Markets as evolutionary platform?

I hope you have heard it said that markets are an evolutionary platform for testing out ideas and business plans to satisfy human needs. However, it's not always clear what this actually means and as I came across a perfect example of one kind, I wanted to share it with you.

Evolution in this case means that within a market economy people tend to try all kinds of things to solve a problem, and then the market weeds out the worst ones. The weeding out does not always mean a business or firm going bankrupt. Instead, it often happens by companies dropping out a business plan in favor of another. However, in this case, the other company Inktomi actually seems to have gone under.

The business?

To provide replication of web data in ISPs in order to reduce the costs the ISPs have to bear for transit traffic, and to give low latency service for the content providers' customers.

Inktomi tried to sell this service to the ISPs and provided the low latency service to content providers for free. Akamai chose the exact opposite by providing the functionality to ISPs for free and charging content providers. The interesting thing is that it was far from clear whether the costs should be shared, or charged from ISPs, or content providers. Only trying them both out, did we find out that in this case the content provider model seems to work better. And even then, we only know that it is more efficient within the context of the surrounding environment (the markets and legal structure around internetworking), not that it works better as a technology, or is a more efficient as a technology.

The problem described above relates to the problems of two-sided markets. There's a good 6-page article about two-sided markets and the Internet in Hotnets.