Featured Article from Software Monetization

It has become one of the major trends of our increasingly connected world. Hardware vendors are in the midst of transforming their businesses from shipping boxes to delivering value-added software and becoming applications and solution providers. The reason is simple. Hardware has become a low-margin commodity, and it has become apparent that the value of these hardware devices will be in the information they transmit. This is true in IoT deployments in particular, where it really is all about the data; real-time or for sophisticated analysis. The driver for this value transformation is in being able to create new services and strengthen relationships with customers.

This transformation could be called a revolution; both in the way business will be conducted and in the significant challenges and opportunities that will need to be addressed to ensure success. TMCnet recently discussed this with Laila Arad-Allan, director of product management, Software Monetization,  Gemalto (News - Alert).

TMCnet:   We read about the fact that software is eating the world and that hardware vendors need to transform. Is this really happening and why?

Arad-Allan:  Yes it is happening and the Internet of Things (IoT), which is being recognized as business critical, is a big driver. It’s all about the data. The traditional focus in the hardware business historically has been on the hardware itself. This is not optimal for the IoT. Hardware represents only a small portion of the value-chain. There is now a critical need to provide much more comprehensive solutions. This means understanding the value that comes from placing security, software and system integration services on top of the hardware.

However, just like any major change, this has some risks. Eventually it will help hardware vendors transform from just component suppliers to much wider solutions suppliers so they can capture much more benefit from the Internet of Things.

It is important to focus not on just the products and the technology, or rather the pieces. Focus should be not on the ‘how’ of the IoT but rather on the ‘what.'  In fact, I don’t call it the IoT anymore. I call it the Internet of Data.  The ’things‘ in many cases are vehicles for data. All of the strategies and shiny objects in the world won’t help if the data is not accurate, secure and actionable. It is the data that should drive the strategy. This starts at the business level based on business needs and filters down to product. It could be a very different way to look at things.

TMCnet:  What are the challenges you see in hardware vendors transforming in the manner you suggest?

Arad-Allan:   As I see it there are several challenges in this transformation both from a technology perspective and an organizational perspective.

The first challenge is accuracy and measuring of the right data. If you can’t measure it accurately there is no point. Bad data leads to bad decisions, especially when you don’t know that data is wrong. Just having data being fed back from devices does not guarantee accuracy. Data is only as accurate as the combination of system and sensor information with business knowledge. For example, Michelin packages the insights it gathers from sensors inside autos, and provides it to its customers per vehicle and per year. These insights help customers meet goals such as reducing their carbon footprint. Just imagine if this data is inaccurate?

TMCnet:  You highlight an old problem with computing, that is, garbage in and garbage out. Does the move to most of the value being in the data exacerbate this problem?

Arad-Allan:  The short answer is yes. It becomes a bigger issue in a world, as I said, it really is all about the data.

TMCnet:  Let’s get to that second challenge. What should hardware vendors be thinking about when it comes to a successful IoT implementation?

Arad-Allan:   The second challenge is securing the data and IoT chain. As data moves throughout the system and IoT chain, each step of the way needs security and consistency. The reason is to make sure that along the entire chain you know that the data is coming from the right source and not coming from another unexpected source.

TMCnet:  There is a real concern, in fact, about embedded systems and the software in the device.

Arad-Allan:   Right. In fact, if we are talking about the chain, inside the data center there is a lot of security but at the end device, there is not sufficient protection.

TMCnet:  What’s the next challenge?

Arad-Allan:  The third challenge relates to consumer adoption. The IoT creates a mesh of systems and devices. Attacks can happen anywhere along the way. They might be targeted at the devices themselves or carried out over the communications network. Customers are aware of dangers and risks. And, we have seen some very large-scale hack attacks involving over 100K devices. Even a survey that I read recently said that connected appliances are susceptible to a data breach, and consumers are aware. Indeed, these security risks are real concerns that affect adoption of the IoT.

TMCnet:  What is the other big challenge?

Arad-Allan:  The fourth challenge is ensuring that the data is actionable. We can have all of the data in the world but it is useless if it can’t be acted upon by the business. This is where the lines of business (LOBs), and I am not talking about IT, need to be driving the IoT strategy. There really is no value in implementing the IoT if there is not an analytics engine behind it to make sense of all the data gathered. The data needs to be acted upon.

