Erick Schonfeld of Business 2.0 details some new wave economic theory that makes sense, even to an ad guy like me.
So far in the history of capitalism, we’ve had two major ways to organize economic activity: through companies and through markets. They work in tandem, of course, but they represent two different approaches. Companies coordinate resources (such as people, money, and equipment) through the management hierarchy. A market does the same thing by setting a price on the ultimate economic output that those resources will produce. Now we’re seeing the beginnings of a third way to coordinate economic activity that, in some cases, may be more efficient than either the company or the market. It’s called peer production.
The Web is creating new ways to coordinate economic activity by allowing individuals to create products for themselves and others to enjoy. Yale Law School professor Yochai Benkler coined the term peer production to describe “the emergence of a vibrant, innovative and productive collaboration, whose participants are not organized in firms and do not choose their projects in response to price signals.” Peer production is part and parcel of what I call the culture of participation — that is, the explosion of user-generated goods (mostly digital), including open-source software, the Wikipedia online encyclopedia, blogs, podcasts, and photo-sharing sites like Flickr.
Just as companies and markets coordinate economic activity (through management control and contracts, respectively), the Web allows individual producers and consumers to swarm together with like-minded individuals to create complex products. It also allows them to easily find an audience to test, use, and provide feedback on the content and products they create. Either way, peer production in some cases threatens to decimate the information advantage of companies and markets.
But why do people participate in peer production in the first place? Why do they donate so much time and effort to write their blogs, upload their photos to Flickr, or tag their webpages on del.icio.us? It’s certainly not for the money (as nearly any blogger can attest to). Some say it’s for the sheer enjoyment of contributing to something you’re really interested in. Others point to the ego boost that comes with burnishing your reputation online. I find all of these explanations unsatisfactory. (After all, nobody knows you on Wikipedia. There are no bylines.)
Rather, the strongest explanation is also the simplest: It is in people’s self-interest to contribute. People participate in peer production because a) it’s cheaper than buying the product outright, or b) the product would not be available otherwise. At its best, the final good is the result of a collective intelligence and could never be produced any other way. The peer producers are their own consumers. They get a better product by tapping into the knowledge pool. And they get a product that exactly fits their needs because they help design it (often with minimal effort). How do you compete with that?
To better understand how micromedia, peer production, and personal media are atomizing value chains and transforming the media industry, see Umair Haque’s site, Bubble Generation. He will also explain how edge competencies and distributed, viral, & strong network economies can lead to a transformative, disruptive competitive advantage, and revolutionize your market.