6. Instead, Amazon suggests using private IPv4 address blocks for internal networks, in combination with load balancers for inbound traffic and NAT gateways for outbound traffic (implying more instances).
IPv4 hygiene
Amazon's announcement is nevertheless good news in terms of IPv4 hygiene: the need to pay for every IPv4 address used will incentivise customers to minimise their use. By the same logic, the high prices commanded by IPv4 address blocks were no bad thing, since they generated economic pressure to switch to IPv6.
Although that pressure is easing as IPv4 address block prices fall, we welcome the downturn as a signal from the market that the IPv4 era has entered its final phase. If the fall is indeed the result of price elasticity, it implies that demand is in decline, despite the 3 dominant cloud service providers having acquired vast numbers of addresses in recent years.
Huge earner
According to Scott Seligman, Senior Software Engineer at Microsoft, Amazon now has 80 million IPv4 addresses, or about 2 per cent of the available address space. Add the address blocks held by Microsoft and Google, and the total controlled by the 3 cloud giants comes to nearly 3.5 per cent of the market. [1]
Figure 4: Amazon's share of the IPv4 address space. [Source: Scott Seligman].
In 2020, network specialist Andree Toonk calculated that Amazon had roughly 100 million IPv4 addresses (unlike Seligman, he included unused IPv4 addresses in his calculation). At 2020's market price of 25 dollars per IP address, Toonk valued Amazon's IPv4 address assets at 2.5 billion dollars. [1] His latest estimate of Amazon's IPv4 address stock (128 million addresses) implies that the company's IPv4 assets are now worth roughly double that amount, despite the declining prices. Another quick calculation suggests that Amazon's massive investment in IPv4 address blocks has been a huge earner: if 50 million of the addresses are rented out, they will generate an income of 2.15 billion dollars a year.
Short shelf-life
Of course, IPv4 address blocks are not currently being sold off: Amazon, Microsoft and Google still need their IPv4 addresses to make their customers' (virtual) servers accessible to IPv4 users (Amazon has for years offered free hosting to customers with their own address blocks because of the advertising benefits: Bring Your Own IP, BYOIP). The big cloud service providers won't sell off their blocks until they're sure that demand for IPv4 addresses has gone into structural decline. However, when that point is reached, IPv4 address prices are likely to collapse quickly. That process could be accelerated if the US Department of Defense also decides to dispose of large IPv4 blocks.
With IPv4 assets worth something like 5 billion dollars, Amazon can be expected to monitor IPv4 address block prices very closely. As IPv4 use declines – driven on the user side by the shift from fixed-line to mobile services and the deployment of 464XLAT on mobile networks, and on the hosting side by the use of (reverse) proxies that, in combination with SNI, can be steadily consolidated as IPv4 traffic reduces – there will come a point when Amazon wants to sell off a significant proportion of its surplus IPv4 address blocks. Although Amazon has now stopped bulk-buying IPv4 addresses, the actual use of those addresses has barely increased: 3 years ago, Toonk estimated that 53 per cent of the addresses were allocated to AWS service, and he puts the current figure at 57 per cent – a very small increase considering the modest growth of Amazon's IPv4 address estate.
Amazon's new pricing policy will mean that it remains economically attractive for the company to retain its IPv4 assets for the time being. Charging for every IPv4 address used will also clarify how much demand there is for such addresses. What Amazon is charging will be very much in keeping with other providers' pricing models. At an annual rental of 44 dollars and a usage rate of about 50 per cent, Amazon will recover the cost of its IPv4 addresses in roughly 2 years. The fact that the company is aiming for a relatively quick payback is probably reflective of the short (financial) shelf-life of its IPv4 address blocks.