Product vs. Service Business Models | Generated by AI
Your observation touches on a fundamental difference between product-driven companies (like NVIDIA, OpenAI, Anthropic) and service-driven companies (like Infosys, Accenture, ThoughtWorks). The key distinction lies in their business models, scalability, value creation, and long-term impact. Here’s how to understand this:
1. Product vs. Service Business Models
- Product Companies (NVIDIA, OpenAI, Anthropic)
- Build scalable, high-margin products (AI models, GPUs, software platforms).
- Benefit from network effects (e.g., ChatGPT improves with more users).
- Can automate value delivery (once built, the product serves millions with minimal incremental cost).
- High valuation multiples because investors bet on exponential growth.
- Service Companies (Infosys, Accenture, etc.)
- Sell human labor (consulting, outsourcing, custom development).
- Revenue scales linearly with headcount (more projects = more hires).
- Lower margins (labor-intensive, competitive, harder to differentiate).
- Limited scalability since they can’t easily automate consulting or bespoke software.
2. Why Some Startups/Projects Fail While Big Tech Succeeds?
- Lack of Differentiation – Many small outsourcing startups just do “cheap labor” without unique tech.
- No Scalable Product – Custom software for one client ≠ a reusable, high-margin product.
- Execution & Timing – OpenAI, NVIDIA succeeded because they bet on AI early and executed well.
- Network Effects & Data Moats – ChatGPT gets better with more users; Infosys doesn’t.
3. Why Do Service Companies Still Exist?
- Enterprise Demand – Big companies need customized solutions (Accenture integrates SAP, Infosys handles legacy IT).
- Risk Aversion – Many firms prefer outsourcing over building in-house.
- Labor Arbitrage – Cheaper talent in India/Asia keeps costs low for Western clients.
4. Who Creates More Value?
- NVIDIA/OpenAI create disruptive, exponential value (AI revolution, self-driving cars, etc.).
- Infosys/Accenture provide incremental value (keeping old systems running, cost savings).
Key Takeaway
- Product companies (if successful) have higher upside because of scalability and tech moats.
- Service companies are stable but limited—they grow linearly, compete on cost, and rarely disrupt industries.
- Failed startups often lack either differentiation, scalability, or execution—unlike OpenAI/NVIDIA, which had vision + tech + timing.
Would you like a deeper dive into any specific aspect (e.g., why NVIDIA’s model works better than Infosys’)?