Four strategies for the age of smart services

Most industrial manufacturers realize that the real money isn't in products but in services. Companies such as General Electric and IBM have famously made the transition: A large proportion of their revenues and margins come from providing value-added services to customers. But other companies attempting to do the same might miss the boat. It is not enough, the authors say, just to provide services. Businesses must now provide "smart services"--building intelligence (awareness and connectivity) into the products themselves. Citing examples such as Heidelberger Druckmaschinen's Internet-connected printing presses and Eaton Electrical's home-monitoring service, the authors demonstrate how a product that can report its status back to its maker represents an opportunity for the manufacturer to cultivate richer, longer-term relationships with customers. Four business models will emerge in this new, networked world. If you go it alone, it may be as an embedded innovator- that is, your networked product sends back information that can help you optimize service delivery, eliminate waste and inefficiency, and raise service margins. Or, you may pursue a more aggressive solutionist business model- that is, you position your networked product as a "complete solution provider," able to deliver a broader scope of high-value services than those provided by the embedded innovator's product. In the case of a system that aggregates and processes data from multiple products in a building or home, you may be either an aggregator or a synergist, partnering with others to pursue a smart-services opportunity. An aggregator's product is the hub, collecting and processing usage information- and creating a high-value body of data. A synergist's product is the spoke, contributing valuable data or functionality. Woe to the company that takes none of these paths; it'll soon find its former customers locked in--and happily--to other smart service providers.