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Software Can Drive Incremental Revenue for Hardware Makers

By Mae Kowalke, TMCnet Contributor

As anyone who owns a smartphone knows, the value of a device now comes just as much from the software running the device as the device itself. While the Nokia Lumia may have a killer camera and good hardware, for instance, it does not have the success of a Samsung (News - Alert) Galaxy or an Apple iPhone because its app ecosystem as a Windows Phone is far more limited.

Software increasingly matters when it comes to the value that a piece of hardware can deliver, and monetizing this software component is increasingly important as the Internet of Things explodes the number of devices in the market and the opportunity to use software to increase the value of these devices on an ongoing basis.

The numbers by Gartner (News - Alert) show the explosion of devices that is to come: There will be roughly 26 billion devices installed by 2020, according to Gartner, and this will lead to incremental revenue from software of roughly $300 billion. Overall, it will drive global value of $1.9 trillion by 2020.

Software licensing plays a big role in this new reality, and software licensing and rights management firm, Flexera, has produced a series of videos that talk about how to better leverage and monetize device software in this new landscape.

Hardware manufacturers need to shift their thinking to focus more value on the software side, according to a recent video by Flexera. While there has long been installed software that runs the hardware that customers purchase, thanks to the Internet of Thing this software can be dynamically updated and added to after purchase.

This ability to push updates or unlock new features can be a powerful incremental revenue tool. Hardware manufacturers can enable customers to upsell to added functionality through feature unlocking that a company can deliver via the Internet of Things.

The producer of a camera, for instance, can make one device and change its capabilities through software, noted Flexera in a second video on the topic. This not only can create incremental revenue, but it also can cut manufacturing costs since not as many different devices must be produced.

Further, it can drive a better customer experience because customers can get their devices configured and updated more rapidly, and through good rights management it is possible for customers to self-serve to get the new functionality they want. Think in-app purchases on an iPhone (News - Alert), for instance.

Flexera suggests that hardware manufacturers take a more holistic approach to devices, focusing less on a particular use and more on the lifecycle of a device and the broader scale.

Also, businesses should consider buying a rights management solution instead of building their own, since custom-build solutions are not as robust and tested.

Flexera additionally suggests trying the new model first with a product where there is a clear value to using software updates and feature unlocking, a product where the new model unquestionably makes sense. This can help with the transition to the new way of driving value through software.

The new model presents great monetary opportunities. But only if properly implemented.