Lee Howard, Senior Vice President at Hilco Streambank and IPv4.Global, joins Steve Katz on the Hilco Global Smarter Perspectives Podcast Series to discuss the potential for corporations, universities, and other organizations to achieve needed liquidity by leveraging an often underutilized and misunderstood IP asset: their IPv4 address blocks.
Steve Katz 0:09
Hello again and welcome to the Hilco Global Smarter Perspective Podcast Series. I'm your host Steve Katz. Today we're speaking with Lee Howard, Senior Vice President at Hilco Streambank and IPv4.Global about the potential for corporations, universities, and other organizations to achieve needed liquidity during this time period by leveraging an often underutilized and misunderstood IP asset; their IPv4 address blocks. Just as a little quick background Hilco Streambank is one of the foremost authorities on intellectual property asset valuation and monetization. And IPv4.Global, which has revolutionized the way the companies buy and sell blocks of IPv4 assets is the global leader in those transactions representing clients from both the buy and sell side. With that said, welcome to the podcast Lee.
Lee Howard 0:56
Thanks for having me, Steve.
Steve Katz 0:58
Absolutely. Well, it's great to have you on with us today. I'm sure that among our many listeners today, we have those from the IT world who may be very well familiarized with IPv4 and then we have others from the C-suite and elsewhere within the organizational structure who are probably somewhat less well-versed. So to get everybody on the same page, I'd like to start by asking you to provide a brief overview of what IPv4 is and how it's used today.
Lee Howard 1:26
So IPv4 is the Internet Protocol, IP. Like all protocols, its defines vocabulary and grammar, for communications, in this case, how devices communicate with each other. So in the case of the Internet Protocol, the grammar includes an address that helps identify the endpoints. So those endpoints would be your cell phone and the website that you go to, your favorite sites. These are, by the way, kind of the numbers that go behind the names. So, where we're used to seeing a name like HilcoGlobal.com, the numbers would be behind that something like 192.0.2.25. So it's because computers like numbers, where humans like to have words. So these are identifiers that both help locate and identify the specific devices that are communicating with each other to be clear, IPv4. The earliest versions were part of defense contracts about 50 years ago, with the first versions that were being proposed. And IP versions, 1 thru 3, never actually made it out the lab, they're just sort of on paper, or somebody tried to program them, and then thought, we can do better this. IPv4 was really the version that made it big-made the internet that we know.
Steve Katz 2:34
Okay, great. So, to follow up on that, when these IPv4 blocks were doled out all those many years ago, how were recipients chosen? I know you mentioned DOD, but you know, more specifically, who were the recipients who bore the costs associated with those 10s of 1000s of addresses, and did ARPA or anybody, for that matter, ever envision that capacity would one day be maxed out?
Lee Howard 2:59
Remember that 40-50 years ago, a computer was this complex system that took up an entire room; you had people attending to it, it was enormously expensive. The only places that had computers were places that needed them to do research, generally, it was particle physics, or accelerators, or big research projects, which tended to be the kinds of things either R1 research universities or large government contractors, maybe the government itself, who had needs to be able to do what they want to do. Because researchers wanted to be able to have those computers exchange data. So they needed a way for them to be able to reach each other. So that's what the internet was designed for, kind of during the Cold War. So those systems were designed to be able to connect to each other but they didn't want to have every single computer have to connect to every other computer. So they also need to be able to forward for each other. And that also provided important resilience in case of Cold War in case something bad happened, there was still some fault tolerance in case one location, one computer was unavailable, the system could reroute. So that's how they created the addressing system to allow that kind of dynamic routing. What really happened then was the original system was they wanted to get the first couple of digits, that's the first couple of binary digits would tell the computer which way to send the information, whether it was local, or it was going on to the next university or the next research lab or whatever. But because of that design, those were terribly inefficient. So these are just numbers. They didn't cost anything, but they could only give them out in blocks of 256 or 65,000 or 16 million, which sounds like arbitrary sizes, but trust me the round numbers in binary. So it was terribly inefficient. If it sounded like a system was going to need more than a few addresses, then they'd go ahead and get 65,000. And that's kind of where it came from. The entertaining part, sort of story wise, is that the initial allocations were made by a contractor at I believe it was at the University of Southern California who had a spiral-bound notebook. Jon Postel was writing down, "Oh, okay, so USC is now using these IP addresses, and MIT now has these IP addresses." And that was how they recorded those back in the day. Eventually, it didn't take him a long time to figure out that he was not going to be able to keep up with the growth of the internet. And nobody, of course, predicted when there were only 50 computers in the world, nobody expected that there would be someday be billions.
