Manufacturing/service fusion explained

Here is a great description of the fusion of manufacturing and services by Henry Chesbrough. This is taken from an interview of Chesbrough -- "At the Court of King Henry." Of course, most the interview is about open innovation (and worth reading for that discussion). But Chesbrough is interested in the broader question of value creation and he said about manufacturing and services was especially interesting:

"Xerox now gets more than 25 percent of its revenue from services. IBM is another classic case. A lot of its revenue is generated from services. Company after company is getting more and more of their business from services. In some cases what's really happening is the business model is shifting. So for example, a GE aircraft engine can be sold for tens of millions of dollars to an airframe manufacturer. That same engine can also be leased on a so-called "power by the hour" program to that airframe manufacturer. In the first case it's a product transaction. In the second case it becomes a service. And with the latter what benefits GE is all the aftermarket sales and service, spare parts, etc., that accrue during the 30-year life of the engine and operations. So now all that comes back to GE, whereas with the first case, when GE sold the engine, they were in competition in the aftermarket with all the former GE technicians that spent 10 years at GE and then decided to go out on their own. They've got all the tools. They've got all the manuals. They've got all the equipment, the training, but they don't have GE's overhead. So they're undercutting GE, 20, 30 percent on price, and it's the same people. So this is the way to kind of bring that 30-year aftermarket back into the fold of GE."