The rise of the information

1
The rise of the information service economy, 2

• The information and service economy
• September 12 2007
• Bob Glushko and Anno Saxenian

2
Outline

• Value chains, not firms
• Explaining rise of service economy
• The view from marketing a new view of exchange
  as service, not goods

3
Value chains, not firms

• Apples partners for the iPhone
• Samsung applications/video processor
• Marvell 802.11
• Infineon Technologies baseband
• Broadcom touch screen controller
• Cambridge Silicon Radio Bluetooth
• Foxconn International assembly
• Foxconn Tech mechanical parts
• Catcher stainless casing
• Cheng Ue connectors and cables
• Entery Bluetooth module
• Unimicron printed circuit boards
• Tripod printed circuit boards
• Largan Precision camera lense
• Altus camera module
• Balda AG touch screens

4
Decomposing service economy

• Share of value-added, US economy, 2000
• Finance, insurance, real estate (FIRE) business
  services 30
• Community, social personal 20
• Wholesale retail trade, Hotels restaurants
  15
• Transport, storage communications 6
• Fastest growing FIRE business services

5
Explaining growth of service sector

• Differential productivity growth (Baumol)
• Lower productivity gains in services (e.g.
  education, performing arts, social work,etc.)
• Assumes service sector relatively stagnant,
  manufacturing dynamic
• Changing patterns of final demand
• High income elasticity of demand for luxury
  services (leisure activities, travel, etc.)
• As incomes rise, consume more services
• Role of intermediate demand beyond simple
  two-sector models

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Explaining growth of service sector, II

• Services as intermediate input providers
• Growing outsourcing of services (e.g. customer
  service, accounting, RD, etc.)
• Over 50 of transportation, communication
  services are intermediate, 20 final demand
• Financial and business services produce btwn
  40-60 of output for final demand
• Underscores importance of interaction between
  manufacturing and services
• Growing service content of manufactured goods
• Increase of high quality business service
  producers (logistics, RD, innovation)

7
Creative destruction

• Transformation of global economy is radically
  undermining conditions for large integrated
  corporation
• Vertical fragmentation of production,
  specialization, and rise of network forms of
  organization
• Enhances contribution productivity of service
  component of manufacturing

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A new marketing logic

• Marketing in the goods economy financial
  optimization and the 4 Ps
• Product
• Price
• Placement
• Promotion
• Marketing in the service economy
• An ongoing social and economic process
• Inherently customer-oriented and relational
• Goods as distribution/delivery mechanisms for
  services

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Goods versus services logics

• Goods-centered logic
• Exchange of goods
• Customer receives goods marketers appeal to them
• Value determined by producer
• Wealth is created by owning, controlling, and
  producing goods

• Service-centered logic
• Exchange of knowledge and skills (intangibles)
• Customer is co-producer of service
• Value determined in use by customer
• Wealth is obtained through application and
  exchange of specialized knowledge and skills

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Service-dominant model of exchange

• Application of specialized knowledge and skills
  is the fundamental unit of exchange
• Knowledge is source of competitive advantage
• Goods are distribution mechanisms for service
  provision all economies are service economies
• Customer is co-producer, co-creator of value
• Service-centered view is customer-oriented and
  relational
• Enterprise can only make value propositions
• Organizations integrate/combine specialized
  competences into complex services

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Service-dominant logic (Vargo Lusch)

• Service, rather than goods, is the focus of
  economic and social exchange service is
  exchanged for service
• Service the application of competences for the
  benefit of another entity
• Indirect exchange masks fundamental basis of
  exchange (micro-specialization, intermediaries,
  etc.)
• All economies are service economies all
  businesses are service businesses

12
Evolution of marketing thought
Source Stephen L. Vargo From Goods to
Service(s) Presentation at UC Berkeley, Jan 30,
2007
13
Back to the iPhone

• Is Apple a service firm?
• What does Apple do? How does it add value?
• How does Apple market its products?
• How does Apple innovate?