Recently, Sun Microsystems has announced continued anemic financial results. These results prompted one analyst to publish the following article:
Sun shines dimly in Big Blue’s shadow
Does Sun Microsystems have what it takes to remake itself in IBM’s image?
The article discusses the fact that Sun’s future success will most likely be determined by its ability to deliver advanced services and solutions around open source technology. This phenomenon of shifting product-service mix is not new to the technology industry. Companies such as Xerox and EMC (not just IBM) have been forced to reexamine their service revenue mix. However, our understanding of this decision point is dramatically maturing.
In 1991, Geoffrey Moore published a book titled Crossing the Chasm. This seminal work framed and defined the specific challenges that companies face as they attempt to drive new product offerings to market. The book brings to light that there is a predictable chasm that must be navigated if a technology product is to be adopted on a large scale by the main street marketplace. Over the past fifteen years, the technology marketplace has significantly matured. With this market maturity there is a new set of strategy challenges for historically product-centric companies like Sun Microsystems. And of course, there is a new chasm that companies must decide how to cross: The Service Chasm. However, unlike the product chasm that Moore helped define and every product company is desperate to cross, it is not mandatory for a product company to cross the service chasm.
Research of maturing technology markets reveals the following key observations:
- Technology companies migrate to very predictable product/service mix profiles.
-For each one of these product/service mix profiles, product companies establish common service charters and service portfolios, i.e., distinct service strategies
- As the technology marketplace matures, it is forcing many companies to refresh their service strategy profile. If this profile refreshment is not managed aggressively, companies find themselves in a “service chasm.”
- There are clearly recognizable attributes for companies stuck in the service chasm.
This service chasm can be graphically shown on Geoff Moore’s original product adoption life cycle diagram:
The fundamental decision point facing a company in a maturing product market is shown on the diagram. Does a product company like Sun find new, high-growth product market to pursue OR does the company begin pursuing new service opportunities that exist in the maturing product market? This is a very difficult decision for executive teams to make. There are pros and cons associated with either choice.
If a management team decides to change market, it must successfully identify a hot new product market to pursue. This may involve the pursuit of both new technologies and new customer relationships. What if the market does not mature quickly enough to satisfy the growth objectives of investors?
If the management team decides to change mix and pursue service opportunities, the strategy, structure, and culture of the historically product-centric company must be altered to support and value the pursuit of the service business. It is difficult to change the DNA of a company. Also, by increasing the percentage of total revenues coming from lower margin services, there is a change to the overall financial model of the company—not an easy change for any company to endure.
Despite the challenges faced with either a “change market” or “change mix” strategy, the alternative is far worse. When a company does not make an explicit, well-defined choice, they drift into the middle of the “The Service Chasm.” If we examine Sun’s performance over the past four years, we can see this anxiety—are there new product market opportunities that will save the day or does the company truly need to commit to developing new services capabilities? Until that question is convincingly answered, the research tells me we will see more articles like the one referenced at the beginning of this entry.