Merkato Enables Dynamic, Real-Time Bandwidth Marketplace

While much of today’s economy takes place in a digital environment, the most basic element of the Internet still languishes in a marketplace trapped in the 20th century. Buying bandwidth today requires going through essentially the same sales process as was in place in the late ’90s. But that all may change as InvisibleHand Networks’ Merkato technology enables a dynamic, real-time bandwidth market built for the 21st century.

In the mid to late ’90s, "there was lot of debate over who should pay for bandwidth and what’s a fair way to settle bandwidth amongst ISPs," says Nemo Semret, founder and president of InvisibleHand Networks. Up until that point, ISPs large and small had exchanged bandwidth amongst themselves without any transactional fees. "Around ’97, ’98 the dominant providers started saying, ‘We won’t necessarily partner with smaller ISPs. In fact, they should have to pay us to pair with us,’" he says. "This socialist consensus that existed was falling apart."

At the time, Semret was researching the use of game theory and other methodologies to design and analyze networks while working on his Ph.D. at Columbia University’s Center for Telecommunications Research. The dissolution of partnerships among ISPs led to a marked uptick in overall network congestion, sparking a thought in Semret’s mind. "As I looked more and more into it from an engineering perspective, I realized that the problem was a pricing problem," he says. "There are thousands of ISPs that have been segmented into these arbitrary segments. This rigid, non-market approach was not satisfying the needs of bandwidth buyers and sellers. In reality, it should really be a much more open commodity-type market where anybody can buy from anybody."

So Semret set out to fulfill this vision through the development of Merkato, a software platform that employs automated intelligent agents to make bandwidth-purchasing decisions for users. "You’ve had electronic trading in many markets for decades, but what people mean by ‘electronic trading’ is that the transaction can take place electronically," says Semret. "[With Merkato], not only are the transactions taking place through computers, they’re being done by software agents."

Dynamic Demand, Dynamic Purchasing
Every five minutes those agents make bandwidth-buying decisions based on how much bandwidth a user needs as well as their willingness to pay for it. "The whole idea behind Merkato is that there’s a very inefficient static model of ‘feet-on-the-street’ sales guys working with a marketing department trying to determine a fair-market price," says John Cahill, VP of sales for InvisibleHand Networks. "The demand for a packet switch network by its nature is dynamic, but the sales model has never matched that."

Merkato enables a dynamic fair-market price to be established based on the market’s real-time demand for bandwidth. "It’s a progressive auction for IP bandwidth, which is a sharable resource," says Semret. "No one person wins the entire thing, but because it’s an auction-based format, depending on how the pipes are divided up you could have higher or lower demand for one particular resource, resulting in higher and lower prices, respectively."