Billions of new internet-connected devices will come online within the next few years. While these devices can call home with information and get updated in the field, what's most interesting about the rise of the Internet of Things is the new business models it enables.
Devices from tiny sensors to large pieces of equipment have increasingly become software-based, "intelligent" devices. As this transition happened, manufacturers naturally found themselves more focused on software development than on physical hardware design, and as a result, the value of their intellectual property increasingly became tied up in the software. As hardware vendors faced this transition, they found themselves facing some of the same challenges as traditional software vendors. They needed to address issues including piracy, reverse engineering, and intentional and unintentional misuse of their products.
Protecting IP (intellectual property) from threats is one of the first keys to monetizing it, but the IoT (Internet of things) didn't just create new risks from unauthorized software distribution and use, it created new opportunities. Connectivity enabled manufacturers to easily deliver, track, and manage end-user entitlements, thus eliminating manual operational tasks (and costs) associated with licensing, and helped them introduce new products and features more easily.
The rise of connected, intelligent devices created an opportunity to provide a more compelling user experience by providing smooth customer provisioning and onboarding combined with flexible license models including subscriptions and pay-per-use. The increase in end-user transparency also lets manufacturers track usage to not just understand how customers were using their products, but to better focus engineering resources to create more customer-oriented offerings.
At the same time, customers were experiencing their own evolution—their expectations were changing. They were savvy internet users who wanted a self-serve experience and fees based on how much they used, not software delivered on a disk that required a hardware purchase for an upgrade. Now they're looking for internet-based self-service tools even for traditional hardware-only devices.
As these changes took place, intelligent device manufacturers became creative, looking for new and interesting ways to differentiate themselves, and even gain market share by offering their hardware-based software with flexible licensing. One-size-fits-all licensing was no longer enough to remain competitive, and vendors needed to get creative to deliver rich user experiences and find new paths to monetize their IP.
Connectivity and pay-per-use software lets companies monetize creativity—traditionally unconnected devices can offer new experiences. An intelligent guitar, for example, can download tunes and share recordings across social networks. Expensive equipment such as like routers, MRI machines, or test and measurement hardware that was once out of reach for smaller customers because of high up-front costs now offer pay-as-you-go pricing enabled by usage-tracking and internet connectivity, allowing manufacturers to tap into previously inaccessible markets. These are just a few examples of how the IoT is changing business models as manufacturers look to create rich, interactive customer experiences that also create revenue opportunities. The figure below shows how an office printer might have different software depending on the desired featres. Test-equipment companies use the same model to unlock hardware upgrades such as oscilloscope bandwidth.
This model shows how an office printer can add scan and fax capabilities through software licensing. The same model applies to test equipment where you purchase a software key to unlock features such as increased bandwidth.
As IoT providers look toward the future, they can take a page from the monetization playbook of the software-only vendors who have gone before them. The connectivity of the IoT is a pathway to deliver new experiences using hardware that's already in the field. Feature-based licensing and entitlement management enables device manufacturers to ship the same product with different functionality to different customers at varying price points, and the products can be upgraded remotely. At the same time, customers are demanding flexible solutions that enable them to use just the features they want and pay only for what they use. They also want the self-service experience that they’ve become accustomed to from everyday internet usage, and for vendors this means lower support and fulfillment costs.
The smart hardware-turned-software companies have already embraced this transition and are working to meet these customer demands, embracing the tools that help them develop sophisticated packaging and pricing models. Those that stumble to meet customers’ demands or try to force rigid solutions on them will find that the new IoT economy will evolve without them.
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