Of Hackers and Hairdressers
Article: Of Hackers and Hairdressers: Modularity and the Organizational Economics of Open-source Collaboration. By Richard N. Langlois. (The University of Connecticut, [email protected]) and Giampaolo Garzarelli (Università degli Studi di Roma, [email protected]). Journal Industry & Innovation, Volume 15 Issue 2 2008
Draft version: http://web.uconn.edu/ciom/Open1C.pdf
Excerpts are from the above 2005 draft version.
Special issue: Online Communities and Open Innovation: Governance and Symbolic Value Creation.
Special issue of the journal Industry & Innovation, (Volume 15 Issue 2 2008)
“The paper by Langlois and Garzarelli, “Of Hackers and Hairdressers: Modularity and the Organizational Economics of Open-Source Collaboration”, is the first paper in this Special Issue and sets the stage for a discussion on governance in online communities, allowing us to tease out what are the important dimensions. In this mainly conceptual paper, the authors employ the empirical illustration of an open source online community to explore the generic question in organizational economics of how the division of intellectual labour is based on a trade-off between modularity (i.e. specialization) and the opportunity to integrate various individually developed components of knowledge. The paper claims that the trade-off allows the individuals populating the open source community to exchange efforts rather than products, under a regime in which the providers of code self-identify themselves as suppliers of products in a market, rather than employees in a firm. Through their discussion, Langlois and Garzarelli build a useful two-by-two matrix of product vs. efforts on one axis and self-identification of contributors vs. no self-identification on the other. In this matrix the firm, the market, outsourcing and voluntary production as it occurs in open source communities are situated and, hence, presented as different modes of innovation production.
This provokes a series of questions on how communities can be managed when the connection between incentives—that is, the voluntary basis upon which the community is built—and the particular dynamics of the organization of labour in an open community—exchanging effort and not product—is taken into account. Firms and communities have diverse and sometimes incommensurable goals (O’Mahony, 2003), and it is a challenge for firms to derive benefits from working with communities."
“This paper seeks to understand the phenomenon of open-source collaboration by placing it within this larger context of the intellectual division of labor. Our primary focus here will not be on the problem of incentives to contribute to such efforts, though we may be led back to the issue of incentives indirectly. Much of the existing literature, especially that created by economists (Lerner and Tirole 2002), has seen incentives as central: why would so many people contribute time and effort without pecuniary compensation or the promise of returns from intellectual property? The answer seems to be that sources of motivation are abundant and adequate. We concentrate instead on what we take to be the more interesting issue: how does open-source collaboration coordinate the mental division of labor?
Under which circumstances, and in what quantities, is central design necessary? When can genuinely decentralized design lead to a well-ordered and effective structure? In effect, this paper seeks to ask for open-source collaborations the question Coase (1937) originally asked about firms: why do they exist? Although “open-source” has its original technical meanings in software design and law, we will appropriate the term here to refer to the general phenomenon of a spontaneously coordinated mental division of labor.
We redirect the Coasean question toward open-source collaboration by adding an additional dimension to Coase’s spectrum between market and firm. In Coase and the Post-Coasean literature, markets are about the exchange of products or outputs; such exchange is coordinated spontaneously, in the sense that relative prices rather than fiat direct resources. A firm stands in contrast to both of these aspects of markets: it replaces contracts for products with employment contracts, effectively substituting a factor market for a product market (Cheung 1983); at the same time, it replaces spontaneous coordination with some kind of central design or direction. Notice that this leaves two unexamined alternatives: product markets governed by central direction and factor markets coordinated spontaneously. Inside contracting and outsourcing are examples of the former. Open-source collaboration is an example of the latter.
That is, open-source collaboration is an organizational form that permits the exchange of effort rather than the exchange of products, and it does so under a regime in which suppliers of effort self-identify like suppliers of products in a market rather than accepting assignment like employees in a firm.
Like Coase and the present-day economics of organization, we attempt to answer the “why” question by isolating the economic circumstances that favor one form of organization over another. As we have already hinted, however, we do not think that the lens of incentives, which focuses most of the present-day economics of organization, is the appropriate glass through which to see the phenomenon of open-source collaboration. We turn instead to what we may loosely call the modularity theory of the firm (Langlois 2002; Baldwin and Clark 2003), since, as we will argue, open-source collaboration ultimately relies on the institutions of modularity. Here the issue hinges on a tradeoff between the benefits (and costs) of modularity and the benefits (and costs) of its opposite, integrality. This tradeoff determines the extent to which central coordination is preferable to spontaneous or decentralized coordination. In this respect we are attempting to make more precise an idea that is already implicit in many discussions of the open-source phenomenon. In addition, however, we suggest that the nature and intensity of demand – especially the extent to which demand is quality or time sensitive – can shift the margin between modularity and integrality. Moreover, we argue, the existence of this tradeoff between modularity and integrality can constitute an incentive and “focal point” for technological or organizational change (Rosenberg 1976) – change that sometimes, and perhaps typically, shifts the margin in favor of modularity."