Device manufacturers, profit and the Internet of Things

The idea that leveraging software applications to power an object - anything from cars, building, smart devices to wearable technology - can make it ‘live’ and enable enterprises and manufactures to deliver news types of products and...

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The idea that leveraging software applications to power an object - anything from cars, building, smart devices to wearable technology - can make it ‘live’ and enable enterprises and manufactures to deliver news types of products and services with relative ease, is extremely appealing and potentially lucrative.

The Internet of Things (IoT) market is estimated to be $1.9 trillion. But simply selling more device units will not result in the increased profits device manufacturers are pining for. In addition to selling more Internet-connected devices, businesses will also have to figure out how to make money from the applications they develop to control and sit on top of those devices - and they’ll also have to figure out how to use software licensing and entitlement management as the mechanism to capture those additional revenues.

This is the conclusion of a new report published recently by Gartner: Software Licensing & Entitlement Management is the Key to Monetizing the Internet of Things. The report provides a roadmap device manufacturers must follow if they hope to profit from the IoT.

Using software to create incremental value
According to Gartner analyst Laurie Wurster, device manufacturers struggling with commoditised products, razor-thin margins and high manufacturing costs must understand that the value of their products is shifting to the software applications (embedded or external) that run on and power their devices.

Increasingly, software is used to turn on and off features and functionality or capacity and controlling what the device does via software. An additional benefit is that software-powered devices require the manufacture of fewer models, lowering supply chain costs and complexity. So for instance, instead of having to manufacture a 10 gigabyte model, a 50 gigabyte model and 100 gigabyte model - the manufacturer need only create a single model/device, and use the software to provision the individual device’s capacity (10, 50 or 100 gigabytes).

Also, the report highlights that once you start leveraging the power of software to add value and to control the device rather than hard-coding functionality into the hardware - it becomes very easy to leverage licensing to drive higher value through differentiated offerings. So, if a camera has ten particular features, the camera-maker could manufacture one model, and turn on features 1-3 and sell it as the “basic” model. It could turn on features 1-6 and sell that model as the “premium” model, and turn on features 1-10 and sell it as the “platinum” model.”

The manufacturer could also quickly configure its products to take advantage of market trends, without having to alter its manufacturing supply chain. For instance, if features 1, 4, 5 and 9 are popular with Chinese customers, a quick software reconfiguration results in a model optimised for the Chinese market.

Licensing & entitlement management is key for the ‘Internet of Everything’
The Gartner report highlights that in the software-controlled world of the IoT, licensing and entitlement management is the new gatekeeper, ensuring that the manufacturer’s intellectual property (IP) is protected, and is paid for before the device can be used. To illustrate, most cars now come with complete infotainment systems built-in, but you can’t use them until you pay for the service (i.e. the GPS maps or satellite radio). Payment gives you access to a licence (the rights to access that functionality), and specific entitlements attached to that licence (i.e. UK maps only or the basic satellite station package consisting of 25 channels).

However, software licensing and entitlement management doesn’t just apply to the consumer IoT products such as infotainment systems, home automation, appliances, wearables, etc. It also applies to the industrial IoT - devices used in all facets of business and industry, including telecommunications, medical, test and measurement, building technology/automation and gaming. Licensing and entitlement management does, indeed apply to the ‘Internet of Everything’.

Enhancing customer experience through flexible pricing and easy deployment

Software licensing and entitlement management makes it easier for manufacturers to move into new markets and offer appropriate pricing models to capture new revenue streams. For instance, a small community hospital previously unable to afford a million-dollar MRI machine might be able to acquire one using a pay-per-scan pricing model. Or a telecommunications company could temporarily upgrade signal capacity to its cable customers during major sporting events, such as the World Cup, and charge a premium for providing that additional temporary capacity.

Entitlement management systems also enhance the customer experience by making it easy for users to self-serve. Referring back to the telecommunications example above, customers could simply sign on to their portal to pay for and upgrade signal capacity. This provides instant fulfillment for customers with very little overhead cost to the company.
The IoT requires a rethinking of the traditional way of doing business and offering products and services - all of which are controlled through software and enforced/monetised through licensing and entitlement management. Regardless of sector and type of organisation, businesses will need to transform themselves into digital businesses, bringing together products, services and ‘things’ in a seamless manner.

In fact, the hardware IT industry is already using this approach. IT hardware manufacturers such as PC, laptop, mobile phone, tablet and chip producers all use software licensing and entitlement to offer customised products via the same hardware device. For example, Convey Computer ships a single, complete version of its hybrid-core system to all customers, but is able to selectively enable/disable features for customers based on individual requirements.

Similarly, CPU Tech produces secure processors for the military, government and commercial sectors; and is able to address the unique security needs of customers through the same hardware via licence and entitlement management.

As the Gartner report suggests, all enterprises should actively develop their commercial strategy to benefit from the IoT.

Posted by Mathieu Baissac, at software licensing specialists Flexera Software