Itasca, IL - Apr 1, 2014 - Simply selling more device units will not result in the massive spike in profits manufacturers are hoping for as they make a play to compete in the Internet of Things (IoT). In addition to selling more Internet-connected devices, businesses will also have to figure out how to make money from the software they develop that flexibly configures their devices and powers functionality - and they'll also have to leverage software licensing and entitlement management as the mechanism to capture those additional revenues. This is the conclusion of a new report published today by Gartner, Emerging Technology Analysis: Software Licensing & Entitlement Management Is the Key to Monetizing the Internet of Things.
"This report confirms what Flexera Software has been advising our most successful customers for years - the software they create to power their intelligent devices has enormous value," said Mathieu Baissac, a software licensing expert on the IoT at Flexera Software. "By unlocking the value of that software through licensing and entitlement management - manufacturers can simultaneously generate significant new value for their customers and higher revenue for the company, all while lowering manufacturing costs."
More Products, More Services, More Revenue - Less Costs
The key to monetizing the IoT is to use licensing to turn on and off features and capacity in different combinations to create additional value in the devices themselves and in the software that runs on top of them - similar to how modem and router vendors can leverage software configuration to let customers pay to upgrade the existing device to accommodate greater bandwidth. For instance, device makers could provide different product tiers - e.g. basic, premium and platinum - using licensing to unlock the appropriate features - without having to manufacture separate models. They could then quickly and easily upsell customers later by leveraging software-driven control of the device and licensing to make it easy for customers to upgrade to more expensive models.
Device manufacturers can also use different licensing models - like metered or pay per use - to create demand from new types of customers or in new markets. For example, a small community hospital previously unable to afford a million-dollar MRI machine might be able to acquire one using a pay-per-scan licensing model. Or a telecommunications company could temporarily upgrade signal capacity to its cable customers during high-use events, like the Super Bowl, and charge a premium for providing that additional temporary capacity.
"Once you build software licensing into your business model, the opportunities to flexibly configure your products and offer value added services is virtually infinite. And it doesn't result in an increase in manufacturing costs because you control this all through software licensing and entitlement management," explained Baissac. "That's why Gartner's report detailing the relationship between licensing and profiting from the Internet of Things is so significant. It's the first of its kind to provide a roadmap connecting the vision of the Internet of Things with the monetization process that device manufacturers must adopt to profit from it."
Deeper Ties to Customer - Greater Lifetime Value of Relationship
By using licensing and entitlement management to monetize the IoT, device manufacturers also open up new hardware- and software-related revenue by making it easier to sell new products and services to existing customers on a regular basis, and upsell them as new product features and software versions are released. For instance, by leveraging entitlement management, which makes it easy for device manufacturers to know who their customers are, what they own and whether they are in compliance with their licensing terms - the customer referenced in the example above can easily "self-serve" to upgrade from a basic to premium product simply by logging onto her product's web portal, paying a fee, and upgrading the hardware immediately. Product enhancements - like new maps for a GPS system or new features in a cable box - can be paid for online and downloaded without requiring the customer to travel to a brick and mortar store and purchase a new device.
"Licensing and entitlement management is a great way to make it easy for customers to quickly and easily access and pay for the latest and greatest capabilities a device manufacturer has to offer," said Baissac. "The Gartner report succinctly lays out the processes and systems device manufacturers will need to adopt in order to successfully monetize the Internet of Things and reap the financial rewards that innovating in this area promise."
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