The Service Economy

vlad —  July 24, 2013 — Leave a comment

CX for all
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As products are becoming increasingly commoditised, services wrapped around a product’s life-cycle are growingly becoming a competitive advantage for businesses large and small. In this post I’ll go through some key trends pointing to a move to a service economy.

1. Products last longer

Hundreds of startups like Airbnb (rooms) and Chegg (books) are allowing people to lend each other products. The end effect is that people are increasingly borrowing goods rather than owning them. Why buy a Versace dress you’ll only wear once when you can Rent the Runway? The end result of this, as outlined by @jowyang is that businesses will be forced to become service providers as their products have longer shelf lives and ever smaller production runs.

Products are also getting better at updating themselves. Tesla has built the antithesis of planned obsolescence into their car. Their on-board software auto-updates and their free charging stations will get rid of paying for petrol.

2. Service is a USP

Watermark Consulting took the top and bottom 10 performers of Forrester’s 2012 Customer Experience Index and compared their 5 year stock performance against the S&P 500. The top 10 outperformed the index by 22.5%, the bottom 10 under-performed the index by 46.3%.

Indeed Forrester places Customer Experience (CX) as a key driver of customer loyalty and therefore increases customer lifetime value. CX can therefore be leveraged as a key point of difference. As outlined in Delivering Happiness online shoe retailer Zappos built a >$1Bn company by aggressively investing in CX as a USP.

3. Commoditised products

Products are being commoditised to the point where they are being given away for free. Rock stars used to make their fortunes from record/tape/cd sales, they now give their music away for free to maximise distribution and monetise concerts (the service they offer fans). Companies like Topspin Media are specialising in facilitating this.

Automattic made around $45M in 2012 by giving away the code for the blogging platform WordPress for free and makig money from premium services. Newly launched discussion platform Discourse has the same strategy/business model.

A major revenue source for Rolls-Royce (plane engines) and CAT Trucks (long-haul trucks) is now in the instrumentation services attached to their machinery which enables fleet/operation managers to better manage maintenance of the extraordinarily expensive machinery. They’re converting from mechanics to data guys.

4. Product empowerment

After years of seeing customers customising their runners, Nike decided to jump on the trend and create the NikeID platform. A service that lets shoppers create and buy completely customised Nike shoes. Ten years after launching the service, Nice announced that the platform had earned >$100M in revenue in 2009.

New Product Development (NPD) has also been disrupted with companies like Kickstarter allowing entrepreneurs, engineers, designers and film makers to see their vision come to life through crowd-sourced funding. Once a project is funded pledgers become a part of the process, by receiving updates on the production process.

5. Curated products

Startups like Bespoke Post and Fab are taking the research out of commerce. By providing curated bundles of products they also provide engaging content and make spending money with them seem like a non-event.

In the next post I’ll go through some key techniques and tools companies are using to increase their service offering and how you can use them to do the same.


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