In its purest form, peer production, can be defined as a way of producing goods and services that relies entirely on self-organizing, egalitarian communities of individuals who come together voluntarily to produce a shared outcome. The open source community occupies the crossroads of the two streams of novelty: first, it engages self-organizing free agents as its labour force, mobilizing human capital. The combination of several workplace trends – including shortened job cycles, the increase of project work, the acceptance of a new lifestyle and the emergence of the Internet and other technology – points to free agent workers becoming more of an employment norm in the coming years. Second, open source relies upon the very low cost of reusability and distribution of software code, mobilizing intellectual capital. Increasingly, old hierarchical enterprises are turning to collaborative self-organizing business-web models where masses of consumers, employees, suppliers, business partners, and even competitors cocreate value in the absence of direct managerial control.
From a strictly economic standpoint this is happening because of the declining cost of collaborating. Coase’s “Transaction costs” law offer a proper explanation to this emerging reality in his paper titled “The nature of the firm” (1937). This law nowadays remains as valid as ever, but the Internet has caused transaction costs to plunge so steeply that it has become much more useful to read Coase’s law, in effect, backward: transactions costs still exist, but now they’re often more onerous in corporations than in the marketplace. To make an example, today’s firms type a keyword into search engines for a number of industry exchanges and negotiate the price on the web. If they want, they can check a supplier’s trustworthiness through analytic services available online with few clicks of a mouse. Coase’s law, which once provided such a neat explanation for the development of the gigantic corporation, now explains why traditional corporations are finding themselves thrust aside by an entirely new kind of business entity. Before the Internet, it would have been virtually impossible for so many disparate groups of people to find each other, because the search costs would have been too high, while nowadays they hardly exists.