Services funding Product Development – does the model still hold?
The model of using IT services revenue to fund a product business has deep roots. i-flex, Infosys’ banking IP, and TCS’s product ventures all benefited from services revenue underwriting product development. But the successes are outnumbered by the failures.
One clarification: our point of view applies to standalone products addressing a defined market need — not extensions such as Salesforce add-ons that are closely tied to existing services engagements.
What is the key differentiator between success and failure?
The product business operates as a distinct business.
That means dedicated R&D, sales, and marketing teams, while sharing only appropriate back-office functions such as HR and finance with the parent company.
This isn’t simply an organizational preference. It reflects how fundamentally different product and services businesses are.
Product businesses require narrow focus, deep domain expertise, and a team relentlessly focused on solving one problem exceptionally well. Services businesses typically succeed through breadth — serving multiple client needs across functions, technologies, and industries.
That makes sharing the same salesforce, presales resources, and marketing budget tempting — but usually counterproductive. A generalist team built for services breadth rarely delivers the depth and sustained attention a product needs. The apparent cost savings can come at the expense of the product’s odds of success.
Our recommendation to services firms building IP-led products: if you’re serious about the product and can afford to do so, separate the product business. Give it dedicated leadership, resources, and accountability.
Product success depends on many variables — market need, product quality, timing, pricing, distribution, and execution among them.
But organizational structure is foundational. Get that wrong, and many of the other advantages may not matter.
What have you seen work — or fail — when services companies try to build product businesses?
Reach us on LinkedIn or at info@4SeeAdvisory.com