You might think that this whole Internet thing has made the world smaller and removed geography from a lot of equations. If you have instant access to everything, so many people don’t need to be on location. Telecommuting means you can live in the middle of nowhere or in the heart of a city.
It turns out, though, that the same technologies that can render geography less important can also make location more important.
You might think of the Net as virtually instant — send a message and moments later it’s received. You can easily video chat with someone on the other side of the world, or watch a movie streamed from YouTube or Netflix. Need a document while you’re in your hotel? You can pull it from your office computer lickety-split.
But it’s far from instant. And sometimes that matters.
Ever hear of algorithmic or high-frequency stock trading? It’s when traders buy and sell shares in a matter of milliseconds, using computers to detect tiny price changes they can take advantage of by reacting fast — faster than a human.
So what does this have to do with real estate? Well, when lots of high-frequency traders started to compete, they realized that other HFTs were in the same game, and that milliseconds — and then nanoseconds — would actually make a difference.
If you’re in Los Angeles with a fiber-optic cable to the NYSE, it takes at least 0.01312 seconds for a signal to get there. (Speed of light, you see.) That’s not taking into account switches and relays and such.
That means the guy who is, say, across town in Queens — 11 miles away — has only to wait .000596 seconds. His trades are 22 times faster than yours. And yes, in this world that makes a difference.
End result: The Internet makes the world smaller, but not small enough. Real estate close to trading floors is suddenly even more valuable.
As an Information Week article from 2007 (!) explained,
Even on the fastest networks, it takes 7 milliseconds for data to travel between the New York markets and Chicago-based servers and 35 milliseconds between the West and East coasts. Many broker-dealers and execution-services firms are paying premiums to place their servers inside the data centers of Nasdaq and the NYSE.
They’re also paying premiums to simply be physically closer to the exchanges they need. And the need for keeping distances short goes beyond Wall Street.
Rich-media companies (those involved in video postproduction, digital animation, broadcasting, and Web 2.0), oil and gas producers, big retail chains, research institutions–they’re all finding that rapid access to data is increasingly a competitive differentiator.
End users might not see the difference timing makes with stock trades, but there are more consumer-oriented businesses that also are finding that “location, location, location” is surprisingly applicable.
Sometimes a competitive advantage takes the form of having a video start playing more quickly, or a Web search return results in one shake instead of two. Other times its about reducing the amount of traffic a company has to pay for. If a few thousand people are trying to watch “John Carter” on Netflix, it’s much more cost effective to have that video stored near them, rather than sending it to Virginia from a server in Nebraska.
A Wired article just a few days ago, “Google and Netflix Make Land Grab On Edge Of Internet,” explained that content companies are looking to buy bricks and mortar near the systems that let them share that content.
They’re moving servers — usually free of charge — next to the service providers’ networking gear so that people trying to watch a popular YouTube video don’t have to send traffic across the network to servers back to the website’s data center. It can save companies like Google and Comcast lots of money, and it speeds things up for consumers.
So where not too long ago I could have written about how the Internet might make real estate away from cities more valuable (as more people began to telecommute), it seems the opposite is also true. Our desperate desire not to wait a nanosecond more than we have to — coupled with the limitation of the speed of light — is making location as important as ever.