Steve Katz 5:20
Right. Of course, you could never really have predicted that.
Lee Howard 5:23
Steve Katz 5:25
Unless you have the crystal ball, which we all wish we had. Okay, so again, let me just make sure I've got it right. So because IPv4 blocks were allocated to these large corporations and institutions without any cause, they in turn, never really carried them as assets on their books. And as a result of that, the blocks are typically not looked at when a company goes through an exercise, I would imagine to determine which assets that it has the potential to monetize at a given point in time, is that the situation?
Lee Howard 5:56
Oh, yeah, exactly right, Steve. They were originally free, just like phone numbers. So nobody ever thought until somebody branded a phone number, nobody ever thought that a number could have exchanged numbers for dollars; it's like selling somebody the number five, doesn't make any sense. Until about 30 years ago, they started to figure out then that the crystal ball started clearing up a little bit and people realized, Oh, this internet thing might just take off, we're going to run out if we keep allocating like this. They came up with some schemes to allow more efficient numbering. And then, about 10 years ago, we started really getting tight and running out because even the efficiencies, while they bought us a lot of time, probably bought us 20 years, they were beginning to run out. And then I guess the internet community realized we need to find a way to motivate people to make these addresses available. So if there are people that have more addresses than they need, and people need more addresses than they have because they're just growing networks, how do we line those people up and get those addresses back in circulation? So, the communities sort of got together and said, well, even though the addresses are free at some point, if somebody needs addresses, I guess there's no technical problem with them offering money to somebody who has addresses. And that provides the motivation for people to go and do that research and find out that they have these things that are potentially worth money. That's kind of where this market all began.
Steve Katz 7:21
Yeah, that makes a lot of sense. It makes a lot of sense. So it isn't really a situation right now then where all of the allocated IPv4 addresses have been assigned by organizations' IT department over time. Right? Some percentage of those have likely been assigned. And as you're explaining to me just prior to the podcast, having a solid understanding of that number as well as the sequence in which they were assigned is critical when undertaking an effort to monetize the IPv4 addresses as an asset. Do I have that right?
Lee Howard 7:52
Yeah, right. Typically, an organization that has 65,000 addresses what was a Class B block 30 years ago, typically, they've been allocating them just like phone extensions for the same IT team. They had to track who has which, but they don't necessarily know they don't necessarily have to keep them terribly efficient. So even if they're only 500 people in the company, they may still have the other 65,000 that are available. Or what I often see is the company says, okay, we'll just allocate our largest block over here for this branch office, and another one for this branch office, and another one for that branch office, because then we can just remember the addresses in case we do some troubleshooting. It makes it easy for the engineers, the IT folks, but it's not necessarily efficient. And so we've seen places where they're 90% inefficiency. It's not necessarily about the sequence that they're assigned as, how efficiently how much they've thought about how efficiently to assign them. Or kind of to your point, when one company buys another, because it wasn't an asset on the balance sheet when the company was acquired, nobody considered it as part of the assets of the acquisition. If that network is then integrated with the buying company, there may be this block that's worth almost 2 million dollars lying around that nobody's using because nobody knew to even record it as an asset. I will admit when we go back to the IT manager and say, "How have you been tracking this? Have you a team that's been assigned to this?" Let's be honest, there's some work there. It's not that it's hard work, but it's okay, so you want me to go in and look at every one of my servers and do a little poll on all the workstations that I have and get in and look at my DNS systems for all the stuff in my data center. It just requires a little bit of diligence. And what they really don't want to do is have to renumber, that's sort of where we get into compare; what's the value versus the effort required.
