The Product-Service Shift Comes in Several Flavors: Which One is Yours?

The most profound change in enterprise computing in this century to date has been the shift in value delivery modality from product to service and the corresponding rise is XaaS or Everything-as-a-Service. The current bull market leaders in the tech sector take this for granted, and the prior generation of incumbents are still scrambling to get themselves onto the new model. For consumers this is an all-upside proposition; for enterprises, it is a balancing act of open fluidity versus secure compliance. But everyone seems to know their place in the new order—or do they?

As the product-service shift unfolds, it can manifest itself at three very different levels of value delivery, each of which has its own priorities. When you are looking to help your organization navigate the transition, it would be good to get clear as to which path you are on:

1. Infrastructure Model Transformation. This is the easiest to absorb, the impact for the most part contained on the vendor side within Finance and Legal and on the customer side within the IT organization itself. Basically, all you are doing is changing the contract from a license to a service level agreement, and staging a series of leasing payments out of op ex instead a one-time purchase out of cap ex. For clarity sake, think of this as a move to subscription, not yet to For most people in the organization, it is a non-event.
2. Operating Model Transformation. This move has the most impact on incumbent vendors and their installed base. As Todd Hewlin and J B Wood described in Consumption Economics, the shift is based on a change from the customer to the vendor as the one who must absorb goal attainment risk. In a product model, once the customer has bought and paid for it, the customer owns virtually all the risk. That can readily lead to a lot of drive-by selling, the sort of thing that built out empires of shelfware in the late 1990s. In a service model, by contrast, the vendor can never stop owning the success of the offering, not if they want to protect against their installed base churning out from underneath them. This is the true product-service shift, and even now it is sufficiently novel that both customers and vendors are still sorting out the implications for what staffing and expertise is needed on both sides of this relationship.
   
3. Business Model Transformation. This is the most impactful for venture-backed start-ups and the incumbent franchises they are looking to disrupt. Typically the former are rearchitecting an established but aging value chain by substituting digital services for physical-world interactions. The biggest disruptions we have seen thus far are in retail, print media, financial services, transportation, hospitality, and communications, with lots more to come. They all represent daggers pointed at the heart of established enterprises because even when the latter can find ways to reengineer their own offers to match the new paradigm, it is still painfully hard to bring the rest of their ecosystems up to speed to deliver the whole product. And to a lesser extent, the same goes for their customer bases. That is why disruption usually starts with targeting customers who have been disenfranchised by the old solution. It is only over time that the Innovator’s Dilemma bill comes to for the established vendors, but when it does, it hits with a wallop.

For most companies, the path you want to double-click on is the Operating Model Transformation, and in the next post, I want to dig in a lot deeper there.

That’s what I think. What do you think?

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Geoffrey Moore | Zone to Win Book | Geoffrey Moore Twitter | Geoffrey Moore YouTube