Latency and the resulting service outages are the biggest threats to the modern Internet. With an ever-growing demand for bandwidth and increasing global Internet use, every millisecond of delay adds up to network congestion issues that frustrate users and cost companies a small fortune.
Today, we take an in-depth look at the numbers to answer a single question:
What’s the global cost of latency in 2022?
In 2014, Gartner estimated network downtime to cost an average of $5,600 per minute, extrapolating to $336k per hour, but that was eight years ago.
A more recent 2020 report by Statista states that an hour of downtime costs enterprises between $300k to over $5 million in 2019 and 2020.
We can only guess the actual numbers for 2022 but considering that 2021 saw a significant number of high-profile outages breaking the Internet, it’s only reasonable to expect the total cost of latency and service outages to have increased.
We can only estimate the global cost of latency to be in the billions globally.
Let’s take a look at some notable and costly examples.
How latency hurts businesses’ bottom line
Latency doesn't only impact businesses' bottom line when it causes a full-blown service outage. Dealing with unreliable network performance and slower or inconsistent load speeds will also cost companies customers and sales.
In an interconnected infrastructure, where a handful of cloud networks influences most services, high latency in any part of this infrastructure can be fatal to business revenues. This is especially true in e-commerce, where impatient shoppers can abandon shopping carts.
The e-commerce giant, Amazon, found in a 2009 study that every 100ms in added page load time cost Amazon 1% in revenue. In 2009, that 1% revenue loss equated to $107 million. Today, Amazon's same 1% revenue loss would be about $1.2 billion.
But e-commerce isn't just Amazon. (Not yet anyway!)
A 2017 study done by Akamai found that a 100-millisecond delay in website load time can hurt conversion rates by 7% (this is the percentage of users who take the desired action, usually buying a product).
This puts your average small e-commerce store making $100,000 a year at risk of losing $7,000 of their revenue only to latency issues. With 1.8 million online retailers operating in the US and 7.1 million globally, every 7% loss adds up to hundreds of millions. In short, e-commerce businesses can't afford to have slower load speeds and higher latency than their competition.
E-commerce is far from being the only industry affected.
Google shared the following infographic in 2018 of benchmarks that apply across industries:
Now, of course, page load times aren’t only affected by latency. But reducing latency on any network will easily save valuable milliseconds in page load times and significantly reduce bounce rates.
That’s why enterprises worldwide are investing billions in minimizing latency-related issues.
Examples of Billion-Dollar investments to fight latency
Take this $1.5B investment, for example, used to cut London-Tokyo latency by 60ms in 2012.
A paper called The Cost of Latency in High-Frequency Trading estimates that a 1ms advantage in latency can be worth upwards of $100 million per year to trading firms. More than enough to warrant sending out a convoy of ice breakers and specially-adapted polar ice-rated cable laying ships to lay a fiber optic cable through the Arctic.
The cost of latency should not be solely derived from lost revenue numbers. The opportunity cost of not unlocking future growth potential should also be considered.
Despite McKinsey’s research team estimating that the Metaverse could reach $5 trillion in value by 2030, Mark Zuckerberg from Meta admitted that to create “a true sense of presence in virtual worlds … will require massive advances in connectivity.” He has openly admitted that we are not yet ready for what’s to come. Users trying to enjoy smart glasses and VR headsets (the basic version of the Metaverse) are already experiencing significant lags and loading issues. That’s the reason why Meta keeps investing billions in network infrastructures.
The human element
Monetary costs are not the only costs. There are real-life scenarios where a service outage could have drastic social consequences too.
In 2020, a 12-hour and 13-minute outage in the USA led to congestion across T-Mobile's 4G, 3G, and 2G networks.
This congestion failed more than 23,000 emergency calls.
T-Mobile had to settle a lawsuit with the Federal Communications Commission (FCC) by paying a fine of nearly $20 million. A small price to pay compared to the consequences in public safety caused by the failure of thousands of 911 calls.
At Syntropy, we believe that as the Internet becomes a widely accessible public good across the globe and, as we like to say, a fundamental human right, it's more important than ever to do everything we can to build a more innovative and more reliable infrastructure that will minimize latency, network congestion, and service outages for the future.
It's a costly issue for everyone, after all.