There is the importance to know the difference between products based on something real like raw material and services when figuring out a new investment opportunity.
Products
A product is based on raw or natural material. This material is transformed and built into something useful to be sold on the market. The raw material is mined or produced itself by nature. Once it has been collected from the surface, it is mostly difficult to retransform it (recycle it) into the origin. It takes a lot of effort and requires services and sub-products itself.
Product companies (Manufacturing)
Investing in companies that offer a real product on the market makes sense. The company has the challenge to produce a good product, which continuously gets sold and is wanted by the market (in fact the choice of the people in that market). To establish a working production of goods can be tough. The more complicated a product is, the tougher is the building manufacturing and requires ideas and knowledge. (Engineering)
Sub-product companies
I call “Sub-products” those that need to be produced in order to build more difficult products. E.g. a car (complicated product) consists of many parts like even cables or screws (very simple product). When it’s so easy to produce a simple product, there is not much room for errors. The competition will be higher. When investing here, it must be a quite good play like a company that produces only one low cost product.
Services
A service is usually performed by humans, machines or (these days) computer programs. For a machine or computer program it is quite easy to start or restart, but a service by humans can be difficult to keep up. A main service by humans is general labor, which requires management (also labor) to administrate. A machine can be rebuilt, and a computer program can just be copied by anyone. (just like the current investment hype Artificial intelligence)
Service “products”
Do not get confused by products that are actually services. When considering an investment, it might make sense to put the company of choice into one category to check the risk and chances.
Service companies
When investing in a company that offers services you must consider that a service can be set up and be gone easily. An easy performed service can be scaled up very well, but the risk is it could be copied also quite well by other market participants. If a service “level” is kept up high and the service is under demand continuously and the business is successful continuously, it can be seen as a rather safe service investment. In my opinion real products have more value and therefore I prefer those as a continuous investment. A quick bet on “brand new” services can be successful, of course.
Mixed product and service companies
Some companies are so big that they offer both services and complicated products. These companies can be considered as very stable and not easy to be challenged out by competitors. Investing in those companies is safer, but the return cannot be outperforming high. The problem is that some products and services are winning, some are losing, and both belong to the same company, which has only one balance sheet. When it is a rather small business, it is important what has the largest business impact and is most useful from the different products and services. What is under demand and will keep the company stay in business? That should be found out before taking any action.
No service and no product
There are market participants, which offer nothing and call for investments (your money!). These companies have no more than a plan for a future product or service. Actually, many investment opportunities are like this, because i.e. Start-Ups need capital to grow. They want to reach more customers and sell to the whole market. This is known as speculation. If you invest here, you have a high chance, but also a higher risk than with well established businesses. When you can afford a higher risk and a total loss of the invested money, this could be an opportunity. Just be careful, because it could just be a trick to “transfer” (steal) your money, if the company really has nothing to sell in the present and in the future.