The Economics of Peer Production

Posted on Friday 7 October 2005

In his Business 2.0 article The Economics of Peer Production, Eric Schonfeld argues for the emergence of a new third way of organising the creation of economic value. The two existing ways are or were organisation by companies (Ford owned everything there was needed when one wanted to produce cars) or by markets (a car company nowadays purchases the majority of parts on open markets on which different suppliers compete, the final product is the result of a market-driven organisational system).

The third field that Schonfeld sees, and that might become a threat to lots of existing businesses, is the collaborative nature of user-generated goods. Today it’s Wikipedia and Flickr (i.e. user-generated content). Tomorrow it can be designers and engineers uniting around a Computer-Aided-Design platform, creating a new product and having it produced by an assembly company that builds the product straight from these specifications.

A particular advantage that Shonfeld describes is that staffing these projects is extremely efficiently organised: the most motivated and interested people will find the project and contribute, which should lead, on average, to at least satisfying results.

At the end, he asks: “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?” That is precisely the reason why this blog argues for empowering consumers (clients and customers): it yields better products and stimulates Word of Mouth advocacy. And – as we can see from this article – it can even help companies stay ahead of a peer production competition that they might have to face one day.