The Cost of Latency

Farhan Khan
February 21, 2024

Almost seven years ago, Amazon published a remarkable statistic: the online retail giant found that every 100ms of latency cost them 1% in sales. Around the same time, a study by Tabb Group revealed that a broker could lose as much as $4 million in revenues per millisecond if its electronic trading platform was only 5ms behind the competition.

Although low-latency connectivity has become more commoditised since Amazon, Tabb and others began this conversation about latency nearly a decade ago, low latency is still a critical element of business success in the current era. It’s practically a foregone conclusion that all companies these days will prioritise speed, so lagging behind can have costly consequences.

What is the Cost of Latency

The cost of latency refers to the negative impact that delays or slow response times can have on various processes in computing and networking systems. This can lead to decreased efficiency, productivity, and ultimately revenue for businesses that rely on fast and responsive systems.

To evaluate the cost of latency, let’s start by revisiting Amazon’s estimates from the past. The tech giant has grown immensely; its sales were reported to fall just short of $89B. Assuming that same 1% sales cost for every 100ms of latency, 100ms of latency would’ve cost the company a staggering $889M throughout the year. Additionally, the financial services ecosystem has grown so much that high-frequency stock traders have continually shown willingness to invest hundreds of millions of dollars to eliminate latency between exchanges around the world.

Latency in Different Industries

While the tolerance for latency varies greatly by industry, with no industry more concerned about eliminating latency than financial services, one thing is clear: today’s customers prioritise speed and will continue to reward the companies that do the same. In financial services, the cost of latency is enough to warrant a $1.5B investment to reduce latency between London and Tokyo by 60ms. Latency reduction may not be as much at the forefront as it was in some industries even just a few years ago, but its importance to better business is still clear.

Back at the broader B2C level, current estimates from Akamai show that a 1 second delay in page response can result in a 7% reduction in conversions. For an ecommerce site making $100,000 per day, that adds up to $2.5 million in lost sales every year. Up to a certain point, businesses these days really cannot afford to have slower connections than their competition.

Whether in financial services or in ecommerce, success is still highly dependent on low-latency connections—even if those connections are more affordable and accessible than they were in the past. We take that into account at Digital Realty, offering low-latency solutions like Cross Connect, Metro Connect, and our Digital Realty Internet Exchange, all of which prioritise fast, reliable, low-latency connection between businesses, carriers, their customers, and everyone in between. That’s the same reason why low-latency access is so essential at our New York City which position customers within the most important business ecosystem in the world.

For media providers, financial exchange and application providers, cloud providers, and enterprises of all types, the cost of latency in 2015 is higher than ever. If your colocation and connection partner doesn’t prioritise low-latency connections, chances are, you’re already behind the competition. To learn more about how Digital Realty can help your business succeed in today’s competitive environment, reach out to us via our site’s Contact Us page.

Frequently Asked Questions About Latency

What is network latency?

Network latency is the delay that occurs in data communication over a network. It is the time it takes for data to travel from the source to the destination.

What is latency in finance?

Latency in finance refers to the delay in the execution of financial transactions, such as trades or orders. In high-frequency trading, low latency is crucial for executing trades quickly and gaining a competitive edge in the market.

What is low latency connectivity?

Low latency connectivity refers to network connections that have minimal delays in transmitting data. This can be achieved through high-speed networks, optimised routing, and efficient hardware.

Is it good to have low latency?

Having low latency is generally considered beneficial, especially in time-sensitive applications such as online gaming, financial trading, and real-time communication. Reduced latency can improve user experience, increase efficiency, and minimise delays in data transmission.

What is low latency in data centre?

Low latency in a data centre refers to the minimal delay in processing and transmitting data within the data centre infrastructure. This can be achieved through the use of high-performance servers, optimized network configurations, and efficient data storage solutions.