The Pinocchio Problem: Why Your Product Wishes It Could Be a Service

Product & Service Development

Pinocchio was a wooden puppet, carved by the shoemaker Geppeto, who wished he could be a boy.  In the same way, your tangible product wishes it could be a service. Why?

Being consumed as a service makes your product more than a collection of atoms. It becomes the focal point of a dynamic, information-rich relationship between you and your customer. Becoming a service animates any product. Your product intuitively knows this.

Several years ago, I led a project with Diebold, the Ohio-based ATM manufacturer.  Diebold was facing a growth problem. Their core market for full-function ATMs was flat. However, there was a growing need for simple cash dispensing, especially in high-traffic locations such as convenience stores and hotel lobbies.

Diebold tried to sell a simple cash dispensing product to these businesses. “We don’t buy hardware,” these prospects said. “But why don’t you put one of your mini-ATMs here in our lobby? Our customers will like that.” Diebold’s cash dispenser had a Pinocchio problem.

So, we helped Diebold, like Geppetto, give the cash dispenser its wish; they offered it as a service. They leased the cash dispensing units at a very affordable rate, and earned transaction revenues through convenience fees paid by customers. The hotels and convenience stores benefited by increased traffic and on-site customer spending. And the ATM maker found a profitable new business model based on recurring revenues.

Today you see cash dispensing mini-ATMs in countless locations. They are not products. They are hubs for rich service relationships between hotels, banks, and consumers – and the service providers behind the scenes, including cash-in-transit (e.g., Brinks) and, of course, the ATM manufacturers.

As Diebold learned, once your product starts being consumed as a service, some exciting things begin to happen:

  • You information-enable that product; to monitor and manage it
  • You get enmeshed in a steady flow of customer data
  • As more data accumulates, you begin to do advanced analytics
  • Now you can optimize your product configuration, service levels, costs, and margins
  • You discover new features and add-on services that customers will love
  • Now you can enhance your customer’s experience

Instead of feeling commodity pressures, your product-as-a-service starts to increase revenues and margins, while becoming stickier than ever.

Every tangible product, from fasteners to flight simulators, creates opportunities for value-added services. These service opportunities derive from five categories:

1. Product-centric opportunities

The physical product, peripherals, and supplies drive service opportunities such as delivery, installation, maintenance and replenishment.

2. Operator/user opportunities

Users of the product represent opportunities for training, personalization, and collaboration.

3. Owner/buyer opportunities

When the owner/buyer is separate from the user, there are service opportunities related to acquisition, deployment, and system-level management.

4. Ecosystem partner-centric opportunities

Many products are used within ecosystems that provide service opportunities for third parties, whether upstream or downstream.

5. Information-centric opportunities

Anytime products generate data, whether passively or actively, they create the potential for add-on information services.

Our innovation consulting practice uses a rubric to help make these service opportunities visible. The planning tool shown below addresses the five categories with a series of prompts and potential service choices. You can use it to rate each opportunity and decide if/how to embed it in your business model.

Service Opportuntiies Framework

Diebold is not an isolated example. Xerox certainly built its company with this mindset. In addition to selling copiers and printers, they also lease copiers in exchange for subscription revenues, and they provide a wide range of professional services to improve a customer’s workflow and efficiency. Could an aircraft engine be sold as a service? GE Commercial Aviation Services thinks so. They don’t sell engines. Instead, they provide guaranteed aircraft thrust and engine uptime in exchange for recurring service revenues.

What about your company? Does your tangible product have a Pinocchio Problem? Is it longing to become a service?


Tim Ogilvie


Insights + Tools

Other posts from our peers.

Explore more insights