Service used to be a distinguishing characteristic for a company. You wanted to be known as a great service company. If you were good at it, service was also a pretty profitable way to augment both the top and bottom lines. But that was before customers figured out that they could make do with lower levels of service. Excellent service is now too expensive, and barely acceptable service has become good enough. There are many forces at work in the market, and I think they all point toward the end of maintenance as a viable service or business.
Almost all products come with some sort of maintenance agreement to start. It is normally referred to as the manufacturer’s warranty. This is the period of time after the purchase of the product that the manufacturer guarantees that the product will work. The length of this guarantee can vary and depends on several things.
The age of the technology involved, the stability of the market, the relative dominance of the consumer or the vendor in the market, and the speed with which new technologies or substitutable products are introduced, can all be factors effecting the length of the product guarantee.
Automobiles are a baseline technology that has been around for more than one hundred years. They may be becoming more complex, but their basic components still include engines, seats, wheels and the other basics. One manufacturer’s automobile is readily substitutable for another. Warranties on cars can now extend up to ten years. Manufacturers are now guaranteeing car operation for a decade. Research shows that few people actually own a specific car that long but the guarantee is there.
On the other end of the spectrum telephone companies used to require a twenty-year support guaranty from its suppliers for the products they purchased. It wasn’t initially expected that technology would change at the rate it has evolved to. High reliability and long product life cycles were the norm. Now the carriers can no longer pass along the cost of that type of product and its support to the consumers, so now much shorter product support guarantees are acceptable.
Apple has decided that the warranty on the iPhone will be one year. They have also decided that it is a limited warranty, meaning only certain service repairs will be covered, and that they may repair or replace a broken iPhone with potentially refurbished model or parts. They are Apple. If you want one of their iPhones this is what you get.
So, if the article is about maintenance, why am I spending so much time talking about warranty?
The answer is simple. Once your product comes off warranty you have basically two options for service: You can get a maintenance or extended warranty type contract, or you can hope that your product won’t break, and if it does break you can hope there will be someone out there that can fix it.
Or the third alternative will be that you can go out and buy another, or the next generation of product and then make use of the new product warranty.
I think it is safe to say that business used to be all about the best service possible. It then modified that perception and position by saying it was all about the best service at a reasonable price. It seems it is now more along the lines of the cheapest price for the lowest minimally acceptable service.
Products were engineered to the highest levels of reliability. They were not expected to break. When the product came off warranty customers were expected to purchase post warranty maintenance contracts, just in case something ever did go wrong, they would get the best support possible. Since the products were engineered so well, they didn’t break very often. Maintenance contracts were very profitable for most manufacturers.
It seems that something strange started to affect both ends of this arrangement. Manufacturers could not afford to make such reliable products in the new market. They didn’t have the time required to create them. And if they did, customers were not really interested in paying for them versus slightly less reliable, but much less expensive competitors.
There is a wireless carrier that has recognized this shift in preferences. They have a tag line that asks: “Our network reliability is within one percent of our competitor’s. Why would you pay them twice as much for only a one percent difference in reliability?”
On the other side of the relationship, customers decided that maybe reliability, while nice, wasn’t worth the premium they were paying for it. They started to examine their costs. One that obviously pops up is the high cost of maintenance. The drive started to reduce this cost.
Customers started looking a competitively provided maintenance solutions. Competitors realized that if products were reliable, they could sell maintenance cheaper than the manufacturer with relatively little risk, and still make money. In turn customers demanded that if the manufacturer was going to provide maintenance they would need to match or even better these competitive maintenance price levels.
The race to the bottom was now on.
The speed with which new products were introduced was increased. It would seem that the life cycle of products became ever shorter. Products were developed, introduced and then superseded by the next newer and improved version at an accelerated rate.
The reliability of new products diminished in accordance with the lower prices. As the life cycle, and more importantly the life expectancy of products reduced, they were no longer engineered to last a long time. It seems that they are now engineered to last only slightly longer than their warranty periods. After that, all bets are off.
Customers were more willing to accept reduced maintenance capabilities if they came at commensurately lower prices. It has often been said that we have evolved into a disposable society. What was once retained and repaired is now discarded and replaced. After all, with the new and improved version either already out, or on the cusp of availability, why would you want to repair the old one, when you can get the new one for close to, or possibly only slightly more than the repair price?
Why would you want to repair the old one, when you can get a new and improved one?
When a car comes off warranty it is six to ten years old. At this point in time it will be significantly depreciated in value. Chances are if it needs a repair it will be a significant investment verses the actual residual value of the older car. Probably better to get a new one.
When you buy your iPhone you get a year maintenance. Hopefully it will last just a little longer than that, but it doesn’t matter. The iPhone was released in 2007. There has been a new iteration of the iPhone released every year since then. And people line up every year in advance of the release to get some of the first new ones. Why would you want to fix your old iPhone when the cost of the repair represents a significant portion of the cost of just getting the next generational model?
This same approach is now finding its way into business as well. The demand for reduced maintenance costs by customers and the shorter product life cycles driven by competition are combining to eventually squeeze maintenance out of existence as a viable business for manufacturers.
It will probably become what would be called a “break – fix” type of environment. Customers will look for a warranty on a new product that is commensurate with its expected life cycle. They will probably have an extra one or two around as spares. If one breaks they will implement a spare and then do the cost benefit analysis of either getting the broken one repaired, or just buying a new one from the next generation of products.
It may take time for this apocalyptic vision of maintenance to come to pass, but I do think it is coming. The economics on both the vendor and consumer sides of the value equation are pushing it in this direction. Vendors won’t be able to afford the multiple generations of maintenance staff required by rapid product development and introduction. And customers will not be will to pay the costs of even reduced maintenance contracts if newer and more capable replacement products are rapidly and relatively inexpensively available.
I think we are heading to the point where the warranty and the life expectancy of a product are going to be very close to the same length. Any incremental life that can be squeezed out of any product beyond the warranty period will be looked at as an incremental unexpected benefit. Once the warranty expires, the break-watch will begin. If and when the product should happen to break (remember products will no longer be over engineered to last significant periods) the fix – replace decision will be made.
If it makes sense to repair it, it will be repaired. If it doesn’t make sense to repair it, it will be replaced. I just don’t think that we will see products continue to be under maintenance contracts in the future. Business probably needs to start planning for that eventuality now.