Intelligent device manufacturers will survive and thrive in IoT if they monetise their software
Vincent Smyth, Flexera
Intelligent device manufacturers are operating in an environment that is more demanding than ever: devices are becoming more interconnected in the Internet of Things (IoT), profit margins on those devices are being squeezed as competition heats-up across a global stage, and customers are demanding more flexibility in tailoring products to their needs than ever before, writes Vincent Smyth, the vice president for EMEA at Flexero Software.
While software has been the key to enabling device functionality for decades, many manufacturers are now just fully realising the value that software brings and how it adds new levels of differentiation in a highly flexible way. Manufacturers are realising that one device can be configured multiple ways with their software. Tesla is a recent example where the car was sold and, for an additional fee, new functionality like Autopilot was enabled after that sale with software updates. Tesla added to its revenue stream and profit by using software to sell additional product features to its customers.
Simply selling more device units, however, will not result in the massive spike in profits that manufacturers are hoping for as they make a play to compete in the IoT. Why?
Changes to the supply chain
The shift from hardware to software brings with it a whole new set of business requirements that are very different from managing a traditional hardware business. To support this hybrid model of hardware plus, software manufacturers need to consider things like:
- What do I need to run a software business?
- How will I protect and monetise my software IP? What licensing model should I adopt?
- Will my existing ERP system support both my hardware and software supply chain needs?
- How do I get the software to my customers, including updates and patches?
- And how do I make sure only those who purchased a maintenance agreement get access to those updates?
- How will we capture product usage data as we evolve and need to make product decisions?
Drive more value with digital assets
Manufacturers are realising the opportunities that the IoT brings as it enables levels of connectivity that were simply not possible before. Device connectivity has historically been limited to devices on the same networks. Now, these devices are being connected to autonomous networks, which has dramatically increased device sprawl – and opportunity – as these devices can now capture and share data in new ways. Examples include product usage that is shared from the end-user back to the manufacturer, which helps the manufacturer gain powerful insights into how their products are being used, which in turn helps spawn new product innovations.
Manufacturers will have to start thinking and acting more like software companies, using the software applications they build into their products as a driver to reduce manufacturing costs, increase product innovation, and capture new revenue streams. Taking a software-centric approach means manufacturers will start re-designing products from fixed-function, disconnected devices to flexible, seamlessly connected systems. A software-centric approach will streamline all aspects of the supply chain, from manufacturing to monetisation, and can add value by providing customers with:
- A 360o view of their device and software entitlements
- The ability to access and download software and licenses
- The power to manage the complete software license and entitlement lifecycle, from creation to deactivation and all activities in between
- The data needed to run effective cross- and up-sell programs to generate more revenue
- Self-serve capabilities to manage their licensing and entitlement lifecycle
While many manufacturers are familiar with software and the how it interacts with their devices, what they’re not familiar with is how to manage – and utilise – software for increased opportunity. Software licensing is typically an afterthought in the design process and is typically built internally – to perform basic operations like generating software license keys.
The reality is that software monetisation is much more complicated than that – it carries with it associated processes like managing software entitlements, publishing software updates, and more. One example of software licensing complexity is subscription- and usage-based software licensing, which cannot be easily accomplished by using your ERP or with internally-built solutions. For example – ERP systems were built to handle physical assets, not digital goods or software. Software is completely different – fluid in nature and always changing, which is why entitlement management is critical for running a thriving software business.
Caught in the build mentality
Device manufacturers that have seen the light are working to monetise the software on their device will naturally then think – How? One option is to build the software monetisation functionality themselves. In much the same way, no producer today would build their own ERP system, building a homegrown licensing and entitlement management system also does not make sense. Building homegrown solutions are costly – both in time and opportunity. They distract teams from their core competencies. Moreover, homegrown solutions are not scalable as the business grows.
Manufacturers should look to commercial software monetisation solutions to ensure they can scale their business processes – ensuring the ability to, for instance, offer new product configurations, update software efficiently and effectively, gain visibility into which customer license software products, and more. These processes are too complicated to build themselves, and there is too much on the line if they don’t get it right.
The net of all this is that the shift from hardware to software is creating new and exciting opportunities, along with some challenges. Intelligent device manufacturers should consider all the implications of shifting to a software-centric business model as they capitalise on new opportunities.