Ars technica put out a fantastic article yesterday on the structure of the internet. Discussions of transit and peering and the business models that are built out of them can get hairy very easily, what this article does is explain why networks do what they do in very clear, down to earth language. The do a very good job on one topic that frequently eludes even the techs amongst us: why networks choose to peer or not and the economics behind it.
In fact, the article does a much better job than I have done in explaining why wholesale IP transit sucks as a business:
Being a pure transit provider with only Autonomous Systems as customers puts a network in a weird spot. Such a network's business case is built on being the intermediary in the flow of traffic, so it tries to charge all of the other autonomous systems for their traffic. The problem for a pure transit provider is that its customers are always looking at ways to lower their transit fees, and lower transit fees can be had by switching to a competitor or by not using the transit provider at all. So disintermediating the transit provider is standard behavior for the transit provider's customers.
Hence why many networks are looking at CDN services. Content distribution is not a commodity, it has no standard design that everyone knows just as well as everyone else and can implement with the same equipment everyone else can buy. Akamai's network design is fundamentally different from Limelight's, which in turn is not like Level 3's or Panther's. There is room to innovate, to differentiate, and therefore to make money.
One day, CDN services as we know them today will be a mature business too, commoditized and doomed to be milked for cash as it fades away - all tech products go that route eventually. But not today, and not soon. Long before then, we will probably be reading an ars technica article about how and why CDN changed the economics of the internet.