The “Internet of Things” is a phrase used to describe how the internet will link traditional smart devices, and a wide range of additional physical assets to allow these endpoints to generate and share data. Nearly every product will have an IP address and communication capability — not just networking and telecommunications devices, but also industrial equipment such as buildings, medical devices, test and measurement systems, construction equipment, and oil and gas machinery, to name a few — that will link to other devices and services via the web. Gartner forecasts there will be more than 30 billion permanently connected devices by 2020 and more than 200 billion intermittently connected devices by that time.
Opportunity beckons intelligent device manufacturers. They must evolve their products from fixed function and disconnected systems to flexible and seamlessly connected devices. Making products smarter will provide a wide array of benefits.
1. Product Life Extension. First, it will extend the life of the manufactured device itself. Much of the functionality of those devices will be managed and controlled via embedded software rather than hard-coded onto the physical components. As a result, product upgrades and enhancements can be delivered via software commands communicated to the device via the Internet. This is good for the buyer, because it enables the customer to derive more value, over a longer period of time, from a given product with minimal disruption. It’s good for the manufacturer, because it enables more upsell opportunities to put new functionality in the hands of customers at minimal expense and effort. Finally, it’s good for the environment, as less physical machinery needs to be manufactured and disposed.
2. Automated Support. The Internet of Things will also provide significantly enhanced support experience to customers, at significantly reduced costs to device manufacturers. Manufactured goods will have the ability to monitor operations and report back malfunctions and their causes — thus drastically streamlining the troubleshooting process. Potential problems can also be flagged by monitoring for trouble signs and patterns, and then resolved by the system anticipating malfunctions before they occur and suggesting preventative remedies. Many of these problems will be addressable remotely through software commands, fixes and upgrades, thus eliminating the need to send personnel onsite to fix the problem.
3. Reduced Manufacturing and Distribution Costs. Moreover, connected devices controlled by embedded software will significantly reduce manufacturing costs. Companies will be able to reduce the number of models they must manufacture by controlling features, functions, capacity and throughput via software and software entitlements — allowing them to build once and “package” functionality in any number of formats. Configuration of the products can be postponed until the exact requirements of the customer are determined. As a result of this manufacturing flexibility, producers, distributors and resellers will require less inventory, greatly streamlining the supply chain.
4. New Markets & Revenue Streams. Finally, the Internet of Things enables the creation of entirely new revenue streams as well as opportunities to grow the customer base. Using a software licensing model, manufacturers can easily offer product enhancements through software updates, and charge for the enhanced functionality based on a software maintenance and update model. Moreover, there are opportunities to charge for new levels of software support while simultaneously delivering a better customer experience. And because embedded software allows for flexible product configurations — manufacturers can quickly, easily and inexpensively package and price their devices to uniquely address new, emerging or niche markets that would previously have been impractical or cost prohibitive. The additional data generated by intelligent, connected devices can also be turned into intelligence and used to identify new potential markets and market opportunity.
Embedding licensing and entitlement management software is the enabling technology that can help intelligent device manufacturers make their products ready to leverage an all pervasive Internet environment. Embedded licensing and entitlement software offer capabilities that allow manufacturers to personalize offerings without having to manufacture multiple models. Simple changes to the embedded software in the device enables manufacturers to customize the product based on customer needs by managing how it behaves — e.g., by activating or deactivating features, setting device capacity and otherwise controlling the behavior of the product.
Already, there are sophisticated embedded licensing and entitlement management solutions available in the market that are enabling intelligent device manufacturers to tailor their approach to product development and business to meet the demands of a highly competitive and connected marketplace. Intelligent device manufacturers must transition to the concept of the “Internet of Things” by thinking and acting like software companies, not simply product manufacturers. Key to their success will be their ability to understand and adopt a software-centric approach to manufacturing and selling hardware.
There are some key points intelligent device manufacturers should consider when making the leap to a software-centric model, including:
- Securing business buy-in for the transformation — this is broader than just engineering or product management, and requires coordination among the groups.
- Understanding the traditional software licensing methodology and its proven approaches that can be leveraged in the intelligent device context
- Determining the appropriate software licence compliance policies and enforcement mechanisms among a wide spectrum of options available, and anticipating the flexibility needed to make changes later as business conditions change.
- Understanding the difference between delivering hardware and digital goods — the distribution mechanisms should be coordinated, but can be unique.
- Understanding the software value lifecycle — as opposed to a one-off hardware transaction, it is an ongoing process, and is increasingly subscription based.
- Creating business processes to support the value cycle of the software.
- Implementing a customer self-service portal — it can reduce operational costs and increase customer acceptance of software.
- Defining and executing a product management and go-to-market strategy.
- Implementing sales training and compensation policies — selling is not about selling numbers of hardware pieces, but about selling “value.”
- Continuously fine-tuning strategy for product development, delivery and execution to optimise revenue and margins.
By leveraging embedded software for licensing and entitlement management, manufacturers can create connected devices that unlock new revenue streams, protect intellectual property and implement configure-to-order manufacturing — dramatically reducing inventory while facilitating greater responsiveness to changing market conditions.
As manufacturers make the transition to embedded software and connected devices — they will also need to think through the layers of management and support associated with this new model, especially when selling to other businesses. For instance, the IT operations team in the purchasing organization may desire to have control of some or all of the processes. This implies some infrastructure changes, including the need to link the connected system to an IT operations management center, which can then be used to gather, filter, analyze and respond to the data from the new system.
However individual device manufacturers implement these strategies — there is no doubt that the “Internet of Things” and “Machine to Machine” connectivity enabled through embedded software, licensing and entitlements represent a permanent transformation impacting every vertical industry. As Gartner suggests, smart companies already understand the size of the opportunity and are planning their strategy for this transformation — and some are already there. For those that have not started down this path — it requires top-down desire, imagination and creativity, as well as inputs from experts and thought leaders from all parts of the business who can help the hardware company start thinking and acting like a software company.
About the Author
Steve Schmidt is the Vice President of Corporate Development at Flexera Software. He is responsible for strategic planning and M&A processes, as well as other cross-product line initiatives. Steve has previously led product planning, positioning and market delivery of Flexera Software’s industry-leading licensing and installation solutions, including the FlexNet, InstallShield and AdminStudio product lines. Steve began his 20+ year technology management career running global IT projects for Procter & Gamble's Advanced Technology Group. Steve received a Bachelor of Science in Electrical and Computer Engineering from the University of Notre Dame and an MBA from the Kellogg School of Management at Northwestern University.