I think coordination is the key. If someone with authority isn't willing to step up and make sure everyone knows what they're supposed to be doing, things will

I think coordination is the key. If someone with authority isn't willing to step up and make sure everyone knows what they're supposed to be doing, things will definitely slow to a crawl and people won't communicate until it's too late. And that team will do better colocated. But a good PM can make a remote team work just as well as a colocated team, in my experience. If you don't have that person, you're just leaving your efficiency up to chance (does the team get along; do they feel like working that day) no matter the work environment you choose. Edit: I'm not sure "is willing to" is the right phrase. You have to have a brilliant PM, period. I've worked with bad PMs, no PM, and a few great PMs, and it really is night and day. A talented PM can make an organization sing.