NOTE: First draft.

Up until now I’ve been talking about a “product” that makes money. That’s a simplification of several factors. Let’s de-simplify.

Products and Services

Typically a “product” is a tangible thing the company sells to the customer—software counts as well—whereas a “service” is an activity the company does for the customer. Some examples are:

  • Apple sells an iPod, it’s a physical product in a box. They also have an online store that sells you music, movies, and whatnot for your iPod. Those are products as well, even though they’re purely digital.

  • Google provides a search service. You plug in a search query, it gives you back relevant web links, videos, or maps.

  • Amazon sells you physical products but they also provide valuable services like reviews and suggestions of other products you may want.

These lines get blurry, however, in the technology world. For example:

  • Oracle sells a database product along with consulting services to install and optimize the database for your purpose. They also sell ongoing support services in case you have problems.

Does a company buy Oracle because they’re most interested in the database, or because they’re most interested in the services Oracle offers? Could be either.

Product/Service and Revenue Stream

There’s an additional dimension to consider: is the product/service what’s really making the money? When you make a search query, how much money does Google make for that? Nothing. They make their money from the ads on the side. If you click one of those, ka-ching!, Google gets paid.

Or a more complex example, Red Hat sells a version of Linux, a free and open-source operating system. They make nothing from the product itself. What Red Hat sells is a service contract in case something goes wrong. Even though the product is freely available, Red Hat has incentive to make the best product possible, because fewer support calls means they get to keep more of the service contract money.

Who’s Your Daddy?

Whatever product or service you’re building, you need to be aware of where the money’s coming from. It may be direct product sales. It may be service sales. It may be sales of add-on products—give away the razor, sell the blades—or any combination. But figure out where the money comes from because, at the end of the day, money coming in the door means you get a paycheck and get to keep programming.