Is the distinction between product and service still useful if both are converging?

Whether or not this is a useful distinction is a function of who needs to make the distinction. For the purpose of collecting statistics for policy and planning, from the point of view of marketing, from a production perspective, or from an educational mindset, the distinction may be quite important, hybrids not withstanding.

The United States has turned from being mostly a manufacturing economy to becoming a mostly service economy. The most recent statistic I read was that we are about 30% manufacturing and about 70% service.  In terms of collecting this information, for reasons of policy and planning, governmental and private, I think that breaking down our economy into these categories still matters. Public and private resources may be planned for and allocated quite differently between the two. Manufacturing often requires infrastructure that services do not.  Capital, land, and labor needs can be quite different. Furthermore, from the perspective of international trade, if we preserve this distinction, I do think we have more insight into how we can best compete globally as we evaluate absolute or comparative advantages in what we produce or provide.

In today's world, marketing is largely about building and maintaining relationships with consumers, rather than a focus on selling a product or service. Nevertheless, how those relationships are built inevitably varies when one is offering a product or a service. Maintaining a relationship with a customer who has been sold a product can be different from maintaining a relationship with a customer who has been provided a service.  For example, discount "membership" cards are often an effective way of maintaining a relationship with someone who makes product purchases, but these do not seem to be used very much for the offering of services.  It is more the quality of service that seems to be of use in maintaining relationships. 

From a production perspective, it should be fairly clear that the distinction matters.  Whether I produce goods or services, I am going to be planning quite differently.  My capital, technological, and labor needs will not be the same.  My use of land will differ.  My exposure to liability will be quite different, for example, between manufacturing toasters or offering legal services. The regulatory environment in which I must function will be not be the same, either.  The producer of goods and the producer of services are simply not taking the same approach.  

From an educational perspective, this is a significant distinction today. How we prepare our students to be successful members of today's economy, to the degree that this is a mission of education, needs to be addressed through an examination of what kinds of jobs are and will be available in the coming years.  Preparing students to work in a service economy is dramatically different from preparing them to work in a manufacturing economy.   There is an overlap in the skills needed, certainly, but these are quite different educational roads to travel.  So, this distinction is quite important educationally. 

There are some areas in which services and products are offered. The restaurant comes to mind as one.  But even there, the distinction remains important. I need to divide these areas in my mind for the purposes of planning and analysis. If I am losing customers, it may be because of my product, or it may be because of my service.  I need to be able to separate these out in order to solve a problem. In another example, if I am preparing wills that are sound and my secretary is rude to clients, my product is fine but my service is bad. I need to understand the difference to do better. 

There may be some perspectives from which the distinction is meaningless, but I would say that from most perspectives, business and governmental, the distinction still matters a great deal.