In 1937 Ronald Coase published a paper titled The Nature of the Firm, which explains why many large companies exist:
Firms will tend to expand until the cost of organizing an extra transaction within the firm becomes equal to the costs of carrying out the same transaction in the open market.
The Internet has caused transactions costs to plunge and made it easier for companies to innovate and outsource. Think about all those feisty upstarts that have put up a website to challenge the bricks-and-mortar outfits.
Now add in Web 2.0 tools, which are breeding open platforms, creating new communities to engage customers, and driving brand affinity and all the innovation that comes from truly listening to your customers. The net effect? Coase’s Law is, if not dead, at least mortally wounded.
So what does this all mean? Smart Buzz Marketers are working inside their organizations to increase differentiation. If you think broadly about Coase’s Law, your company may be able to outsource numerous processes, open its platforms and create communities with its customers, thus allowing you to stick to your core. But you better have a highly differentiated or specialized core. Otherwise, you’re headed for commodity status.