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 I just read an article about IBM pushing service products. The idea is to deliver their products and services as a bundle. There was time during the dot com era when every product company wanted a service side for the high billing rates they could garner. Now every service company would like to be a product company or, at least, have the financial characteristics of it. When one looks at revenues per employee, product companies do very well. For example, Google's revenue per employee is $1.4 million, while for most Indian service vendors it is around $40k. American service companies have high revenue per employee and high SG&A. Productizing services helps keep the software customization costs down and customers get software assessment, design, implementation and servicing priced as a bundle. However, this approach calls for a great deal of discipline from the vendors. They must have a process for most activities and platforms to share assets and expertise on an enterprise-wide basis. The picture depicted above plots revenue per employee and SG&A on a log scale.
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 This picture show the software service ecosystem. It contains all the major IT vendors and their alliance partners. There are over 300 firms and over 600 alliances in the figure. The key IT vendors represented as diamonds (and colored green) are IBM, EDS, CSC, Keane, BearingPoint, Cognizant, TCS, Infosys, Wipro and Satyam. The alliance partners are denoted as round nodes with the size representing market capitalization. The nodes in the middle are firms having an alliance with most of the IT vendors.
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 This network diagram was created using data from programmableweb.com. Currently, there are 119 nodes and over 1000 links. The color coding in the picture is to identify firms and the size of the node represents the number of APIs exposed.
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Online video-sharing services are hot. Microsoft just announced their service, Warner Music announced a deal with YouTube. Yahoo! and Ebay have their own offerings. This is another market where the player that exploits the multi-sided market wins. On one side you have users creating content for these sites. These users could be amateurs or movie studios with video content. On the other side are users interested in browsing this content. Finally, there are advertisers who want to reach these users. Each side is dependent on the other to create value. The platform providers (Microsoft, YouTube, etc.) have to subsidize one side to attract and keep the other. While YouTube has the early lead, the others can bring the user community from other properties and tip the market in their favor. While major changes are possible in theory, let us see who executes the best on this.
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Microsoft unvieled Zune yesterday. As pointed out in a recent knowledge@wharton piece, this is looking like vertical product integration. Microsoft gets the device made by Toshiba and provides operating system software, digital rights management and content. With this kind of control over the ecosystem, Microsoft can guarantee that all the components would work and "play for sure." While most of this looks like Apply envy, the Wi-Fi capability may be a differentiator. Assuming that they are able to match Apple's content, the fact that users can legally share music with friends might help them build on the direct network effects concept -- the value of a product or service increases with the number of customers using it . This is akin to individual websites being changed to social networking sites like MySpace and FaceBook.
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Nice article by Om Malik in CNN Money.com about widgets. He describes how Yahoo! and MySpace are making it easy for consumers to create their own portals. Wouldn't it be nice if enterprises could let end-users build their own applications this way?
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 There are 119 nodes and 968 links in the picture. The size of the node denotes the number of APIs exposed by the component and the color code is to identify components provided by the same firm.
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Every week there is something from MySpace and YouTube or so it seems. YouTube has hired a CFO from Yahoo and seems poised for either new acquisitions or an IPO ( link). As for MySpace, they are making a serious foray into music. Even before this announcement about a relationship with Snocap, they had pages of bands and musicians on their site. This relationship simply allows them to formally register, track and compensate artist and labels. While Apple's iTunes may have cornered the market for big labels, MySpace could dominate the market for smaller labels or for direct relationships with bands. This could be a profitable "long tail" ready to be captured.
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