Peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work. (PP) has gone from a technical term only used within the software industry to becoming a landmark revolution that is transforming how business is conducted within firms and across borders. Also referred to as mass collaboration, peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work. is any coordinated, (chiefly) Internet-based effort whereby volunteers contribute project components, and there exists some process to unify them to produce an integrated intellectual work. PP covers many different types of intellectual output, from software to libraries of quantitative data to human-readable documents (manuals, books, encyclopedias, reviews, blogs, periodicals, and more).

Peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work. has its roots within the technology sector, but large corporations, including Procter & Gamble, Google, and Amazon, are beginning to utilize its powerful potential. Capitalizing on an infinite amount of collective energy facilitated through the Internet, projects ranging from user reviewed databases to constantly-edited open source (OS) software projects are tapping into a new market that relies on the knowledge of the common people (The Power of Us., 2011).

Changing Firms and Markets 

Peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work. is changing the way people perceive production, especially within the business sector.  One of the key elements of peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work. is the widespread availability of information.  Projects are open to anyone who feels the desire to contribute.  Open resource initiatives are counterintuitive to the fundamental notion of for-profit firms, which safe-guard company-owned research to produce revenue.

Ronald Coase wrote in 1937 that firms exist within markets because they greatly lower contract costs by specializing in a specific area and dealing with co-operations all in one place. Firms exist as long as their production levels are less expensive than the market price of producing the same result.

For example, Microsoft, a multinational technology corporation, excels in their specific industry by contracting and hiring workers to design, research, and develop new software for them.  Having the resources “in house,” Microsoft is able to put out products into the market more inexpensively than had the individuals desired to design, develop, and market the software themselves.

However, the emergence of peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work. eliminates transaction costs all together because the existing hierarchy of upper, middle, and lower managements is no longer in place—the fluidity and organic formulations of PP renders this modeling system for firms obsolete.

To highlight an example of this phenomenon, we can take one of the most successful open source projects: Firefox. It is a web browser managed by Mozilla whose aim is to “promote openness, innovation and opportunity on the web” (Get to Know Mozilla).” There is no hierarchy that dictates the method of production; ordinary Internet users are encouraged to give feedback and partake in the Firefox venture. Currently, 19 percent of Internet clients use Firefox, making it the second most popular web browser (Protalinski, 2012).  The eight million downloads for Firefox 3.0 on its first day of launching in June 2008 made a Guinness World Record for most downloaded software in a 24-hour period (Paul Ryan).  Firefox is now up to version 17. Firefox remains popular as an open source project but faces competition from Google Chrome, which has approximately 40 percent of Internet users as of April 2013 (Statcounter, 2013).

In addition to firms’ diminishing value in the face of peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work., the open market also has to compete with peer-production.  Yochai Benkler, the Harvard Law Professor who coined the term peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work., believes that PP projects are helping to form the ideal market that is shifting away from the rigid, asymmetrical pyramid of the privileged few dictating the actions of managers and workers.

“What we are seeing now is the emergence of more effective collective action practices that are decentralized but do not rely on either the price system or a managerial structure for coordination.”

Decentralization allows for more efficient platforms of information exchange that depend on strong interdependence and networking.  More people can harness their knowledge to create better products in a shorter amount of time.  Yochai believes that people who partake in peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work. do so not because of monetary gains, but rather “for a wide range of intrinsic and self-interested reasons [...] people who participate in peer productionAny coordinated, Internet-based effort whereby volunteers contribute project components, and there exists some process to combine them to produce a unified intellectual work. communities love it.  They feel passionate about their particular area of expertise and revel in creating something new or better.”  This outlook may hold true for contributors of projects such as Wikipedia, the free online encyclopedia that is written, managed, and edited by the masses. Yet, because open source is becoming a viable approach to tackling the diverse market competition, companies are eager to incorporate this model into their strategic infrastructure remodeling.

Next: Open Source