Hybridity Between Peer Production and Firms

Source

• Paper: Productive Paradigms in the Digital Era. Ignacio de Castro Arribas. Contribution for the 3rd Free Culture Research Conference, 8 and 9 of October, 2010

URL = http://wikis.fu-berlin.de/download/attachments/59080767/Arribas-Paper.pdf

Definition

"Hybridity between peer-production and firms is a collaboration between two productive entities which provides a “(...) constructive interface between market and nonmarket-motivated behaviour, through which actions (…) can reinforce, rather than undermine, each other”

(Benkler, 2006, p.102). [1]

Discussion

Ignacio de Castro Arribas:

"Other possible solutions are hybrid forms involving peerproduction and firms. Complementarity between the firm and the peer-production platform and differences on efficiency in the provision of complementary goods or services is the basis of a symbiotic relationship (Lerner and Tirole, 2004). Increases in the incentives to contribute, improvements in the design of the architecture or funding of some monetary costs of the platform render efficiency gains and increased production in the peer production process. Alliances between firms and peer-production platforms resulting in such a positive effects could be desirable from the peer-production point of view. Typical examples are Red Hat and IBM. For an OSS user/developer the probabilities of obtaining a contract with the firm involved in the open project increases (indirect appropriation incentives). In one hand participating in a project with the firm results in greater visibility (signalling effect), and in the other hand the technical skills and knowledge (human capital) are precisely those required by the firm. In such a symbiotic relationship the firm might benefit from increased peer-production and in order to encourage it the commercial firm might resort to subsidizing peer production by allocating some workers to the peer-production platform (Lerner and Tirole, 2004). In this last case the commercial firm would benefit from human capital gains by the workers participating in the peer-production process. For instance an IBM engineer collaborating in the GNU/Linux invests in her human capital and both the worker and the firm enjoys the returns of this investment (Benkler, 2006).

Direct appropriation of production by the firm would be likely to reduce users motivations to contribute and probably lead to a desertion of the peer-production process (Benkler, 2002). Firms can instead benefit in segments of the market complementary to the peer-production (Lerner and Tirole, 2004) such as marketing or customer service (west, 2004). In the particular case of OSS and commercial firms collaborations, such as IBM, Lerner and Tirole (2004) point to increases in demand due to users gains through reduced risks of suffering lock in effects if the prices of the goods/services bought from the firm increases. Users also benefit from customization capabilities, being hence able to tailor their software. Another source of benefits for the firm is the possibility to certify a standard by releasing code and possible gains in engineering efficiency (west, 2004).

The former reasons follow the logic of giving away the razor to sell more razor blades (the complementary product) (Lerner and Tirole, 2004).

In addition to the former reasons, commercial firms might be induced to collaborate with peer-production processes due to a certain combination of economical and technical reasons that lead to unsustainability of fully propietary strategies. These conditions are related with the market share necessary to efficiently support propietary research and development and increasing buyer demands for open standards (West, 2004).

Hybridity between peer-production and firms is a collaboration between two productive entities which provides a “(...) constructive interface between market and nonmarket-motivated behaviour, through which actions (…) can reinforce, rather than undermine, each other” (Benkler, 2006, p.102). Hybridity between peer-production and firms is based on the existence of complementaries and cross group externalities. Firms benefit from increased peer-production and peer-production platforms are able to attract more users if there is a successful collaboration with the for-profit organization. On the top of affecting positively users´ motivations to contribute, firms might subsidize peer production.

Subsidization is not necessarily through monetary means, like the IBM engineers collaborating in the GNU/Linux it does affect cost-relationships in the peer-production architecture, thereby a affecting efficiency and production.

This collaboration is indeed a two sided market. The necessary and sufficient condition for two-sidedness proposed by Rochet and Tirole (2004), non-price neutrality is present in these hybrid production models. As it should be obvious prices are not necessarily monetary, and by reducing costs or barriers of entry (providing maintenance or service support for users or developing user-friendly interfaces) the for profit firm is able to subsidize peer-production. In the other hand the firm produces and offers in the market complementary services and goods whose price can control. Hence the for profit firm can benefit by subsidizing peer-production if that increases sales in the other, complementary market.

Within a peer-production platform two-sidedness is not relevant, the peer-production model internalizes consumption externalities more efficiently than a two-sided market and incorporates users as a factor of production (prosumption effect). However by eliminating price and property mechanism a barrier is created for interactions with firms and markets, where money mechanism is the basis. Because there are cross group effects and prices are nonneutral there are benefits to be obtained for an intermediary applying two-sided strategies. Such an intermediation provides a link between non-monetary and monetary economies.

Hybrid production models monetize peer-production. By using outputs of the peer-produced processes as inputs of the goods or services offered in the market, the intermediary effectively internalizes consumption externalities in such a way that its production is the function of capital, labour and use. This explains the success of Google and propietary social media, in both examples information is peer-ly produced and consumed by the users: users create the searching engine and users use the searching engine in Google, similarly users post and users read the posts in social media. By exploiting this peer-ly generated information the platform is able to use it with for profit objectives, Adsense or Adwords and the increasing interest and presence of advertiser and sellers in Social media is good proof of this.

Google benefits from increasing number of advertisers and advertisers benefit from a greater audience. The scheme is similar for social media. In order to foster cross group externalities and prosumption effects these firms lower as much as possible the barriers of entry for new users and even subsidize them by providing services below their marginal costs, and usually for free. Increasing number of users attracts more sellers and advertisers and the increasing amount of data to be exploited increases the quality of the advertising service, reinforcing hence two-sidedness." (http://wikis.fu-berlin.de/download/attachments/59080767/Arribas-Paper.pdf)

Conclusion

"RELATIVE ADVANTAGES FO DIFFERENT PRODUCTION MODELS

Ignacio de Castro Arribas:

From this reasoning a simple classification follows: market, nonmarket and hybrid production models. While market based production models might partly internalize consumption externalities (network effects), the factors of production are labour and capital, use affects utility, not production. Conversely peer production represents a clear case of non-market production. Peer production does effectively internalize consumption externalities, both network and prosumption effects, incorporating use as a factor of production. However since peer-production is not based in money signals it might face inefficiencies when interacting with the market to acquire labour and capital if these are needed. Hybrid models implementing successful two-sided market strategies create a bridge between market and non-market production systems , monetizing (part of) the peer-production and incorporating thus market based factors of production, labour and capital, and use, the non-market productive factor.

The efficiency level of each model is dictated by the costs faced by the productive entity, the existing externalities and the capacity to internalize them. In presence of prosumption effects non-market and hybrid models will enjoy a relative advantage over market production systems, and due to this competence market production might become unsustainable. Conversely in absence of prosumption effects incentives to produce and efficiency gains for peer-production will be reduced and market based production might face a relative advantage given its greater ability to incorporate labour and capital to production.

Finally when prosumption effects are present and labour and capital requirements are sufficiently low peer-production will hold a relative advantage over both market and hybrid models." (http://wikis.fu-berlin.de/download/attachments/59080767/Arribas-Paper.pdf)