There seems to be a lot of confusion / misinformation on what the nature of Peering is. So I'll try and break it down in an overly simplified form (and yes, there will be some technical errors in simplification). Not trying to explain the rationale for Netflix to withhold SuperHD from non-OpenConnect peers, just what peering is and why it's not some crazy burden on your ISP, in fact your ISP does this all the time with other companies (that don't compete with their cable television service) due to it being advantageous for both the ISP & CDN to do so.
In it's simplest form you can just think of it as if you had 2 computers in your house and for some reason they weren't on the same network and could only talk to each other over the internet, and then one day you had a brilliant idea to just run a cable between them, I mean they're in the same house already right?.
That's essentially what the Internet Exchanges are. In a handful of nondescript buildings in some major US (and overseas) cities, are huge datacenters (
map). The largest CDNs and your ISPs all have equipment here already. Most peering agreements are literally just running physical cables between these company's respective racks of gear, and they all usually have plenty of spare capacity & ports on the gear they house here, they upgrade them long before they reach maximum capacity.
The first thing to understand is that most (not all as I'll explain in a moment) of the traffic on your ISP's network is there because THEIR CUSTOMERS requested it. From a macro POV, they are a large
demand node pulling in bits from external networks (not many ISPs host a lot of data themselves). The amount of traffic their customer's request is only constrained by their own internal network's capacity, their last-mile infrastructure and their data-caps (designed to change consumer behavior to demand less).
So, if every nearly every bit their customers request comes from outside their network, how does it get there? Simple, peering agreements. In theory, the internet would work just fine as long as your ISP connected to at least one more network (doesn't matter which) and that network connected to another, etc, etc. It could be one really long chain of just 1-to-1-to-1 in a degenerate case but everyone would still be able to talk to everyone, they'd just have to go through everyone in between to do so. In reality, your ISP has peering already established with many, many other large networks, both other ISPs and, most importantly, with the CDNs that house the majority of the data on the internet these days (the large
source nodes in our macro POV).
Due to the way networks work, that data is going to try and get from it's source, say a CDN like Limelight, to your ISP, say Comcast, through the most efficient route it can find. If Comcast doesn't have a direct peering with Limelight it's just going to hop through someone else who does. It might go through many networks on its way, possibly even other ISPs, whatever is fastest. This is where some fraction of the traffic on an ISPs network comes from that isn't being requested by their own customers.
Let's break down the extreme case, say only 1 network peered with Limelight, let's go with Qwest. Because Qwest is peering with other networks, everyone can access Limelight's data, but 100% of it would go through Qwest's newtork first. In the real world, many ISPs are peering directly with Limelight but those that don't indirectly cause additional load on the networks that do depending on what route that data decides to take to get to the destination.
So again, looking at this from our macro POV, you can see that any inefficiency in routing generates 'extra' traffic for someone. In a perfect network everyone would have a direct connection to everyone else and no one would have to act as a middle man who handled data he didn't ask for. In reality, just connecting the major demands to their major sources eliminates most of the middleman data but aggravatingly works backwards. If Comcast connects directly to Limelight, it actually hasn't done much to help itself, the net Limelight demand of its customers still ends up going over its network (obviously), what it did was take that extra middleman traffic off of everyone else's networks (and maybe improved ping & speed a bit for Limelight traffic). The system works though when most major ISPs peer directly with most of their major data sources, they all ultimately see a reduction in middleman traffic.
Also, with regard to the mini-CDN appliances Netflix is offering for 'free' for ISPs to house internally rather than connecting to the main OpenConnect servers at the Internet Exchanges. This makes sense for ISPs only if housing & maintaining these servers closer to the customer is cheaper than the cost of routing that traffic internally from the Internet Exchanges once the traffic is on their own network. They would only want to do this if this was in their own financial interest vs the Internet Exchange scenario so it's not like they're going to be doing this at their own maintenance costs for no reason.
Think about this, without peering, your ISP wouldn't be selling you internet, but intranet.
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