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Are applications that claim to improve web speeds effective? If so, how? I would have guessed they were scammy, but I suppose if they can reroute traffic to a closer datacenter it might be possible?

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I wouldn't call them scammy, but, they are far from perfect and when I last looked in to this sector, it is a complete waste of time for the majority of people.

Datacenter location has a part to play, but, it is more than that (remember, if you access a page, the caching server still has to get it from the source server - if anything, it adds another step!).

The main way it works is through compression - on a dial up modem / similar old connection, it can really improve everyday browsing speeds.

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It depends of how you define web speeds. And what exactly do you expect to speed up. Here are a couple of aspects:

  • a caching http proxy will make sites load faster if you visit them often and if they have static content. It'll be slower once, when the proxy will fetch stuff into its cache, as William Hilsum pointed, but then cached content will load faster (until the cache entries will expire and the proxy will request them again). squid is a good example of http caching proxy.
  • a filtering proxy will make sites load faster by not loading misc ads and banners. There's a big difference between loading things and not showing them (like certain browser plugins do) and not loading unwanted things at all. privoxy and polipo are good examples of filtering proxies
  • a caching DNS server. There still are unfortunate cases when ISPs neglect the performance of their DNS servers - in the evening everybody gets home and starts surfing the net. And... it looks horriby slow because of those slow DNS queries. Of course, there are workarounds like using OpenDNS (and these workarounds have their own drawbacks, like redirects to ads etc). But having a local caching DNS server under your own control is good. pdnsd is a good choice.
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A good many 'web optimisers' are proxies which compress images - opera turbo is an example, and netbooster (which came with my dad's indian wireless internet dongle) seems to work the same way. Its a trade off between quality and speed.

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