The Internet of Things (IoT) which includes intelligent devices ranging from smartphones to medical robotics, is forecast to grow to 26 billion units installed by 2020, representing an almost 30-fold increase from 0.9 billion in 2009. Adoption is predicated upon device manufacturers investing in innovation in this area, and their ability to realize a meaningful return on investment (ROI).
In today’s blog post, Laurie Wurster, research director at Gartner, said the hyper-growth of IoT will require a rethinking of manufacturers’ underlying business models, including the manufacturing supply chain and the critical role that software plays in product development and product revenue models.
Ms. Wurster said:
IoT transforms all hardware and appliance OEMs into software providers. Licensing and entitlement management technology provides the locking capabilities that enable manufacturers to protect and monetize the embedded software IP running on connected intelligent devices.
Device manufacturers faced with increasing global competitive pressure to reduce manufacturing costs that produce thinner margins can leverage the value created with Internet-connected products to increase revenue. However, to secure additional revenue, manufacturers need to recognize the role embedded software and/or software applications play in the IoT, and monetize this value. Similar to the traditional software industry, device manufacturers need to protect the intellectual property contained in applications and monetize it through the adoption of licensing and entitlement management systems that control access to the Internet-connected device, its functions and features.
Licensing and entitlement management also enables flexible pricing and packaging, enabling the manufacturer to bundle product features, capabilities and capacities, ensure payment, provide upgrade paths, as well as new revenue streams. By controlling product functionality, features and capacities of Internet-connected devices via flexible licensing, device manufacturers will better be able to compete in current and new markets via increased speed to market with new products, new feature combinations, and product enhancements.
However, the adoption of licensing and entitlement management may be inhibited by the inexperience of many device manufacturers with software, the software business itself, and the financial opportunities that software-driven devices create. Many manufacturers still apply a traditional “box” mentality to their products, and fail to take into account additional revenue opportunities that licensing-controlled embedded software and software applications deliver. Additional complications can arise as manufacturers navigate the transition to software-driven, Internet-connected solutions.
For success, strong leadership is needed to ensure that all departments are aligned around the new business strategy; and adopt the processes and business rules necessary to accommodate the business opportunities opened by the connected devices.
More information is available in the report entitled “Emerging Technology Analysis: Software Licensing and Entitlement Management is the Key to Monetizing the Internet of Things” which can be found on Gartner’s website at http://www.gartner.com/doc/2696221.