Classroom Companion: Business

 
Chapter 7 · Production Models

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The general characteristics of digital goods generate new ways of production. 
The most important difference compared to physical products is that digital prod-
ucts can be produced by collaboration over the Internet giving rise to entirely new 
production methods. In the following, production is understood to include both 
the development of the product and the subsequent production and delivery of the 
product to the customers.
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There are several ways in which digital goods can be developed and produced. 
Three basic production methods of digital goods are in-house production, commons- 
based peer production (CBPP), and crowdsourcing. Production based on CBPP and 
crowdsourcing takes place over the Internet.
The three basic production models are not independent—a company may apply a 
mix of them when developing and producing a digital service. Within this context, 
note that some digital services may be rather simple to develop requiring only few 
resources. This includes even big services like the World Wide Web, Facebook, 
Airbnb, and TCP/IP. However, other digital services require the collaboration of 
hundreds of people over long periods of time. Examples include the development 
of operating systems (e.g., UNIX and Linux), public mobile networks (GSM, 3G, 
4G, and 5G), and local access networks (e.g., Wi-Fi, WiMAX, Ethernet, and Blue-
tooth).
7.2 
 Basic Production Methods
7.2.1 
 In-House Production
In-house production (also termed “firm-production”) means that the company 
develops the good or service using internal resources, possibly combined with man-
power contracted from other enterprises (outsourcing). In this case, the company 
is in control of the whole development process and owns the final digital product 
and intellectual property rights associated with it. This also includes the part out-
sourced to independent companies. In-house production is illustrated in 
.
Fig. 
7.1
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In-house production is the most common approach taken by both large compa-
nies (e.g., Google, Microsoft, and Facebook) and small startups. The company 
organizes the work and sets up tasks in such a way that the final service or good is 
produced within deadline and according to accepted industry standards. In-house 
production may include the use of open-source software and crowdsourcing for