Products and Services: Explained with Examples

In this post, I will lay out the differences and explain the similarities between a product and a service.

You can go into a store and walkaway with a laptop. The laptop represents a product. Does it mean that products have to tangible? Not really. In the same store, you can purchase a MS Office 2019 software. Software is intangible, and yet it is a product. A product is something that you can buy once and use it for as long as you need to – provided the laptop or the MS Office software stays relevant ten years from now, or even twenty.

Now lets try and understand a service. The laptop you purchased refuses to turn on two months after the purchase. You call in the support desk and they resolve the issue by sending a technician to your home the next day. The activity around fixing the issue is a service. In this case, it was offered to you along with the product. Generally speaking, a service is a separate entity and need not be coupled with the purchase of a product. Other examples of traditional services include car servicing that you get done once a year, or the lawn mowing that needs to be done every week during summers. The underlying essence is that in a service, you don’t get anything new. Whatever is already there gets maintained.

The explanation that I provided for products and services is traditionally true.

Today, in the dawn of digital transformation, the gulf that existed between products and services is rather a blur. It is a fact that service organizations make plenty of revenue due to the nature of perpetuity rather than a product company where the purchase is done one-time. So you will find a number of organizations moving from being a product company to a service organization. Case in point is IBM. They started as pioneers in manufacturing servers, PCs and other computing hardware. What are they today? They have sold their hardware business and are primarily a service organization. They don’t want to have anything to do with traditional products anymore, because it is no longer profitable.

That being said, products cannot disappear because services are lucrative. What organizations are turning to these days is to sell products to customers as services. Products are repackaged as a service and sold to customers, this ensures revenue perpetuity.

The classic example is MS Office. Microsoft has repackaged the traditional product into a service called Office 365. What is Office 365? You will need to buy a monthly or an annual service, and the software will be installed on your machine for the time period. What do you get out of it compared to the MS Office 2019 product? For the period that you are subscribed, all updates to the product are available to you. And you don’t have to shell out a lot of money upfront, but rather keep paying morsels month after month. This way, the company keeps getting constant revenue and as a user, you too don’t feel the pinch of buying the product outright.

Now let’s talk about where ITIL fits into this picture. ITIL is a service management framework, meaning it is all about services. Since products are no longer simply products but rather services, it falls under the service management space, into the laps of ITIL. So ITIL has become even more powerful, contrary to what people believe that digital transformation is going to make ITIL less relevant. The strategy and design of services cannot be done in isolation anymore. It needs to done hand in glove with the product development. So, we need to get a better understanding of what a product is.

Here’s the official definition of a product: A configuration of an organization’s resources designed to offer value for a consumer.

An organization’s resources can come in multiple forms and shapes. It could be the people working in it, the processes, or the products that are manufactured or developed. These resources can be sold to a consumer in a number of ways:

• It could be sold at a one-time price like MS Office 2019

• It can be leased or rented for a certain period of time like software rentals

• The customer could use the product on a subscription basis like Office 365

• People in an organization could work as contractors in a staff augmentation role

No matter how the company offers its products, the end goal is to provide value to customers through the resources that it has at its disposal.

Let’s focus on services now. Services are challenging for the very same reason that makes it lucrative. Due to its perpetual nature, it is critical that services continue to deliver value to customers day after day, and remain relevant continuously. Any slack, the customer could always stop using the service for something different.

The official definition of a service is: A means of enabling value co-creation by facilitating outcomes that customers want to achieve, without the customer having to manage specific costs and risks.

The definition of a service is a wonderful reflection of how a service is created, which is not in isolation. No organization can claim to create value through a service without active involvement of the customer who is leveraging the service. In the preceding definition, a service enables value that is co-created by the service provider, the customer, and perhaps other parties as well.

Take the same example of Office 365. The service provides outcomes that helps end users carry out their objectives. I am a subscriber of Office 365 service, and I use the applications all the time. The regular enhancements that are churned are exciting and the OneDrive storage of 1 TB is simply mouth watering. So in short, the service helps me achieve my business outcomes. Some of the graphics that I have created for this video and for my books are done with MS powerpoint and I have written all my books using MS Word. So the MS Office service is definitely fulfilling my objectives.

Now lets come to the second part of the definition involving costs and risks. On a yearly basis, I know what costs I should expect for using the service and I can budget accordingly. If there is going to be a bump, Microsoft lets me know in advance. No other costs are added to me. No surprise charges whatsoever. Due to the pandemic, I am certain that Microsoft lost plenty of productive hours and those costs are not passed onto me. The risks associated with the service, be it loss of productive hours or lack of support personnel has been owned by Microsoft and not me. Yes, as a consumer, I could see that the enhancement numbers dipped but that’s about it. The product and the associated cloud storage worked as they always have. I pay a certain cost for the service, I can enjoy the service without worrying about any additional charges or the risks associated with the service.

Understanding services is a key learning in the field of ITIL. If you get a good handle on services, consider all of ITIL is your tight grasp.

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