The following is republished from The SitePoint Tribune #424.
Should you offer services or products?
The old phrase, The grass is always greener … is often heard when discussing the merits of services versus web-based products. Listed below are some of the advantages and disadvantages of both models. Which ones apply to you?
Products — Advantages
• gives you unlimited income potential, because time constraints are minimal (unlike selling services)
• enables lower prices for the consumer, as costs can be amortized over more customers
• allows you to concentrate on building one main project, rather than several small ones
• presents a choice of different revenue models, which are simpler to modify over time
• affords a better opportunity for residual income, in continual license fees
• provides an easier option to sell as an ongoing concern than a small web service does.
Products — Disadvantages
• requires more upfront investment in time and possibly money, especially the marketing aspect
• presents the possibility of competitors creating similar products and competing directly with you.
• necessitates market research to avoid ending up with little or no customer base.
• runs the risk of fielding more support queries than anticipated
• may delay long-term growth because of the lack of immediate cash flow
Services — Advantages
• generates income faster, because it’s easier to sell your services than a brand new product to the marketplace
• provides scope for a variety of projects, maintaining your interest in each new project
• offers more versatility in meeting market demands, rather than having to rebuild a mature application
Services — Disadvantages
• reduces your capacity for income, because it’s based purely on how much you can charge and how many staff you need
• limits short-term growth; for example, hiring staff is more time-consuming than bringing a new server online
• makes you more vulnerable to market buoyancy than product licenses
Also remember, as Dave mentioned, that it’s very simple to have a hybrid model of both: sell your current services while developing and offering products as well. This is similar to how businesses may sell hosting, stock images, and CMS licenses.
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Seems like “website design” consumers, in my experience, understand a fixed pricing model, which I guess is inline with the product mindset. We’ve received many of calls asking how much a website costs. In essence, our prospects don’t see us as service providers. They’re looking for a product. By applying a “name” to a list of services that we’ll provide, we can work with them without having to shift their mindset. We provide a service, but have the flexibility to market it as a product for those who choose to see it that way.
December 6th, 2008 at 11:52 pm