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Product Discovery: product-service systems and the future of products

The future of products has become more difficult to visualize in recent years. Product-service systems are leading industries towards a service-based ecosystem, but that doesn’t mean that product discovery is down and out.

You might be asking yourself why a company known for doing service design is talking about products. The answer is simple: because the future of products relies on servitization.

But how and why the product discovery is related to this? We explain.

To get started, the first thing we need to do is demystify the concept of product discovery. In short, discovery processes are guided by a modus operandi very similar (if not the same) to the core of Design Thinking.

In other words, of course products have their own KPIs, but it doesn’t matter how you’re going to call the discovery process, as long as you succesfully adapt it for a service-based ecosystem future.

No more spoilers! Read the full article, understand the concepts and see the benefits of the business ecosystem of the future.

What is a Product-Service System?

Product-Service System (PSS) is a term used to describe the process of servitization, which is transforming a product-based business model into a product-as-a-service ecosystem, which works by aggregating high-value services related to those products.

Why are we turning products into services?

We are currently living within a convenience culture. If something is easy to consume, we do it. If it’s not, or consumption demands a counterpart, we probably won’t. And this logic also works for experiences. If it isn’t a smooth experience customers are likely to stay away.

Product-service systems represent a paradigm shift in business, completely changing the logic behind solution building, for products and services.

It starts from the premise that companies must offer the function of their product, not the product itself. This concept is based on developing the real needs of the consumer, who does not necessarily want to own things but to benefit from using them.

The transition to product-as-a-service works in harmony with the transition from ownership to access. It’s considered to be a natural business decision, mainly because of the increasing relevance of digital marketplaces.

In this context, the product itself may or may not disappear. The important thing is the product experience, which is orbited by one or more add-ons: service components that generally complement, support, or improve the performance of the main offer. Some benefits:

  • Recurring revenue
  • Long-term relationships with customers
  • Increase in market share
  • Facilitated upselling, cross-selling, and down-selling.

PSS: a successful transformation case

One of the biggest examples of this change was highlighted by the American multinational computer software company Adobe. They suffered from the 2008 crash which included a crisis with BigTech (its biggest partner at the time). But through a change to their sales model for their solutions, they repositioned themselves to increase profits.

You may remember how difficult it was to acquire a software license in the mid-2000s: you paid once, you received a box with a CD-ROM (or you went to pick it up from a store) and installed the program. Very 2000s.
But the model had some critical points: difficult revenue predictability, the need to constantly acquire customers, relatively high distribution costs, and piracy.

In 2009, Adobe began its transformation, returning to the status as one of the most innovative companies out there. To transform its business model, Adobe’s plan focused on three main pillars:

  • Recurrence – more money, more profit.
  • Dematerialization – no need to deliver, no distribution costs.
  • Scale – it’s easier to scale when your products only use digital media.

(Besides, of course, attaining control of the parallel marketing licenses situation).

There was something that could attain all of the pillars at once: cloud computing. And it worked. Welcome to Creative Cloud, a perfect example of a product-service system, a voracious killer of CDs licenses.

Since then, Adobe has acquired nearly a dozen companies that have been central to consolidating the cloud-based model and building a new business ecosystem. Two years later, in 2011, Adobe saw its revenue jump from U$3.8 billion to U$4.2 billion. Not bad.

Stories like this may seem normal for us in the 2020s, but companies didn’t typically make deep changes to their business models 10 years ago. On the contrary, Adobe had a hard time between 2007 and 2009, when they had the iconic Flash program removed from iPhones, from which they experienced a period of intense business questioning. It was the trigger for change.

What’s the role of Product Discovery in servitization?

First of all, let’s define what product discovery is.

Product discovery is the process of planning the entire roadmap of a product. It defines the value proposition, target audience, go-to-market strategy, market fit, prototype-building, and any other aspect capable of securing the creation of a useful, valuable, and viable product.

But the growth of PSSs might have you thinking that products are headed for a quick death. Not for a second. Because we can’t imagine a world without products.

As we saw in Adobe’s example, what’s happening is the transformation of business models to empower their products, creating a support-offer ecosystem.

How does the discovery process work?

Do you know that around 65% of the features created are rarely (or never) used?

In an increasingly competitive context, you’d better make sure teams are not wasting time and money on non-functional, un-profitable features. This is the main statement of product discovery.

In fact, you should be asking yourself: why a service design is talking about products? Because service is the future of products.

In practice, product discovery and service design both follow the same steps as Design Thinking. All 3 concepts require detailed research and user feedback to contextualize adherence and discover new opportunities. Those steps include:

1. Definition

Considered the pre-project phase (or something similar to a: phase zero). Without guidance and consensus, the chances of success are much smaller.

During the first phase, it’s time to align objectives and expectations about the strategy and discovery process results. Stakeholders should look to establish quick wins and performance indicators derived from OKRs to measure progress

2. Immersion/Research

This is when you want to get close to the problem. It’s the moment when the team seeks to dive into the implications of the challenge, studying it from both the company and client’s perspectives. In this phase, quantitative and qualitative information is collected and analyzed to better understand the research topic.

3. Ideation

Ideation is the moment to brainstorm, co-create, and develop a solution concept. No judgments here. First, separate; then, prioritize. It is essential to have a good variety of profiles involved in ideation as it generates more adherent ideas. Don’t shy away from using tools to encourage creativity and participation. Remember, there are no wrong answers at this stage in the game.

4. Prototyping & Validation

Finally, it’s time to assess whether the knowledge obtained in the previous phases will be sufficient to validate a business idea, value proposition, proof of concept, product, service, or feature.

5. Refinement

As you can imagine, continuous learning cycles and solution improvements are constant within a product-service system. That means new testing and validation sprints, in addition to plenty of quality assurance.

Where does the discovery process meets the product-service system?

As you might have already guessed, Product Discovery isn’t a concept that strictly provides benefits for product-based systems, it can be applied to PSSs as well. Using it in this way is very similar to the idea behind Service Design.

Offering a product as a service doesn’t mean you’re replacing a product with a service. It’s a way to deliver the intrinsic value of your product with the knowledge that its use can be treated as a service.

This means that while Service Design is often used in the production of new, more adherent services, it can also be used in the maintenance and improvement of PSSs.

Similarly, while Product Discovery is normally used to discover niches for new products to fill, it can be a great way to update PSSs by finding new functionalities that services are desperately needing (or even remove/alter some that aren’t achieving their full potential).

Design Thinking is a methodology that permeates these two subjects for a very good reason: they both exist to develop and refine new solutions to complex challenges.

As digital marketplaces continue to grow in scale and scope, it’s to your competitive advantage to discover new niches of opportunity within your industry. This means increasing diversity within product portfolios, constantly improving the quality and functionalities available within your services, and adapting more flexibly to user pains and needs.

While this might sound difficult, the leg-work for all three on the concepts we touched on throughout this article can be done through the Design Thinking approach. If you’re thinking of developing a PSS or are looking to develop and update products and services, why not take a look at some of our other content?

The best advice we can give you to get started is that the quickest way to integrate the design thinking methodology into your procedures is through employee training and culture change.

If you’re struggling to find a place to start, consider reaching us out for help. Remember, you don’t have to go it alone.