Steve Katz 9:38
Yeah. Wow, very interesting. So since the light bulb I'm gonna guess, maybe now going on for some of our listeners, based on what you just said, and their lack of familiarity with IPv4 addresses in general. What advice would you offer those in the C-suite or at the helm of these companies, organizations, and universities, if they're finding themselves in a position right now where obtaining liquidity from underutilized assets is either essential or would be highly beneficial. So for example in making it possible to undertake prioritize projects, capital improvements or move forward with efforts like critical new hires or acquisitions, what kind of suggestions would you provide to them in how to move forward?
Lee Howard 10:22
There's so much I could say here. One thing is that I sort of hinted at a minute ago, about the headaches for the IT manager. I've found a few times that I've talked to a CFO or CEO and say, you have this asset, it's worth money. And they say, well, this sounds very interesting, let me go talk to my CIO. And they asked the question, do we have addresses available to sell? The CIO says, No. Well, okay, maybe they don't. Maybe they don't have any available to sell right now but they could with a little bit of effort. So I'm starting to encourage people to say, when you go ask, the real question is, what would it take to make some addresses available for sale. And by the way, you don't have to sell the entire block. It's one of the unique things about IPv4.Global at Streambank is that we can sell small fractions of blocks. So just make a few bits available, and we can monetize/price that too. So what we tell people is to figure out what it would take, what does it cost? If the CIO says, Oh, no, that would cost $100,000 to remember that network. But we're talking about making a million dollars. Okay. That's probably worthwhile and worth doing. Previously, we were talking about you mentioned, I guess, universities and different kinds of institutions, one of the things that's useful is to be able to go in and say, what would we use this money for if we had it. because sometimes, that you can actually, I suppose motion time, what you're going to use it for is more important, it's what it's often more directly related to the organization's mission, whether it's applied towards scholarships, or, or salaries, or as you said, capital improvements. From time to time, somebody will say, let's say, we'd really like to move to the cloud, or buy a new facility or whatever the thing is, and we've even on occasion, been able to buy a more coverage financing. We know the addresses are going to come in and we can help out that. We can get pretty creative because when we're talking about these kinds of the most intangible asset I can think of, it's an integer of when it's that intangible, being able to find some creative ways to leverage value out of it for organization is it's actually really interesting and exciting for me.
Steve Katz 12:30
Yeah, I'm picking that up from from your enthusiasm in describing this. And it is it is really interesting. So the So the real question to ask is not do we have them? The question is, what would it cost? What would it take to make them available? Because it kind of makes it makes the IT department really think think about it? And they probably have they possess the knowledge that's necessary to be able to move forward?
Lee Howard 12:51
That's exactly it. And maybe they say, "Oh, we have, we can get rid of that we can do this right now." Maybe they need a consultation or maybe they say, "All right, let's buckle down and do it." And there's work involved; and again, the kind of dollars there sometimes involved here, it may make sense to bring in some outside support as staff augmentation to help out with that renumbering. And that's okay. I don't think this markets going away anytime soon. I think it's worth spending some time on it.
Steve Katz 13:16
It sure seems like it. Well, listen, you've done a great job of making the case for senior leadership to become more well informed regarding the status of these hidden assets within the organizations. Particularly I would say during the ongoing COVID-19 period where businesses of all types as we're seeing are in pursuit of added liquidity for any number of reasons. So senior leaders, if you'd like to learn more about the potential to leverage these hidden assets, that very likely could exist within your organization, I encourage you to reach out to Lee and the Hilco Streambank IPv4.Global team for a conversation. With that in mind, Lee's email is LeeHoward@hilcostreambank.com. That's LeeHoward@hilcostreambank.com. Lee listen, it was a pleasure having you on and I really did appreciate your enthusiasm today.
Lee Howard 14:06
It's been great Steve. I love to talk about this. So thank you very much.
Steve Katz 14:09
Thank you. And listeners we hope that today's Hilco Global Smarter Perspective Podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to help make them that much more successful moving forward. Until next time for Hilco Global, I'm Steve Katz.