Part 3: Product-Service continuum

Digital Products and Platforms Primer

When services need to be productized and products need to be servitized, the landscape for products and platforms undergoes a significant transformation, impacting their strategies, offerings, and business models.

Productization of Services

For companies accustomed to providing services, the shift towards productization involves packaging their expertise, solutions, and processes into standardized, scalable offerings that can be easily consumed by customers. This often entails codifying best practices, developing reusable components and templates, and automating workflows to streamline service delivery and ensure consistency across engagements. By productizing their services, companies can enhance efficiency, scalability, and profitability while offering customers the convenience of off-the-shelf solutions with predictable pricing and outcomes.

?Example – Predix by GE

Predix by General Electric (GE) is a good example of the productization of services. Predix is an industrial internet platform designed to help companies leverage data analytics for optimizing industrial operations.

GE has extensive experience in industrial operations and data analytics. Predix turns this expertise into a standardized platform that can be sold as a product to other companies, allowing them to benefit from GE's knowledge without needing to develop the expertise in-house.

Platforms like Predix often use a subscription-based pricing model, providing a recurring revenue stream for the company. This is a common feature of productized services, as opposed to the one-time fees typical of traditional consulting services.

Servitization of Products

Conversely, for companies traditionally focused on developing and selling products, the move towards servitization entails augmenting their offerings with value-added services and ongoing support to create holistic solutions that address broader customer needs and deliver continuous value over time. This may involve bundling software products with subscription-based services such as maintenance, training, consulting, and managed services, as well as leveraging data analytics, IoT connectivity, and AI-driven insights to optimize product performance, usage, and outcomes. By servitizing their products, tech companies can deepen customer relationships, foster loyalty, and generate recurring revenue streams while differentiating themselves in a competitive market.

?A good example of the servitization of products in the software world is Adobe's transition from selling software as a product to offering it as a service through Adobe Creative Cloud

?Before: Adobe used to sell perpetual licenses for its software products, such as Photoshop, Illustrator, and Premiere Pro. Customers would pay a one-time fee to purchase the software and own it indefinitely.

Now: Adobe has transitioned to a subscription-based model with Creative Cloud, where customers pay a recurring fee to access the latest versions of Adobe’s software and services.

Another example is - Tesla's Autopilot Software

Tesla's approach to servitizing its products is exemplified by its Autopilot software.

?While Tesla's electric vehicles are physical products, the company continuously enhances their capabilities through over-the-air software updates, including improvements to the Autopilot self-driving system.

By servitizing its products in this way, Tesla provides ongoing value to customers by delivering new features, performance enhancements, and safety improvements over the lifespan of their vehicles, thereby enhancing customer satisfaction and loyalty.

Integration of Productization and Servitization

In practice, the lines between productization and servitization are often blurred, as tech companies strive to offer comprehensive solutions that combine the best elements of both approaches. This integration enables companies to provide customers with the flexibility to choose from a range of offerings tailored to their specific needs and preferences, whether they prefer the simplicity of packaged solutions or the customization and ongoing support associated with service-based models. By adopting a hybrid approach that blends productization and servitization, companies can maximize value creation, address diverse customer requirements, and adapt to evolving market dynamics with agility and resilience.

Example - Microsoft Azure

Microsoft Azure, the cloud computing platform and services provided by Microsoft, integrates elements of both productization and servitization.

On one hand, Azure offers a wide range of standardized cloud services, such as virtual machines, databases, and AI tools, which can be easily provisioned and consumed by customers on a pay-as-you-go basis, reflecting the productization of services. On the other hand, Azure also provides value-added services such as consulting, training, and managed services to help customers optimize their cloud deployments and achieve their business objectives, demonstrating the servitization of products.

Impact on Business Models

The shift towards productization and servitization also necessitates a re-evaluation of business models to align with the changing needs and expectations of customers and markets. Traditional transactional models based on one-time sales and licensing fees may give way to subscription-based models that offer recurring revenue streams and foster long-term customer relationships. Additionally, outcome-based pricing models tied to specific business metrics and performance indicators may emerge, reflecting the increasing emphasis on value delivery and customer success. By embracing innovative business models that accommodate productization and servitization, companies can optimize revenue generation, mitigate risk, and enhance competitiveness in an increasingly dynamic and interconnected marketplace.

?Example - Salesforce's Subscription Model

Salesforce, a leading provider of customer relationship management (CRM) software, has embraced a subscription-based business model that combines elements of productization and servitization.

Customers subscribe to Salesforce's cloud-based CRM platform on a recurring basis, gaining access to a comprehensive suite of sales, marketing, and service solutions. In addition to software licenses, Salesforce offers a range of services such as implementation support, training, and consulting to help customers maximize the value of their CRM investments. This subscription-based model aligns Salesforce's revenue streams with ongoing customer success and enables the company to deliver continuous innovation and value.

Embracing Digital Transformation

Ultimately, the convergence of productization and servitization reflects broader trends in digital transformation, where organizations across industries are leveraging technology to reimagine their offerings, operations, and business models. Tech companies play a pivotal role in this transformation, serving as catalysts for innovation and value creation by harnessing their expertise, capabilities, and ecosystem partnerships to deliver impactful solutions that empower customers to thrive in a rapidly evolving digital economy.

?Example - Amazon Web Services (AWS)

Amazon Web Services (AWS), the cloud computing platform provided by Amazon, embodies the transformative impact of digitalization on products and platforms.

AWS offers a vast array of cloud services, including computing power, storage, and databases, which tech firms can leverage to build and deploy their own software solutions. By embracing AWS, companies can productize their services by developing software applications that run on the AWS infrastructure, while also servitizing their products by integrating with AWS's ecosystem of managed services and value-added offerings. This symbiotic relationship between product or platform compaies and AWS exemplifies the collaborative and transformative nature of digital transformation in the products and platforms space.

In summary, examples such as Adobe Creative Cloud, Tesla's Autopilot software, Microsoft Azure, Salesforce's subscription model, and Amazon Web Services illustrate how ISVs and Digital Natives can navigate the concepts of productization and servitization to create value for customers, drive innovation, and transform their business models in the digital age.

Conclusion

The convergence of productization and servitization represents a paradigm shift for tech firms, compelling them to rethink their approaches to solution development, delivery, and monetization. By embracing this shift and aligning their strategies and business models accordingly, tech firms can capitalize on new opportunities, address evolving customer needs, and position themselves for sustained growth and success in the digital age.

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