Hyperspecialization and Hyperscaling: A Resource-Based Theory of the Digital Firm

Digital firms tend to be both nar-row in their vertical scope and large in their scale. Weexplain this phenomenon through a theory about howattributes of firms’ resource bundles impact their scale andspecialization. We posit that highly scalable resourcebundles entail significant opportunity costs of integration(vs. outsourcing), which simultaneously drive“hyp-erspecialization”and“hyperscaling”in digital firms. Usingdescriptive theory and a formal model, we develop severalpropositions that align with observed features of digitalbusinesses. We offer a parsimonious modeling frameworkfor resource-based theorizing about highly scalable digitalfirms, shed light on the phenomenon of digital scaling,and provide insights into the far-reaching ways thattechnology-enabled resources are reshaping firms in thedigital economy.