What manager in a product-oriented business has not thought about growing revenues by adding related services? What company in a service business has not weighed the advisability of offering products? Expansion often seems to make sense, but most companies creating a new offering limit themselves to approaches that are familiar and have worked before. Unfortunately, all too often those approaches are not suited to the new sector. The software industry provides examples that could help managers in other industries — particularly other high-technology industries — avoid getting injured in the chasm between service businesses and product businesses.
With the explosive growth of the global software industry, which witnessed annual revenues topping $500 billion in 1998, a striking phenomenon has emerged: software companies attempting to straddle the two industry sectors, products and services.1 Traditionally, individual software companies catered to either the service market or the product market, but competition and the need to maintain a high growth rate induced many service companies to venture into the product arena.2 To a lesser extent, product companies have started widening their offerings to include services.
It is too early to judge how successful product companies are in offering services, but the lackluster results in the opposite direction are evident.3 A recent survey shows that from 1995 through 1998, approximately 87% of... To read the complete article, login or sign-up using the form below.
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