Services or Serfaces

Services or Serfaces
I am rather dubious about this move to make everything a service, like, for example, software.

It certainly has its advantages, you can buy only what you need when you need it. You don’t have to pay for a bunch of overhead to get started.

On the downside, it restricts your flexibility. If you own the software you use, and the systems that run them, you can always choose to defer upgrades in order to free resources for other purposes, such as paying salaries through a tight period, or buying up a struggling competitor. If you are paying month to month or year to year though, you have no choice but to pay up or go through the disruption of finding a substitute. If you pay up, you have less money for other purposes, and you may miss opportunities, or be forced to lay-off people, and risk loosing the knowlege the carry around with them in their heads.

It isn’t just software though. Consider the lean supply chains many manufacturing companies run these days. Parts and materials are delivered just in time and in just the right quantity, like a service. It works great, until something goes wrong, like say, a lockout at all westcoast docks. Pretty soon companies are idling plants and falling short on product shipments because they can’t get the parts they need.

And it isn’t just companies. Think about leasing your car. Low payments, a new car every three years. But what happens if you loose your job? Suddenly you are stuck paying for something you are going to have to replace before the end of its useful life.

Rent is similar, though a mortgage isn’t much better.

The problem with service models is that they are build on certain assumptions. They work fine if you fit those assumptions, but they become increacingly problematic when you stray from those assumtions. This can work well when things are predictable and routine, but it can leave you vulnerable in a crisis, because you have no buffer.

A prudent practice might be to plow some of the short term savings from using services into a rainy day account that can be tapped in a crisis.

So, I have just argued that a services model deprives you of flexibility in a crisis, but that is a rather lopsided picture, because, in reality, the services model can offer flexibility. It can be easier to make a radical change if you don’t have sunk costs. Someone leasing a car might be able to terminate the lease and switch to public transport.

(Yes, i realize these ideas are incomplete. I’m sure I’ll have more to say at some point.)