{"id":995,"date":"2019-11-21T16:19:23","date_gmt":"2019-11-21T16:19:23","guid":{"rendered":"http:\/\/janbosch.com\/blog\/?p=995"},"modified":"2019-11-21T16:19:32","modified_gmt":"2019-11-21T16:19:32","slug":"why-youre-a-product-service-business","status":"publish","type":"post","link":"https:\/\/janbosch.com\/blog\/index.php\/2019\/11\/21\/why-youre-a-product-service-business\/","title":{"rendered":"Why you\u2019re a product + service business"},"content":{"rendered":"\n
\"\"
Image by Gerd Altmann from Pixabay<\/figcaption><\/figure>\n\n\n\n

Before digitalization became a thing, the industry was divided into two types of businesses: those that sell products and those that provide services. Those that sell products have a transactional relationship with their customers, mostly consisting of selling one of their products. The service businesses tend to have a more continuous relationship with their customers as services are provided on a continuous basis.<\/p>\n\n\n\n

With digitalization, however, we\u2019ve seen an interesting shift driven \nby a few technical enablers and business drivers. First, the increasing \nadoption of continuous software deployment has brought about the \nsituation that even product companies have a continuous relationship \nwith their customers. Expectations these days are that the products that\n we use get better every day we use them.<\/p>\n\n\n\n

Second, with data being the new oil, many companies are concerned \nwith collecting as much of it from their products and systems in the \nfield. As many are successful in monetizing the data coming from their \nprimary customer base with a second customer base or have found ways to \nimprove internal efficiency using the data, there\u2019s a significant \nbusiness incentive to agree with your primary customers on the use of \nthe data from your systems.<\/p>\n\n\n\n

Third, because of software, connectivity and the ability to \ncontinuously collect data, use-based business models are becoming \nfeasible. Some companies now provide their products to customers for \nfree or against a low installation fee and then monetize based on the \nuse of the product. This also allows for all kinds of (preventive) \nmaintenance services and other value-adding services that aren\u2019t \ndirectly connected to the system\u2019s day-to-day use.<\/p>\n\n\n\n

Fourth, many industries are shifting from capex to opex. \nCompanies don\u2019t want to own the buildings they inhabit, nor the \nmanufacturing equipment, nor the computers their people work on. All \nequipment, tools and other capital-intensive items are now being \nacquired as a service. The providers of these services inhabit a \nposition of power in that they negotiate with product companies and \ntypically the sole driver in the selection process is the total cost of \nownership. This makes it very difficult for product companies to \ndifferentiate in a world where service-providing companies make the \nselection. As a consequence, many product companies have added a \nservices arm to their business to offer their own products as a service.<\/p>\n\n\n\n

Fifth, with digitalization, product complexity has gone up \nsignificantly. Software allows for a much more complicated configuration\n of product functionality and user interfaces have a level of complexity\n far beyond what a purely mechanical system would show. Using data, \nmachine learning algorithms embedded in the system can cause it to \nexhibit complex and difficult-to-explain functionality and the cloud \nconnection available for most systems offers new opportunities, as well \nas security risks. All these complexity-driving factors create a \nsituation where the customer has to make a conscious decision concerning\n the competency required to operate the systems. The choice is, of \ncourse, to train your own people to become proficient or to hire staff \nfrom the system provider for some or all of the operational tasks.<\/p>\n\n\n\n

The result is a situation where the traditional dichotomy between \nproduct and service companies no longer holds. Instead, most companies \nare moving towards a product + service offering and work out a business \nmodel with the customer that works for both parties. Sometimes this \nmeans higher-priced products and some free services and sometimes the \nproduct is offered for free and the services are monetized instead.<\/p>\n\n\n\n

The traditional view was that product companies have high margins but are susceptible to economic conditions, while services companies have low margins but are less sensitive to economic downturns. This is no longer the case and companies need to overcome their traditional biases and create an optimal mix of products and services, as well as a good mix of business models to satisfy the entire customer base.<\/p>\n\n\n\n

To get more insights earlier, sign up for my newsletter at<\/em>jan@janbosch.com<\/em><\/a> or follow me on<\/em> janbosch.com\/blog<\/em><\/a>, LinkedIn (<\/em>linkedin.com\/in\/janbosch<\/em><\/a>) or Twitter (<\/em>@JanBosch<\/em><\/a>).<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Before digitalization became a thing, the industry was divided into two types of businesses: those that sell products and those that provide services. Those that sell products have a transactional relationship with their customers, mostly consisting of selling one of their products. The service businesses tend to have a more continuous relationship with their customers … Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"generate_page_header":"","footnotes":""},"categories":[15,4,8,10],"tags":[],"_links":{"self":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/995"}],"collection":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=995"}],"version-history":[{"count":1,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/995\/revisions"}],"predecessor-version":[{"id":997,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/995\/revisions\/997"}],"wp:attachment":[{"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=995"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=995"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/janbosch.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=995"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}