Billions of Internet-connected devices are coming online, poised to gather information in the field and “call home” with updated data. As intriguing as the rise of the Internet of Things (IoT) has been, equally interesting are the new business models and opportunities for manufacturers and vendors, not to mention the challenges
As the IoT gains traction, manufacturers find that they need to focus on software development versus the physical hardware design. The value of their intellectual property is increasingly linked to software.
Simultaneously, hardware vendors encounter issues typically faced by software vendors, like reverse engineering, intentional and unintentional misuse of their products, and of course, piracy.
Protecting intellectual property (IP) is a new emphasis for many vendors. Failing to account for it jeopardizes the ability to monetize it. To successfully monetize IP, designers need to leverage four aspects of a software strategy:
Each aspect affects profitability by either reducing costs or increasing revenue. The fact is, despite introducing new risks from unauthorized software use, the IoT has contributed to generating new, lucrative opportunities.
Connectivity helps vendors easily deliver, track and manage end-user entitlements. It has eliminated many manual operational tasks and related expenses associated with licensing, while enabling vendors to introduce new products and features more easily.
The connected, intelligent device delivers a compelling user experience while opening license models including subscriptions and pay-per-use. Improved end-user transparency enables vendors to track usage, see how products are used, and facilitate the development of custom offerings for customers.
Customers have experienced an evolution of their own, and their expectations have changed. They seek Internet-based self-service tools, a change that even applies to traditional hardware-only devices. To capitalize, intelligent device manufacturers differentiate themselves by offering hardware-based software with flexible licensing. The one-size for everybody licensing approach is no longer sufficient. To remain competitive, vendors develop new ways to deliver a richer user experience and monetize their IP.
The IoT feature the things you wouldn’t necessarily think of as being connected to the internet. Devices previously not connected to the internet now are, and they’re delivering new experiences supported by creative monetization of the IoT. For instance, an intelligent guitar can allow the purchase and download of music, along with an ability to use social networks to share recordings. More expensive equipment – once too costly for smaller organizations – is now offered on a pay-as-you-go basis, even for such products as an MRI machine. The high up-front costs that once kept many away have been overtaken by usage tracking and internet connectivity enabling “pay-as-you-go,” which has allowed manufacturers and vendors to reach new markets. The IoT is changing business models as sellers create rich, interactive customer experiences that also generate new revenue.
Still, while IoT providers are introducing new monetization options, they can also learn some things from the software-only vendors who went before them. IoT connectivity already delivers new experiences from hardware in the field. Feature-based licensing and entitlement management enables manufacturers to provide the same product with different active functions to customers at varying price points. And the products can be easily upgraded remotely. Naturally, they also want the self-service they are accustomed to, and for vendors, that is a win-win because the IoT should lower support and fulfillment costs.
Smart hardware-turned-software companies have already embraced this transition. They understand the benefits this new era holds for them, and they are embracing tools to develop sophisticated packaging and pricing models.
However shifting from an equipment manufacturer business model to something more akin to a software company doesn’t happen overnight. Intelligent device manufacturers and vendors that embrace the transition, and use proper software monetization tactics, will overcome challenges to aggressively pursue greater market share and reduce costs, all while protecting against IT threats. And those that fail to meet customer demands or try to force rigid solutions on them will soon find the new IoT economy has left them behind.
For information on how mobile apps are the new face of business, read our article here.
Michael “Mizu” Zuni, CTO of Software Monetization at Gemalto