Cloudonomics: The Business Value of Cloud Computing, + Website

Products versus Services

Starbucks was originally a service provider but augmented its service business by moving into products: selling ground coffee and whole beans in tens of thousands of grocery stores via a distribution and licensing agreement with Kraft. Microsoft was originally in the product business, selling software such as Windows and Office and hardware such as Xbox. Software became “software + services,” and game consoles moved from stand-alone devices to online, multiplayer games. The lesson: Service providers can encapsulate their capabilities as products; product companies can expand into services.

There are clearly numerous benefits to cloud services, as we’ve delineated. That said, cloud companies today have developed innovations in features and functions as well as delivery models. In some cases, the delivery model is orthogonal to the capability, the way coffee bean selection, roasting, and grinding is insensitive to delivery via a barista or a bag. It is therefore likely that some service providers will extract and productize their intellectual property, as stand-alone appliances, software capabilities intended for private installation, remotely managed systems, or integrated product-service system hybrids.

In other words, rather than being beholden to a specific architecture or delivery model, it makes sense to solve a customer problem—strategically exploiting IT in the pursuit of competitive advantage—with a solution that may have multiple product and service ...