What is a product?

Use value

Classical economic thought already recognized, that goods must provide a certain use value in order to be exchanged. Without usefulness to someone, no exchange could take place. As there is exchange, goods represent also social relationships. While this article will not dive into the history of ideas, I will approach the term product from selected lenses.

I find the concept of use value one of the most fruitful lenses for understanding what a product is. In its most basic form, use value refers to the value any product must deliver to its users to be exchangeable. Consider the example of a car: you might purchase it primarily as a means of transportation. Its use value lies in enabling you to move more quickly and conveniently from one place to another.

But of course, a car is never only about transportation. It may also convey prestige, signal idenitity, or create a particular emotional or aesthetic experience. Whether it is fuel-powered or electric may be a matter for reasons of sustainability and values.

This is the broader frame in which I will use the term product in this article. Use value is not limited to functional performance. It can include a very broad range of connotations including social and cultural dimensions, desires, experiences, etc.

Product – Service – Experience

For the discussion in this article, we will use product, service and experience interchangeable as the focus is on value creation. I propose to distinguish the terms on the core value creation:

• Product: the core value is a functional capability
• Service: the core value is something that is done for the user or with the user
• Experience: the core value is something the user seeks to experience

A product rarely comes alone

Ecosystem

Let us start with a simple tangible product. A car, for example, is more than just a car. It is a system composed of the core mechanical system (engine, transmission, brakes, etc.), safety and comfort features (airbags, seatbelts, climate control, etc.), structural elements (frame, wheels, tank or battery pack), etc.

Each of these parts is a product in itself. Take the airbag: it consists of crash sensors, the folded airbag, a control system, power supply, etc. that are manufactured, branded and exchanged between different companies.

It’s like a russian doll. With each layer we will again discover more products down to the last screw.

Brief history of digital products

Distribution via physical media

In the early days (1970s – 1990s) software was shipped as boxed software products on pysical media such as magnetic tapes, floppy disks or compact discs, etc. With this dependency on a physical object it was necessary to have a fixed release date where all features were shipped as finished version. The focus of teams was on the delivery date and growth was tied to external distribution channels such as retail stores and the business model was often a one-time purchase.

Digital downloads

From the 1990s until 2000 sofware was shipped as digital downloads. A user would download the installer software from a website or FTP server. This shift removed physical logistics and it improved update cycles and the possibility to provide patches and updates. The business model was still largely one-time purchase with downloadable upgrades until the next major version.

Online services & platforms

From mid-2000 onward digital products expanded into always‑online services and platforms such as social networks, streaming services, online multiplayer games, marketplaces, app stores, and creator platforms. This shift introduced platform dynamics, network effects, user‑generated content, ecosystem lock‑in, and new business models including advertising, microtransactions, in‑app purchases, platform fees, and creator revenue sharing.

Cloud based solutions

Post 2010 cloud became the default delivery model for most digital products. Continuous deployment pipelines and subscription models (monthly / annual) became standard practise. With freemium new growth models became possible. Products started embedding growth loop and distribution became part of product usage what allowed rapid scaling.

AI-driven products

With the release of ChatGPT on November 30, 2022, AI was moved from research labs to consumer use. With support of AI, development accelerates and with vibe coding, software can be created with natural language prompts. We might experience products that become adaptive personalised experiences in the near future.

Product levels

When it comes to value generation, Philip Kotler identifies three levels (cf. Kotler et al 2024:249):

1. Core value: The fundamental need, why this product is used. The problem this product solves for the user or the experience the user seeks.
2. Actual product: The product itself. This is what the user interacts with in a digital product. The capabilities the product provides.
3. Augmented: Everything that surrounds the actual product and enhances the experience or reduces friction such as support or warranty.

As for digital products, distribution can be become an essential part of value generation, I added one more level. This is usually expressed with growth loops: A growth loop is a self-reinforcing cycle where each user action creates a potential to create more of a desired outcome that feeds back into the cylce.

Core value

The core value is the outcome the user seeks.

Through the lens of the jobs-to-be-done framework, the core value is the problem the product must solve. (In the framework this is called the job) .

At its most fundamental level the user cares what product solves the job best but the user doesn’t care what company provides the solution. The job that needs to get done, is what remains stable over a long period of time. The product (solution) is what changes in time.

Understanding the core value is understanding the minimum outcome the product must deliver to its user. Outcome can also be an experience the user seeks.

Actual product

Capabilities

The core value doesn’t come alone and is embedded in a set of capabilities a certain product offers.

With the spreadsheet application Microsoft Excel you can perform calculations, analyse data in form of Pivot Tables or visualize data among many other features. Each feature enables the user to achieve a specific job. Features provide specific product capabilities for its users.

While Microsoft Word or Microsoft Excel can be used and bought independently, they are also bundled together as Microsoft Office. Such a software bundle can be refered as product portfolio. Depending on your business you might also have a portfolio of product bundles. (This is usually the case when the bundles itself have a value proposition.)

Other aspects

• Brand: brands and products are increasingly fused. The product carries the brand experience.
• Usability: Learnability, efficiency, effectiveness, memorability, error tolerance…
• Accesssibility: how accessibile the product is for people with diverse abilities

Augmented product

The augmented product includes all the additional elements that surround the actual product and enhance the user’s experience beyond the core functionality. These elements reduce friction, increase perceived value, and help to futher differentiate the product in competitive markets.

• Support and service (help centers, onboarding)
• Guarantees, warranties
• Regulatory topics
• Documentation
• Service Level Agreements (SLAs)
• Add-ons, plugins
• etc.

Distribution

Product growth and network effects

When distribution becomes part of the product, then usage accelerates value generation. Think about a user generated content loop where the content one user generates can be used by other users. Whenever users create value, it not only helps them, but contributes to the overall usage of product.

Every action inside the product can create new users, new content, or new transactions. So, distribution itself becomes a value-creating mechanism embedded in the product experience.