The Unbundling of the Firm: A-la-Carte B2B and the Boundaries of Production

In his seminal paper The Nature of the Firm, published in 1937, Ronald Coase posed a very straightforward question: why does the firm exist? He responded by considering transaction costs — the frictions involved in searching for a good or service, contracting for the good or service, monitoring performance of the good or service, and enforcing the agreement in a market context. A little later, Oliver Williamson continued this line of thinking, stressing that firms, in comparison totheir external counterparts, are concerned with the costs of coordinating internally versus the costs of using the market to coordinate goods or services. That same analysis applies as I begin to understand the proliferation of à la carte B2B services, including everything from on-demand warehousing to micro-manufacturing.

Falling Coordination Costs and the Startup Advantage

Search and contracting costs have been significantly reduced in the digital era. Platforms now allow a two-person startup to rent not just cloud computing capacity but also the capacity of a small warehouse, a delivery fleet, or even time on a specialized assembly line. What was previously available only to large firms that benefited from economies of scale is now available “off the shelf.”

From an economic perspective, this represents a change in the make-or-buy decision. When the cost to outsource or “buy” a slice of the value chain is lower than the cost of “making” that slice in-house, it incentivizes outsourcing and purchasing rather than producing internally. The ability to easily find and monitor providers through a dashboard, and to manage billing, has all centered on the scoping outward of functions previously performed in-house.

APIs for the Physical World

One of the remarkable developments today is the emergence of “APIs for the physical world.” An API (application programming interface) is a standardized contract that allows computer programs to communicate, and the general idea is being applied to B2B services. For example, a logistics provider may offer an “order-fulfillment API,” through which orders from an e-commerce site flow directly to a third-party logistics provider (3PL).
Consider an on-demand warehousing marketplace such as Flexe or Stowga, which operates on similar logic. If a company needs space, it may not need to sign a five-year lease on a distribution center or warehouse — instead, it simply calls an equivalent API to rent a certain amount of square footage for several months. This can also be done based on specific requirements such as warehouse racking, cold storage, or packaging services.  In summary, these API-based services are so modular—think of them as “contracts in code”—that they are eliminating friction between digital connections and physical infrastructure.

Variable Fees vs. Fixed Overhead

According to Transaction Cost Economics, when demand is uncertain, it is advantageous to utilize variable payments (for actual utilization) instead of fixed, committed overhead fees. This is particularly true for startups or companies with lumpy or seasonal demand, because paying on a per-unit-shipped or per-pallet-stored basis is more efficient than maintaining an entire warehouse facility.
The economics of cloud computing provide a good analogy—companies like Amazon Web Services and Microsoft Azure succeeded because they allowed clients to pay only for the computing power they consumed, avoiding the sunk cost of building their own data centers. Similar dynamics are appearing in the physical economy, particularly in warehousing, manufacturing, and logistics.

Risks: Vendor Lock-In and Asset Specificity

Outsourcing, of course, has its challenges. Williamson articulated the idea of asset specificity—when a supplier makes investments that are specific to a client or contract, the risk of hold-up increases. Asset specificity in B2B outsourcing relationships means processes or capabilities that are tailored or customized, or IT integrations that are too costly to change. Organizations may have flexibility when they start with short-term contracts, but as they become reliant on vendors, the balance shifts—and so may pricing.

Vendor lock-in remains a concern. A startup could initially benefit from incorporating a distribution partner, only to find itself exposed to higher liabilities as prices rise or service levels decline. Organizations must weigh short-term benefits against long-term strategic relationships.

Economic Forces Driving the Trend

There are three forces driving the acceleration of à la carte B2B services:

• Digitization of Contracts and Monitoring. Cloud-based dashboards combined with IoT monitoring have simplified service validation and reduced monitoring costs.
• Global Supply Chain Fragmentation. As supply chains diversify, specialized providers have emerged to serve niche segments (perishables, pharmaceuticals, electronics, etc.).
• Startup Ecosystem Demand. The rising number of startups in the U.S. (Census Bureau data show that in 2022, there were over 5 million new business applications—the highest recorded) means many firms will not scale to internalize functions, accelerating demand for external capacity.

Conclusion

The unbundling of the firm shows how the classic theories of Coase and Williamson remain pertinent in today’s modular economy. Transaction cost economics explains why firms now rent warehouse space by the pallet, aggregate manufacturing contracts by the batch, or subscribe to delivery services by the mile.

This lowers the cost of entry for entrepreneurs to experiment and implement ideas quickly, but it complicates strategy—when does modular flexibility turn into long-term dependency? And how can firms balance savings against vendor lock-in risk?

The new era of à la carte B2B demonstrates that the boundaries of the firm are malleable, shifting with coordination costs. With digital tools blurring the line between code and concrete, we have entered a new economic era where “contracts in code” are replacing handwritten ones—governing not only the cloud but the warehouse floor.