In the world of hardware, software has become critically important. Devices from the tiniest of sensors to enormous machinery have become software-based, and billions of these “intelligent” devices are expected to become connected to the sprawling Internet of Things (IoT) ecosystem within the next few years.
The connectivity of these IoT devices created new levels of risk for hardware manufacturers; protecting IP from theft, piracy, misuse and reverse-engineering (cornerstones of software monetization) have become significant priorities for device manufacturers. IoT did more than create new risks; it created new opportunities. Connectivity enabled manufacturers to embrace new business models, enable customer self-service and monitor usage. Connected devices enable manufacturers to digitally deliver software and manage user entitlements, eliminating manual operational tasks and costs associated with licensing, in turn, helping them introduce new products and features faster and more easily.
Intelligent device manufacturers could see that one-size-fits-all licensing was no longer enough to remain competitive and started to look for ways to deliver rich customer experiences while creating revenue opportunities. They can learn from the software vendors that have successfully implemented software monetization best practices to secure and drive revenue from their IP.
IoT connectivity is a path to delivering new experiences via software and hardware that’s already in the field. Feature-based licensing and entitlement management enables device manufacturers to ship the same product with different functionality to different customers at varying price points, and the products can be upgraded remotely. Also, field upgradeability replaces the one-and-done product mentality of the past and reduces the impact of obsolescence. Additionally, with flexible software-based licensing solutions, customers can use just the features they want, turn them on and off themselves and pay only for what they use.
By offering alternative models to new customers, many intelligent hardware manufacturers have found that they’re able to tap into new markets. The rise of connected intelligent devices enables hardware manufacturers to deliver better user experiences by improving customer provisioning and onboarding, while allowing them to implement new business models including subscriptions and pay-per-use.
Business models based on capital expenditure, in which manufacturers charged up front for expensive hardware (e.g., an MRI machine) and gave the software away free, are outdated and limit the marketability of their products. Now with the subscription economy gaining adoption, most business are leveraging these alternate business models to move CAPEX expense to a smaller OPEX expenditure. At the same time, connectivity-enabled usage tracking provides increased transparency for the customer and the vendor alike.
Many hardware-turned-software companies have accepted this “brave new world” and are embracing tools that enable them to maximize the potential for their IP while delivering the flexible packaging and pricing models that today’s customers demand. As they look to make the most of these tools, they need to be mindful of some specific challenges:
- Intellectual property monetization: Protecting expertise and know-how within code from theft and reverse-engineering is critical for successful software monetization.
- Manufacturing control: Manufacturers need to maintain the quality of their products when they’re implemented by third parties by stopping even the most well-intended adjustments to the code.
- Inventory management: Vendors need to be able to track device models, reduce inventory costs and ensure product availability.
- System integrity: Vendors need to make sure their devices are ready for the IoT ecosystem, which exposes them to additional risk. They also need to make sure their systems can’t be hacked or modified.
- Low-cost counterfeits: Counterfeits are one of the biggest threats to monetization for many vendors and can have a significant negative impact on revenue streams. Vendors need to look for ways to effectively deter this threat.
- Device connectivity: Manufacturers must ensure their hardware in the field can be updated remotely and collect usage data, improving the user experience and cutting costs for the device manufacturer through automation and self-service.
Intelligent device vendors must accept that software is now the key to differentiating their hardware solutions. They must also improve the monetization of their IP by protecting existing revenue streams, reaching new customers and cutting back-end costs. Traditional software companies achieved success through the licensing and entitlement solutions they use to address marketplace challenges that intelligent device vendors now face.
As hardware manufacturers continue to watch the industry evolve and the IoT grow, they will realize the market is shifting away from traditional business models and they need to embrace new ones to remain in business. Successful IoT monetization will occur via highly flexible business models, easy licensing and entitlement management and reduced hardware manufacturing testing and storage costs. The most successful new models will align with customers’ evolving needs and build on delivering great user experiences.
Omkar Munipalle is currently the director of strategy and business development for Gemalto’s software monetization business. He is responsible for global strategic partnerships and for driving new business initiatives and increased adoption of monetization solutions for the high-end and cloud markets. Omkar also drives the M&A plan and new growth areas strategy for the software monetization business.