All businesses generate revenue through the
sale and delivery of either products (tangible assets) or services (the
experiential outcome of the application of products). Some operate in both spheres.
I tried to locate research to represent the
relative percentage of GDP that comes from products versus services, but I
failed. If anyone can locate that fact
set for me, I’d be most appreciative.
My instincts tell me that there is a
non-trivial shift underway from product-oriented commerce to
service-oriented. Further, I think this
shift is accelerating.
Companies that previously thought of
themselves as being firmly planted in the product side of the economic
community are being compelled to operate as Services Providers.
Now, in the realm of IT Services and Business
Process Services, the Service Provider universe has been a well-defined market
segment. It’s easy to identify those
companies whose reason to exist is through taking the products of others and
integrating those products into operating services. These IT/BP Service Providers serve as
intermediaries between the product manufacturers and the end consumer of the
ultimate Service. I’ll post in the
future about why this model has failed to achieve its promises over the past
decades; there’s plenty of other sources of opinion on that topic published in
the blogsphere in the interim. (Among the best: Horses
for Sources.)
The really interesting aspect of what’s
happening today is the risk that the traditional IT/BP Services Providers will
be disintermediated.
This is because the product manufacturers are
seeing an ever-increasing percentage of their business shift to “as a service”
delivery expectations. Further, those
expectations take the form of delivery models that are far removed from the
“outsourcing” model that the IT/BP Services Providers have used for so many
years. End customers are looking to
avoid capital expense associated with buying discrete products, and also avoid
the many distasteful nuances of outsourcing.
As interesting a topic as that may be … the
tipping point, in my opinion, comes through the fact that the “As A Service”
business model is being applied far beyond the realms of traditional IT
Services and Business Process Services.
Let’s say that you’re a company in the
manufacturing or distribution industries.
Your business model is tried and true – pivoting on the production,
shipping, and installation of tangible products such as refrigerators, or air
conditioning units, or roofing shingles.
The value chain that you operate within ends
with a customer taking delivery of your products. Perhaps you provided installation services,
and perhaps you offered repair/maintenance services. But, the point of revenue-generation for your
business rests with the customer taking title to your products.
Your customer, on the other hand, was burdened
with the application of your products.
That is, the end result that your product is meant to achieve –
preserving food items, cooling a building, protecting a home from weather – is
left to the customer.
But, along comes a clever competitor that sees
a way to disrupt your industry. The
competitor elects to leverage some of the many new technologies available (such
as social media, big data analytics, geolocation, biometric authentication,
etc.) to change the paradigm.
Perhaps that competitor redefines your
industry by converting a traditional product business to one focused on
services. The end customer is attracted
by a few fundamental truth regarding services business models:
Ø Shift from a capital expenditure to an
operating expenditure
Ø Assurance of achieving the ended application
Ø Access to derivative, or meta, data/analytics
regarding the products employment
Ø Avoidance of costs associated with operating
the product
Ø Improved efficiency through greater leverage
and attention to detail
Ø Potential to lower costs, or even generate
revenues, from the adoption of a service
There are more of these virtues specific to
particular situations.
The point is … now your product business (and,
perhaps more to the point, the distribution industry with which you’ve
traditionally partnered for service to customers) is being upended.
In order to remain competitive, a highly
scalable, flexible, and on-demand business model is critical. And, expertise is
required in the emerging technologies that are dramatically transforming the
market, shaking up traditional industries by spurring increased competition and
igniting a fresh wave of innovative business models. As a market leader, with a deep legacy, you
know that these technologies have lowered the barrier to entry for new competitors,
and increased the expectations of your customers.
“As a Service” offers a compelling alternative
for organizations who would like to focus their energy on building a
differentiated service offering as opposed to building, operating and
maintaining traditional product-based infrastructure. While this may be
self-evident for the IT Services and Business Process Services segments, I see
it happening across many, many product-based industries.Take heed: manufacturers and their distribution partners need to learn from the experience of the IT and Business Process Services industry.
Every company is a participant in the “As a
Service” economy, either as a customer, subscriber, service provider, or
service partner. I think we will see
many more traditional product companies shift to being Services Providers
through transformation of their business models and technology-enablement of
their products. The winners will be
those that can turn their legacies into assets/accelerators, and avoid the risk
of perpetual drag through inertia.
This means that the sands we thought were
stable are shifting for buyers and providers of everything. Internet of Everything? Certainly.
Delivered “As A Service.” Fun
times in the “As A Service” Economy.
Peter
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