What the 1990s Were Trying to Tell Us: Services Eclipse Products

Right out of college, my first job was in sales at Forrester Research. At the time, the dot-com boom was in full effect and companies everywhere were struggling to navigate the early stages of the internet. I was responsible for selling research in to the SMB market, predominantly to small technology vendors.

I was rummaging around my basement a few weeks ago and found some hard copies of old Forrester reports from the late 1990s. One report in particular caught my eye—Dynamic Trade written by lead analyst Varda Lief (and some of her colleagues) back in 1998.

Forrester defined Dynamic Trade as the ability to satisfy current demand with customized response.

In other words, in the “internet economy,” businesses should be able to tailor products and services to meet the unique needs of each customer. Sounds pretty obvious, right? But keep in mind that during the late 1990s many traditional businesses, commonly referred to at the time as “brick and mortar,” didn’t have websites. If they did, they were frequently used as static advertising space with a company logo, phone number, driving directions, and so on. No one was really sure how to customize an online experience at that point.

According to the report, Dynamic Trade was made up of three rules:

1. Services eclipse products
2. Demand drives production
3. Pricing matches market conditions

I even stumbled on an old version of the Dynamic Trade slide:

I’ve always been very interested in that first rule—services eclipse products. In fact, it has helped shape my perspective on IT services and customer service ever since I first saw the report. The point wasn’t that products would become irrelevant or insignificant; it was that the role of services would become increasingly important. Below are my paraphrased interpretations of some of the services predictions contained in the report and how they’ve played out during the past 15 years:

Prediction #1: The internet will begin to enable customized online self-service

When this report was published in 1998, customizing the online experience was a pipe dream. Now, online retailers frequently make customized recommendations based on our purchase history, reviews, and other behavior. Beyond that, Forrester predicted that online self-help would evolve as a viable customer service channel. The report states, “Instead of staffing up customer centers, companies can deliver complex presales, configuration, product upgrade, and maintenance request services through the Web.” Today, online self-help is the low cost channel of choice for most customer service organizations. For example, when was the last time you called Apple’s customer service hotline with a technical question? Does one even exist?

Prediction #2: Many products will become differentiated based on the services bundled with them

The report uses the example of the automotive industry—luxury cars differentiated through bundled services such as pre-scheduled maintenance and guaranteed roadside service. That was a great example at the time, but now many products take this concept much further by actually integrating services in to the product itself as opposed to simply bundling a package together. I discussed a great example of this in my November 2012 blog about EMC’s VNXe product and its embedded “supportability” features.

Prediction #3: In many cases, products will become a single component of a subscription to a broader service package

Here the report provides an example of cable television. We pay for the service, so the cable box is provided for free as a component of the package that enables delivery of a service. What’s taken place since then in this arena has been a game changer, especially for technology vendors utilizing a managed services or “as-a-service” model for their business. The concept of taking a traditional product such as a software application and repackaging it as a service has revolutionized the technology industry and its associated consumption models.

In conclusion…

The report also points out that the traditional pre-internet focus of marketing was on product positioning. During the early stages of the internet, the focus shifted to customer acquisition. In the era of Dynamic Trade, the focus of marketing becomes customer retention. I truly believe if businesses want to retain customers for the long haul, their services still must eclipse their products.