{"id":5829,"date":"2013-04-21T02:13:31","date_gmt":"2013-04-21T02:13:31","guid":{"rendered":"https:\/\/sidewaysthoughts.com\/blog\/?p=5829"},"modified":"2015-02-15T18:48:21","modified_gmt":"2015-02-15T18:48:21","slug":"the-yin-and-yang-of-product-versus-service-embrace-what-you-do-and-do-it-well","status":"publish","type":"post","link":"https:\/\/sidewaysthoughts.com\/blog\/2013\/04\/the-yin-and-yang-of-product-versus-service-embrace-what-you-do-and-do-it-well\/","title":{"rendered":"The yin and yang of product versus service: Embrace what you do and do it well"},"content":{"rendered":"

\"The<\/span><\/p>\n

Do you provide a product or a service? I recently attended an AIMIA industry event<\/a> titled “Creating value in digital agencies”, and the product versus service debate was a primary topic. While focused on software development, the conversation is important for any organisation exploring new strategies to increase value.<\/p>\n

Product versus service in digital services<\/h2>\n

Two broad models exist in companies that deliver some form of information technology.\u00a0 One is a product-based model<\/b>, where you have a software solution sold to customers on a once-off per download \/ install or an ongoing license. The other is a service model<\/b>, where you provide a fee that is based on the financial or human capital required to deliver an outcome. This conversation then raises three additional topics:<\/p>\n

1. Value versus price<\/h3>\n

The value versus price debate<\/b><\/a>\u00a0proposes you should charge for the value returned from the service rather than what it costs to provide the the service plus whatever margin you can pass on.\u00a0 A common example used from the advertising industry is logo development.\u00a0 The time take to come up with the Nike swoosh<\/a>\u00a0was around 20 hours (excluding the intellectual property from the experience to develop the design), but the value to the brand is $13 billion<\/a>. Moving to a value approach is dependent upon a client base and an industry that is mature enough to realise the value that is being delivered rather than the cost it took to produce it.<\/p>\n

2. Profit share your service<\/h3>\n

This value conversation leads to another model of profit-sharing<\/b>, whereby the one providing the service shares in the profit or intellectual property of the solution. This vests the service company in the solution as if it were their own product.\u00a0 Software companies who go into profit sharing relationships need to understand that they are acting as an investor with all the necessary due diligence required of a venture capitalist or other financing institution.<\/p>\n

This can sound attractive to customers wanting to share risk and makes the service provider accountable for their recommendations. The vested interest would also encourage the software provider to have a say in areas of the business outside of their remit, such as marketing or the behaviour of the business executives, that can place their vestment at risk. There is also an understandable push back coming from the technical community about reasons why they will not be the technical founder for someone else\u2019s idea. This position is well articulated by the likes of Martin Gryner<\/a>, Evan Tahler<\/a>, and Jason Freedman<\/a>.<\/p>\n

3. Turn your service into a product<\/h3>\n

Another theme that often comes up in the conversation is for service companies to turn their service into a product<\/b>. This involves packaging up repeatable intellectual property into a methodology or approach that forms a product in itself.\u00a0This can seem a challenge when the service changes frequently, is highly customizable, services a wide range of industries, and is disparate across a range of technologies.<\/p>\n

Case in point, my studio<\/a> offers custom software development in technologies including Android, iPhone, .Net, SharePoint, and Flash. We service industries including government, manufacturing, warehousing, logistics, resources, financial, and retail. We provide services across the software development life-cycle, including business analysis and strategy, solution architecture, design, programming, dedicated quality management, and project management.\u00a0 There are opportunities to turn aspects of this into a replicable product through flexible processes and methodologies, but it can be a challenge when compared to traditional product-based models.<\/p>\n

Acknowledge the difference<\/h2>\n

The general vibe from the speakers felt as though companies who provide a straight service offering were on a fool\u2019s errand.\u00a0 The comparison given was between the hype of Instagram which sold for $1 billion with its 13 staff<\/a>\u00a0and a profitable large service-based agency is valued based on\u00a0comparatively\u00a0mundane rules of thumb<\/a>.\u00a0 With product being the rock stars of current start-up market, it is good to hear a defense for those with a service offering coming from venture capitalist Mark Suster when he facetiously asks \u201cWhat should you do with your crappy little service company?<\/a>\u201d<\/p>\n

The distinction between service and product has been made from both sides.\u00a0 Harvard Business Review wrote about the distinction back in the 90s<\/a>, some speak of the \u201cservitisation\u201d of product<\/a>, software developer 37Signals speaks of the shift from service to product<\/a>\u00a0and IBM has been analysed<\/a>\u00a0for its move the other way.<\/p>\n

Culture<\/b>, leadership<\/b>, and process<\/b> have been highlighted as critical differences to acknowledge between the two approaches.\u00a0 A focus on product development is a different mindset than of providing a continuous service. This requires dedicated and intentional leadership, with one speaker noting the need for distinct management structures for each channel if it is to be attempted in the same organisation.<\/p>\n

Another speaker noted in a conversation following the event how they had to embrace the stage where the product idea is tested and validated and embed that validation through the development and market release process.\u00a0 These are functions that service companies often leave to the client and can neglect when they try to develop their own products internally.<\/p>\n

Do what you do well<\/h2>\n

Whatever you do, it comes down to how many opportunities you have to practice doing it well. \u00a0Mastery is created by repeating the same thing over and over again and learning from both\u00a0mistakes\u00a0and successes.<\/p>\n

Before looking to product as a cure for their ailments, there are certain questions service companies should ask.<\/p>\n