IT companies can be categorised in hundreds of different ways, but the “Product based / Service based” bifurcation is really important when …
- You are going to join a company as an employee OR
- You are going to start one
What is a Product Based IT company ?
A Product based IT company develops a software or group of software, and then try to sell their product to as many clients as possible. Ex. Adobe, Amazon, IBM, etc.
What is a Service Based IT company ?
A Service based IT company connects to client across multiple domains and develop a new software for each client as per the requirement. Ex. TCS, Infosys, Accenture, etc.
“Product based vs Service based” as an Employee
If you are planning to join an IT company as an intern or employee, you should understand the basic differences of a Product based company and a Service based company as mentioned below :
| Product Based Companies | Service Based Companies | |
| What kind of work will you do as a developer ? | You will be building a product (software) from the scratch OR add features to the existing product (software) OR fix the issues in current product. | You will be working on different software projects over time as per the client demand. |
| When should you choose this kind of company ? | If you are certain about the domain of your work. ( i.e. I want to work in a MERN stack based project. ) | If you want to work in multiple technical domains and get some challenging work, then Service based companies are the best choice. |
| Your salary depends upon … | Amount of work done by you decides your salary. | Your sincerity with working hours decide your salary, as now-a-days, clients pay companies on hourly basis for their projects. |
| Recognition | Product based companies have comparatively less employees, so there are more chances that your work will get recognised. Product based companies provide comparatively higher income. (based on mostly seen trend) | Service based companies have comparatively large number of employees and large number of teams, you have to work extra-ordinary to get recognised. Service based companies provide comparatively less income. (based on mostly seen trend) |
| Freelancing can also be considered as a service based work, the only difference is : You get the whole payment for the project, but it will be tougher to get good projects on your own. |
“Product based vs Service based” as an Entrepreneur
Starting a Product based IT business & Starting a Service based IT business have their separate set of challenges , Let us look at a few:
| Product Based Companies | Service Based Companies | |
| How to make Money | As a Product based company, you have to mainly focus on selling your product because your main source of income is : Product subscriptions | As a Service based company, you should mainly focus on getting bigger projects and clients, like banks, corporate, etc. |
| Recruitment | Product based company mostly hire a limited number of people with specific knowledge. | Service based companies hire in bulk, as they need a big team to handle multiple client projects at a time. |
| Funding | If you are building a quality product OR a product with unique concept, there are high chances you will get good funding. | You must have some big and trustworthy clients and a good work record to get a funding. |
| Profit Margin | Most product based companies have a limited number of employees, so requires less staff for management, also low cost for workspace. Therefore, you get a higher profit margin. | Most service based companies have high number of employees, so requires more staff for management, also a big workspace. Therefore, you get a lower profit margin. |
The Hybrid Approach
What most entrepreneurs prefer doing is hybrid approach : In this approach, people mostly start their company as a service based organization, they make connections and clients, in parallel, they build a product and start selling it to the current clients.
This is a good approach to be economically stable in the initial years and also making real clients.
Conclusion
The differences shown here are based on the mostly seen trend in such companies, there can be exceptions if you are working with a different kind of business model or technology.
Either way, it can be seen clearly that Product based companies have a upper hand in comparison. But, if you are focused on making money then service based companies are also not bad at all. Choose wisely !
Let us know your experiences as an employee OR as an entrepreneur .. What worked best for you ?
