Soods and Gervices: The merging of goods and services.

The world is becoming more fluid. Previous constraints and frictions are gone. The differences and distinctions between a product and a service are becoming blurred.

Producing Goods and Services is turning raw materials into finished products, and delivering them to customers. This process is the realm of Operations & Supply Chain Management.

Products used to tangible and Services intangible. The distinction was clear. Today, many goods are electronic copies, like many games, music, movies, and eBooks. These get sold directly as digital downloads.

We do a lot of our content consumption without any physical exchange. It’s all digital. Even ownership of electronic copies is outmoded. On-demand access models like streaming music and movie services have replaced ownership.

A new definition of a Product is something uniform and homogeneous in its production and sale. Quality issues in goods usually center on concepts of achieving zero variability. Digital copies provide very high fidelity of reproduction. And, by definition, achieve the goal of quality assurance.

Digital copies sold as downloads have three other advantages as a business model.

First, they scale. Scale is a shorthand term for economies of scope and scale. After you hit your breakeven point, it doesn’t take much expense to produce and sell more copies. So more money falls to the bottom line as profit.

You will get rich by giving society what it wants but does not yet know how to get. At scale.

- Naval Ravikant

Second is there is no working capital tied up in inventory. You don’t have to estimate (guess) how many copies to produce (supply) to meet potential sales (demand). You can sell as many copies of a downloadable product as the market wants.

Third is that distribution is costless. Your market does not have to rely on physical stores or outlets or even mail delivery. A small percentage of a diffuse population of customers can add up to a big market. Sales have transcended geography.

It’s essential to take some time here and think about these concepts. As an entrepreneur, digital business models should influence your thinking about developing and delivering. Whether you are an entrepreneur or working in a large company, we always need to be thinking if there is a better, more efficient way to do things.

We categorize Services as customizable and molded to customers’ needs on a case-by-case basis. Services are scoped around a subject matter or domain expertise. Consultants provide services. They also differ in the level of interaction with the customer. Service assets are more skewed towards human resources that go home each evening.

Traditionally it has been challenging to scale service-oriented companies and offerings. As Artificial Intelligence capabilities develop, more ways of automating services are becoming workable.

This ability to scale is especially true in rule-based services. Think of how Turbo Tax has automated and scaled a business in tax return preparation. Tax accounting was a white-collar profession not vulnerable to automation. Also, think of the travel agent business. Now we make our own travel arrangements. We use aggregators like Travelocity or matching engines like AirBnB.

Software as a Service, SaaS, is a model that has revolutionized the delivery of products by morphing with service attributes.

Most robust business models are a combination of products and services. Product offerings can create more customer engagement and loyalty by adding service components. Loyalty is a core concept of Branding.

Think of Apple Computer and its network of retail stores. Apple stores help brand Apple with high profile visibility.

Apple stores provide the ability to capture their products’ retail markup. The retail stores help Apple understand its customers and what they like and dislike. This information is valuable in improving their products and identifying what to work on next. These stores also act as forums to help users understand and better use their products. This engagement creates loyal customers by providing more value.

Apple’s business model of controlling everything from raw materials through design, manufacturing, marketing, and sales is called Vertical Integration. Companies improve their competitive position by integrating from their initial offering or competency. These are powerful concepts to keep in mind.

Service providers achieve extra revenue streams by providing Goods that enhance their services. They can create scale by delivering a uniform goods component. A digital product marketed online and through social media and sold as a download or app is a good example.

These goods cost little to reproduce. You can cover the development costs across the volume of units sold. They are marketing tools.

It makes good business sense to provide a basic initial good or service for free. Use the freebie to get potential customers engaged and familiar with your offering. This initial free version and access is a marketing approach called a Freemium model.

I am sure you are familiar with and use many products of this type. There is a free version on your mobile device, and if you want more capacity or extra features, there is a paid version.

Think of goods and services as now blended and hybridized with the marketing baked in.

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