Economics of Web 2.0 - Peer Production

As some academics like to put it, during the 19th century onwards, distribution of information, knowledge and culture became industrialised (Benkler 2006, Shirky 2010). The steam powered printing press and other expensive machinery and methodologies were required to run, print and distribute the necessary volumes of newspapers. Later with television there was a need for highly qualified workforce and expensive studios. This created a professional class of producers and a large group of (mostly passive) consumers. With social media we have now gained the ability to balance consumption with sharing and our own content production, hence the internet effectively thins the line of separation between “amateurism” and “professionalism”. For further discussion on the idea of amateurs vs. professionals, see Shirky (2010), pp. 56-62, 152-155 or Keen (2007).  

Publishing costs, online, have virtually disappeared. Costs associated with collaborating in groups or coordinating groups have also collapsed, examples of this are Wikipedia, Ushahidi, Ebird, or the open source Apache or Linux movements. Linux and Apache are open-source projects. Open-source coordination has been facilitated for a long time through non web based protocols. It was therefore possible for technically minded individuals to reap the benefits of collaboration via the Internet long before world wide web has developed the numerous characteristics of web 2.0.

The virtual disappearance of group coordination costs is the basis behind “social production”, a model of economic production first suggested by Harvard professor Yochai Benkler (Benkler 2002), and later made popular in his book The Wealth of Networks: How Social Production Transforms Markets and Freedom (Benkler 2006). In 1937, the economist Coase asked – if markets are efficient why and under what circumstances do people organise themselves into managed groups or firms, given that production could be carried out without any organisation; why would an entrepreneur hire help instead of contracting out for some particular task on the free market. It turns out that the transaction costs on the market may become a barrier (Coase 1937), so that, where the cost of achieving a certain outcome through organisational means is lower than the cost of achieving that same result through implementation of the price system, organisations will emerge to attain that result. Benkler postulated that under certain circumstances, non proprietary, or commons-based peer production may be less costly in some dimension than either markets or managed hierarchies (firms). One could say that when the cost of organising an activity on a peered basis is lower than the cost of using the market, and lower than the cost of hierarchical organisation, then peer production will emerge (Benkler 2002).

Table – Organisational forms as a function of firm-based management vs. market vs. peering 

(source: adapted from Benkler 2006)

The idea of peer production as an alternative or complementary economic mechanism for achieving economic goals is an attractive one, but more importantly it highlights the impact that proliferation of web 2.0 has had.

References:

1. Benkler Y., 2002. Coase's Penguin, or, Linux and the Nature of the Firm, Yale Law Journal 112
2. Benkler Y., 2006. The Wealth of Networks: How Social Production Transforms Markets and Freedom, Yale University Press, USA
3. Coase R., 1937. The Nature of the Firm, Economica 4 (16), pp. 386-405
4. Keen A., 2007. The Cult of the Amateur: How the Democratization of the Digital World is Assaulting Our Economy, Our Culture, and Our Values. Doubleday Currency Publishing, USA
5. Shirky C., 2010. Cognitive Surplus: Creativity and Generosity in a Connected Age, Allen Lane Publishers, USA