While the standard communications network is designed to offer a competitive cost structure, low latency networks have turned this model upside down: speed takes priority over cost.
Financial firms used to be the sole users of low latency networks. Financial firms generate revenue from the purpose built, low latency networks through arbitrage created between markets with electronic trading. Low latency links have been designed to provide the fastest possible speeds between electronic trading locations, allowing execution of trades between exchanges in milliseconds. Financial firms take advantage of the difference in the buy and sell price on different exchanges. The difference in the buy and sell price is extremely small, but by trading in large volumes, the firms can earn millions of dollars every day.
While firms in the banking, financial services and insurance industry segments are the primary users of low latency applications, other companies are now ready to pay a premium for the improved performance. This improved performance, between specific locations, delivers benefits that outweigh the higher cost. Low latency networks are of interest to pharmaceutical companies, IT organisations, cloud service providers and content delivery specialists. These are companies which are running business-critical applications or revenue critical applications which will not work optimally on networks with high latencies. It is no longer a simple binary question of an application working or not, but an investment in the network latency performance can deliver direct business benefits through improved application performance.
Several service providers offer low latency networks, providing options to the market. As the market expands beyond the financial services industry, new service providers are expected to enter the market with new choices. As the number of choices from service providers expands, choosing the right provider will become more complicated and time consuming.
Here are some questions to consider:
Global, regional or metro low latency?
Customers need to focus on providers that can deliver their requirements - for metro needs, go to the local providers in that market. For regional low latency connectivity, the service provider options will change since not all metro providers go beyond the metro. Finally, global providers will be a separate set of service providers who have the expertise and investments on a global scale.
Point-to-point, or multipoint?
Traditionally, companies have worked with point-to-point links to build and manage the network they need. However, more and more companies are considering the cost benefits offered by multipoint Ethernet. Which solution do you need? The answer is very specific to your operations. Point-to-point links are common place, but ignoring the advantages of multipoint could put you at a competitive disadvantage.
Exchange to exchange, or city to city?
Sign up for CIO Asia eNewsletters.