Peer Production
Peer production, sometimes called "consumer-generated content" � communities of prosumers collaboratively producing goods and services � is fundamentally reshaping industry economics and structures across markets. Its implications are as radical as are the opportunities it offers.
Peer production is a mode of production distinct from firms and markets, combining elements of both. It is premised on a fundamental economic innovation that 2.0 technologies make possible: cheap coordination.
Firms arose because information � the costs of negotiating, monitoring, and enforcing contracts in markets � is costly for many kinds of goods and services; particularly high-value or high-frequency goods and services. But firms face an internal tradeoff of their own: it is only economically efficient to specialize in value activities to the point that specialization gains are not outweighed by the costs of coordinating the labour necessary to achieve those gains. That is, firms trade specialization gains against coordination costs.
This is one reason why so much thought and innovation has gone into models of next-generation organizational and management techniques: reducing coordination costs is an extremely powerful means of unlocking specialization gains.
But unlike in the real world, 2.0 technologies offer the potential to let virtual communities of connected prosumers self-organize and almost vaporize coordination costs altogether. This unlocks hyperspecialization gains: gains that aren�t possible for real-world firms to realize.
These specialization gains are accelerated by a supply-side network effect. Because communities have permeable boundaries � anyone can join them � your joining the network of prosumers increases my value to it, because it is nonlinearly more likely that together, we can complete an activity whose output is valuable. These supply-side network effects are a powerful component of value creation which firms cannot realize, because their structures are hierarchical and their boundaries are closed.
2.0 technologies allow production to be atomized - to be subdivided into arbitrarily fine microchunks of value activities. Prosumers can self-select and manage their own interactions with these microchunks, rather than incurring the real-world coordination costs of managers, meetings, and red tape.
Because these microchunks of prosumer-contributed information can then be recombined and reused, the community realizes a second network effect: the total value of the network of microchunks is greater than the additive value of each individual microchunks.
All this implies that peer production is an extremely powerful and hyperefficient way to organize the production of goods and service that meet certain criteria. Recently, investment in peer production models has hit an inflection point: Kleiner Perkins� recent investment in Zazzle is a bet on peer production, as are the new breed of social search startups, such as JetEye, Squidoo, and del.icio.us, as are vertical communities, such as Last.fm, Flickr, and Basenotes.
Bubblegeneration is recognized as one of the preeminent advisors on peer production strategies, economics, and business models � Bubblegen�s peer production competence is detailed in
this presentation.
To get started with peer production, ask yourself:
Is information relatively cheap or expensive in my value chain?
If it�s cheap, is your value chain dominated by layer specializers with strong core competences?
If it�s expensive, what is the fundamentally scarce resource in your value chain?
How can you leverage 2.0 technologies to allow consumers access to transform this information or other scarce resource into outputs?
Is it possible to let prosumers atomize this scarce resource or information into arbitrarily fine microchunks?
Will your model realize supply-side network effects? Will marginal productivity increase in network size?
How will you capture a share of the value your network of prosumers will create? Is your business model aligned with the community�s value drivers?