TMCnet:  What capabilities should hardware vendors be looking for in a trusted solutions partner as they seek to transform?

Arad-Allan:  A trusted partner needs to be a credible and reliable business consultant. This applies to having the trust of all stakeholders. That means everyone in all lines of business, including finance, operations and even HR. The trusted partner needs to lead all stakeholders through processes, new business models and the definition of a strategy based on alignment with business objectives. The goal is to establish solution architecture, deployment framework and time table that can be agreed upon and properly executed. After all, this is about creating the ability to optimally monetize the value of the software and the data being gathered and analyzed. A trusted solution partner should help device vendors by reviewing and understanding their current business processes, investigate the issues and challenges they currently have there, give them guidance on new business models they can implement to increase revenue and customer satisfaction, help them define their software monetization strategy, establish a software monetization solution architecture and finally assist in the execution.

TMCnet:  What is the pitch to C-levels to turn them into software monetization advocates?

Arad-Allan: 

Interestingly, all software vendors get it when it comes to adapting to changing market conditions and the need to improve how they monetize and protect their intellectual property. However, for device vendors it is hard. They are going through the excruciating process of transforming. The trick is to get C-levels to understand that future success is going to revolve around software monetization. And, to be convinced, C levels should look at the opportunities and the facts, look at the success stories and at the challenges that other companies faced and how they overcame them with software monetization. Many of Gemalto’s software monetization customers are device vendors, who succeeded in significantly increasing end-customer satisfaction, or move to pay-per use pricing models and collect mass usage data, or streamlining their operations through automated delivery of licenses and more. The examples are numerous.

TMCnet:  If I were a C-level, how would you convince me?

Arad-Allan:  The short answer is, we would articulate the opportunities and also highlight the success stories of other device vendors who have demonstrated increased end customer satisfaction. Plus, and again this is why a trusted solutions provider is so valuable, there are tremendous cost savings that can be highlighted along with delighted customers.

TMCnet:  How does software monetization help?

Arad-Allan:   Here are a few areas:

1. Packaging—the data allows an organization to know more about what the customer wants and therefore how to optimize packaging. It means leveraging the knowledge about what customers really want, what they will pay for and how they want to pay. It is about having the ability to respond quickly to new customer requirements.
2. Control—new software monetization capabilities give vendors the ability to proactively track license compliance, the lack of which can be very costly. And, at the same time, protect intellectual property while simultaneously giving users a better view of what they are using and may need.
3. Managing—new licensing and entitlement management systems like the Gemalto Sentinel EMS solution enable a level of visibility that is unprecedented. In fact, and this is key, they integrate easily with almost every back-office system. This integration not only provides a more comprehensive view of all aspects of product usage and the customer journey, but thanks to automation and integration, it produces outstanding cost efficiencies as a result of improved workflows.
4. Monitoring—is closely related to management, but the ability to track and easily report on what users are entitled to and consume, when and to what extent, are real actionable insights. In fact, it can be invaluable in terms of driving business roadmaps. Just think about the value to you as a new age, transformed solutions provider, of having full visibility. It is a great tool for effective product line management. Knowing which features to invest in and which not, and understanding how customers use products and services helps you make smarter decisions about pricing and packaging.

TMCnet:  How important is it for hardware vendors to implement a software monetization strategy? And is it critical to their future? 

Arad-Allan:  In the business transformation focus, software monetization is critical for successful business transformation. We know already that the hardware business model is not enough for long-term sustainability, yet the supply chain isn’t designed to support a software business. Software monetization can help in the transformation from a hardware-centric to a software-centric business, by assisting with entitlement management, software licensing, software delivery, etc.

Historically, success, such as becoming a dominant player in your market, has been based on the ability to provide product differentiation, operational excellence and responsiveness. The challenge has been that, for a variety of reasons, it has been very difficult for organizations to excel at all of these. The great thing is, particularly as we are moving into the software-driven world, where the IoT is going to become embedded in almost every aspect of how business is done, that software monetization solutions now have the ability to create excellent outcomes in all three areas, up and down the value chain. That is good news not just for hardware vendors seeking to transform, but for their customers as well.

Powerful insight from Laila. You can also read some of her blogs at www.licensinglive.com