Report shows IoT vendors how and what to moneytise

A report has emerged from the portals of analyst firm, Gartner, that make a point which does seem to be self-evident, though if there are businesses out there that do not understand the issue then it may prove of excellent value to them.

The report concerns the development of the marketplace surrounding the burgeoning Internet of Things (IoT), and in particular the need to moneytise the software they develop that exploits the connectivity of the internet and the cloud services that can be built.

To the vast majority of the IT vendor community this has been the standard business model for many years. Even businesses that were originally hardware based, from IBM through to Apple and Dell, have realised that the real long term, repeat revenue stream is from licencing software of all types rather than selling physical `things’. This is true even if it is possible to get a percentage of users locked into the idea of a 12-month – or even 6 month – hardware update cycle, as with the mobile phone.

It will be interesting to see how many of these manufacturing businesses bite the bullet and establish full-blown software divisions to exploit the opportunity identified by Gartner in the way that, for example GE has done.

Entitled `Emerging Technology Analysis: Software Licensing and Entitlement Management Is The Key to Moneytizing the Internet of Things’ it makes the point that simply selling more devices 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. 

The report highlights that in addition to selling more Internet-connected devices, manufacturers will also have to figure out how to make money from the software they develop that flexibly configures their products and powers functionality. They’ll also have to leverage software licencing and entitlement management (technology that grants, resolves, enforces, revokes and administers access to entitlements) as the mechanism to capture those additional revenues. 

“This report confirms what Flexera Software has been advising its most successful manufacturing customers for years – the software they create to power their intelligent devices has enormous value,” said Mathieu Baissac, a software licencing expert on the IoT at Flexera.  “By unlocking the value of that software through licencing and entitlement management – manufacturers can simultaneously generate significant new value for their customers and higher revenue for the company, all while lowering manufacturing costs.”

According to Gartner’s report, the key to monetising the IoT is to use licencing to turn on and off product features and capacity in different combinations to create additional value in the intelligent devices themselves and in the software that runs within them. For instance, manufacturers could provide different product tiers – e.g. basic, premium and platinum – using software licencing to unlock the appropriate features – without having to manufacture separate models. They could then upsell customers later by leveraging software-driven control of the product and licencing to make it easy for customers to upgrade to more expensive models. 

This is, of course, a business model that has been exploited by the IT industry since the earliest days, even if such `upgrades’ were then actually achieved with a simple patch cable, rather than an uploaded change to a licence. All hardware devices were manufactured to the highest specification with all features available, and simply `strapped down’ to the level paid for.

Manufacturers can also use different licencing models – like metered or pay per use – to create demand from new types of customers or in new markets.  For example, a hospital previously unable to afford an expensive MRI machine might be able to acquire one using a pay-per-scan licencing model. 

“Once you build software licencing 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 licencing and entitlement management,” Baissac said.  “That’s why Gartner’s report detailing the relationship between licencing 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 monetisation process that manufacturers must adopt to profit from it.”

By using licencing and entitlement management to monetise the IoT, 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. 

“Licencing 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 manufacturer has to offer,” said Baissac.  “The Gartner report succinctly lays out the processes and systems manufacturers will need to adopt in order to successfully monetise the Internet of Things and reap the financial rewards that innovating in this area promise, as well as achieving competitive advantage."

A downloadable Infographic of the report results can be found here.