Why Did Akamai Charge Content Providers and Subsidize Isps?

Why did Akamai charge content providers and subsidize ISPs?

The fact that Akamai charged content providers and subsidized Internet Service Providers (ISPs) suggested that the company was implementing the Two-Sided Markets theory. The theory illustrates that how a platform interacts with two-side users in a networked market. In the traditional value chain, company value moves one way, one side is cost and the other is revenue. In a two-side market, the platform serves two groups of users on each side and is able to collect revenue from each. These two groups of users are both connected to the platform and present an economic phenomenon called network effect. That is, the value of the platform to any given user largely depends on the number of users on the other side. For example, Google as a platform provider in a web search networked market has both side of users, searchers and advertisers. A huge amount of website users would bring more advertisements and the advertisers would be willing to pay Google more. In turn, more advertisements enrich the result of searching engine and users find the website more useful. As a result, platform providers enjoy increasing returns to scale and try to make profit from both sides of users. However, in most cases, it makes sense to subsidize one certain side of users. In that case, the subsidy side, when attracted in volume, is highly valued by the other user group. In Akamai case, content providers are the “money side” and internet service providers are the “subsidy side”.

Akamai Technology operated the content delivery network, which distributed copies of Web page elements to the Internet’s edge. Akamai introduced their first service FreeFlow 1999, which facilitated the delivery of bandwidth-intensive page elements such as banner advertisements, pictures and software downloads. A content provider could tag the object that it wanted to serve over the Akamai network.