Hardware meets software: Seven steps to creating new revenue with IoT

Manufacturers used to determine pricing based on a physical item.  Today, Industry 4.0 and the integration of software into products have brought new pricing approaches into the picture.  But it’s not as simple as adding a fee for the software into the price.  Software pricing and licensing is a whole new ballgame, involving licenses, users, renewals and support.  Manufacturers may also have multiple versions of software that need to be tracked and updated.

In addition to new needs, there’s a huge opportunity.  Instead of a one-off hardware sale, it’s much easier to adapt hardware with a software component to different customer needs, broadening monetisation channels.  With the right infrastructure, you can create a fluid product structure that blossoms into multiple revenue streams just by adapting technology.

To get there, here are seven steps to monetise IoT models and gain a competitive advantage.

Step 1: Consolidate your software licensing information

In a manufacturing environment, it is essential to know what software is running where. From a business perspective, it tells you who owns what and ensures you’re on top of monetisation.  From a customer perspective, it helps manufacturers provide a positive experience of helping customers understand what they have licensed, number of users, renewal needs and more.  From a compliance perspective, a unified view helps guarantee compliance in highly regulated and controlled production environments and keep a high security level by analysing software for vulnerabilities and deploying software upgrades and patches. Furthermore, support cost and field service activity can be reduced by enabling appropriate remote diagnostics and maintenance procedures.

A central entitlement management system will help consolidate your software licensing information as well as offer other benefits. You gain a unified customer experience, even if different products still use unique license generators as well as a smooth transition towards Cloud and SaaS offerings.  Other wins include a reduction in operating costs, up-sell and renewal opportunities, visibility into channel sales and overall insight into market dynamics.

Step 2: Identify the objectives behind IoT monetisation

Before you implement new models, a good practice is to take a step back and review your goals.  Here are some ideas to get started when incorporating digital solutions:

  • Impact revenue growth.  Ask how you can: monetise software, create flexible pricing models and add new features and services over time
  • Improve efficiency.  Ask how you can: eliminate manual processes, implement remote monitoring/services/maintenance, increase order accuracy and reduce downtime/waste
  • Increase customer satisfaction.  Ask how you can: provide a simple end-user experience, implement customer self-service and streamline end-to-end processes
  • Protect intellectual property (IP).  Ask how you can: minimise unauthorised use, stop gray market abuse and improve compliance across the board

Step 3: Consider “use rights”

Selling “use rights” instead of product is becoming more popular in the industrial automation industry.  It’s a highly flexible model where the manufacturer retains ownership but can deliver different products through as-a-service models, including subscription, pay-per-use and pay-per-outcome (e.g., actual cars produced, scans taken).  Some manufacturers offer hybrid models by continuing to sell the hardware while applying flexible monetisation models to the software only.

Step 4: Assess the operational efficiency benefits of software

Using different software components in standard hardware speeds bringing devices to market quickly while keeping manufacturing costs low.  Manufacturers can produce different products on the same hardware chassis by adopting the right licensing models, which eliminates additional production and minimises inventory.  Innovation also becomes easier since the same foundation can be adapted with software to become a different product.  Evolving customer needs can also be met without requiring a swap out of hardware or other disruptions of their operations.

A software infrastructure also offers the benefit of continuous software and firmware updates, which are crucial for security, compliance and efficient support processes.  It’s difficult to scale as you increase your customer base, the number of software products and versions or the frequency of updates. Without tight tracking of licenses, you also increase the risk of revenue losses up to 30% from customers receiving upgrades without maintenance, security issues from software vulnerabilities in older versions and high support and software development costs to support multiple versions and compatibility.

Step 5: Explore how to increase customer satisfaction

Because new monetisation models involve dynamic business information, manufacturers need to offer direct access, often called self-service, to customers for transparency and ease of use.  For example, an intelligent device manufacturer who wants to lower costs by moving manufacturing to a 3rd party will need to understand their licensing to assess the impact.  By enabling self-service information, clients can see what they have, what they are using and react in the best way.

Step 6: Strengthen security and IP protection

Security can be effective if it is designed into the product and applied in all the layers that make up the IoT.  Since embedded software often uses Linux systems and 9 out of 10 IoT developers use open source code, it’s important to stay in compliance with open source licenses and manage vulnerabilities.  Steps include identifying Open Source and third-party components, creating a Bill of Material and implementing permission workflows to register any new components before use and shipping.

Implementing the right software licensing technology also protects companies that outsource their manufacturing processes to third-party manufacturing shops from grey market abuse.  For example, manufacturers can implement a “call home” to a cloud-based license server to obtain an activation license and make the device operational. If an illegally manufactured device tries to do this, it will not be granted a license and, in turn, will not function.

Step 7: Prepare your business

Since implementing new monetisation models requires operational change, it’s important to prepare your organisation. Product offerings will change with a focus on digital solutions, data and outcome. There will be new pricing and product packaging. Culture issues will need attention to help employees embrace digital offerings, different compensation and new processes in sales, support, field services and engineering.  Customers may have the option to pay in a perpetual licensing model or a new flexible way, which offers flexibility and decreases the impact on cash-flow.

In addition to planning for process change, manufacturers should consider an automated solution which can manage the customer lifecycle, along with products and software use rights.

By taking these seven steps, manufacturing companies can successfully navigate the changes needed to embrace IoT and uncover an easier path to adapt products for new monetisation opportunities.

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