Products or: How I Learned to Start Worrying and Fear the Services

Within tech, I've constantly been surprised by the religiosity surrounding product development. For a long time, I didn't understand it. In fact, it wasn't clear to me why selling products was strictly better than selling services. My career started at a company that provided a fusion of products and services, as many large enterprsie software companies do, and especially when I started at the company, it wasn't clear why providing products was such a focus for the company. In fact, when I joined, it was very stressful to be on the product development side of the organization - things seemed decidedly murkier when trying to build products than when trying to fulfill contracts.

However, there are a number of reasons that traditional product companies are so desirable. Some of these are purely financial - product companies have a much higher capacity to generate profits than other companies. Others are, however, much more cultural. Product companies bind groups of people together with an evangelical furor that rivals some of the worlds most popular religions, provide clear focus as a company grows, and allow people to concretely see what an organizations does.

I remember very clearly the first time I talked about the value of product development with my boss in 2014. I was working on a failing product at the time, and felt dejected about our lack of progress. We had worked hard, but the product we had built was useless. It wasn't because we had failed to build something, but rather because we had built the wrong thing. As a product manager at the time, the responsibility for this directional failure was mine, and I was frustrated and asked him why we focused on products when the expected return on services felt so much higher. His response stuck with me, and focused on three main components.

Firstly, product development has a much higher failure rate than providing business services. Most product development efforts fail, and many of them fail spectacuraly. However, this failure rate still doesn't change the fact that the expected value of product development is almost always higher than providing raw professional services. Despite the extraoridinarly high rate of failure, successful products are incredibly valuable, and therefore often dominate any rudimentary expected value calculation.

This value comes from a combination of two traits, which I call horizontal and vertical. Horizontal value comes from a product's ability to increase efficiency. These type of products help businesses do the same thing that they've always done, but faster. This, in turn, reduces the cost of revenue, and allows the business to generate more revenue with the same number of people. Vertical products, by contrast, open new lines of business - they allow companies to increase their top-line revenue numbers. In this model, Ads at Facebook would be a vertical product while the HipHop Virtual machine, would be a horizontal product.

In either case, though, products produce lasting results; once developed, they can continue to provide value for years either by reducing expenses or increasing revenue. This, in turn, makes them assets for the company despite not requiring additional investment.

So from a financial perspective, product development is essential. In the next post, I'll spend some time talking about some of the other ways that products can provide value.