UK: Techknow - Survival rules - Rule 5 - Let products be services.

UK: Techknow - Survival rules - Rule 5 - Let products be services. - Very occasionally advertising slogans reveal something essential about our moment in business history. When Sun Microsystems billboards boast that 'the network is the computer', their p

by HUNTER MADSEN.
Last Updated: 31 Aug 2010

Very occasionally advertising slogans reveal something essential about our moment in business history. When Sun Microsystems billboards boast that 'the network is the computer', their puffery mirrors a broader shift in the new economy: across a growing range of categories, products are being upstaged and subsumed by the networked services that create and manage them. The marketplace of stand-alone product sales is becoming the marketplace of networked-service rental.

Everything is temporary. Whereas companies previously plunked down huge sums to purchase office buildings, furniture, copiers, paper supplies, PCs, software, and the mortal souls of full-time employees to use these things, now they increasingly lease and outsource, and staff their premises with temps and consultants. All sorts of tasks - billing, accounting, payroll, office supply maintenance, lunch service, e-mail, internet servers, IT maintenance - are now routinely handled by third parties.

What you want, when you want it. Continuous connectivity between service providers and their customers via the internet will create two-way information flows that transform and extend this burgeoning service sector. Providers will monitor, from a distance, the performance of their chip-laden 'smart products' to gauge customer needs, replenish consumables, send forth troubleshooting repairmen, and even accomplish remote reconfigurations and software upgrades without bothering the end-user. Sounds like sci-fi? Tell that to the buoyant shareholders of Qwest, Hewlett-Packard, and SAP, one of several powerhouse teams racing to provide infrastructure for such emerging networked services.

Why are products morphing into services? The digital revolution is shortening product cycles, which leaves companies and consumers reluctant to buy fast-obsolescing products when they could lease them instead. Also, people are demanding more product customisation, which requires a larger service element. Moreover, flexible competitiveness in the new economy is driving businesses to outsource all but their core functions to more efficient service providers. Lastly, networked services often enable more sheer capacity, convenience and access than stand-alone products can - they simply work better.

Fasten your virtual seat belts. As products become services, you'd better brace for turbulent changes in market dynamics. Many makers will switch customers, for example, from a crowd of end-users to a smaller set of service providers. Products will remain the property of their providers, and must therefore be redesigned to minimise obsolescence and costly upgrades.

When end-users buy an ongoing service rather than a series of products, their dependency grows, their purchase cycles lengthen, and barriers to switching rise like the Himalayas. This should make the incumbent provider difficult to displace unless its service quality falters. Yet falter it might, since many of today's producers-turned-services will be ill-equipped to offer the assiduous customer service, 24-7 reliability, security, scalability, and adaptive pricing by which brands will be judged in the new service economy. And you thought moving product was tough.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today