This broke down, because most people monetizing an idea don't want others to host it outside their control. And now, even the peering agreement is breaking down, as Verizon tries to shakedown both sides of a network connection, and not just their subscribers.
We had a friendly, open Internet, and now we have ads and closed-ecosystem apps. In Africa, Facebook Zero is trying to create the illusion that there's no other Internet, just Facebook.
If things like Diaspora had the resources Facebook did, we could totally have distributed social networking, paid for by users.