W34 - Product Service-ization

The book Digital Leap mentions six modes of digital transformation, divided into two broad categories: internal and external. One external mode is product servitization. Two incidents this week brought that to mind.

The first was one noon in an elevator when I overheard a group of classmates discussing how credit cards make money. They doubted whether cards were profitable because customer acquisition costs are high and few users use installment plans.

To answer that question, an important point is to clarify the essence of the credit card product. On the surface, a credit card is a piece of plastic, an electronic account. Going further, it satisfies the need for a reusable credit line. Further still, a credit card is a foundational product for building a vast trust network.

What is the use of credit? Modern social order is built on trust and contracts, and the best place to realize trust is within financial institutions. Credit cards are a key product for financial institutions to weave a trust network that links individuals, merchants, platform companies, and financial firms. Based on that network, not only can installment fees be charged, but almost all value exchanges can occur within it. The American Express Centurion (Black) card illustrates this: banks provide near-omnipotent services to cardholders. Although such highly customized models cannot be scaled and serve only an extremely wealthy few, they hint at the essence of credit cards. I understand the credit card product as the servitization of a credit account. Today's wave of digital technology will make credit card design trend closer to that essence—for example, some of China Merchants Bank's local-life explorations.

The second incident was hearing Wang Yuquan give an example in a talk. He said a drill is a product, but what users actually need is the hole in the wall. If someone can come and make the hole, there is no need to endlessly iterate the drill itself. Moving from drills to hole-making means moving from product to service. How that transformation scales and when it occurs is the question. From today’s perspective, relying on digital technological infrastructure makes it quite possible to achieve a dual leap: from atoms to bits and back to atoms in the physical world.