“But the Internet has caused transactions costs to plunge so steeply that is has become much more useful to read Coase’s law, in effect backward: Nowadays firms should shrink until the cost of performing a transaction no longer exceeds the cost of performing it externally.”
The authors give an example using the case of the July 7, 2005 bombing of the London Underground subway stations. By the next morning, a 14 page account of the event appeared on Wikipedia, “while demonstrating that thousands of dispersed volunteers can create fast, fluid, and innovative projects that outperform those of the largest and best-financed enterprises.”
Jimmy Wales, founder of Wikipedia, began with Nupedia, with a centralized, top-down hierarchy and paid academics and top experts to write articles. After one year, and $120,000 in expenses they had only 24 articles, and Wales scrapped it. Wales start again, this time with the “wiki” concept. “In the first month, Wikipedia published two hundred articles, and in the first year the total reached eighteen thousand.” When Wikinomics was published, Wikipedia was adding 730,000 new articles each year. Wikipedia’s cost model (with only five employees), makes it difficult for companies like the Encyclopedia Britannica to compete.
Here are some examples of Open Source success:
1) Apache web server – runs 50 million sites
2) MySQL – more than 8 million active installations
3) PHP – runs nearly 3/4 of all web sites
More to come, I’m still reviewing this book which I read several months ago.