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For Device-Makers, IoT Opens Up Brand-New Monetization Opportunities

By Tara Seals, TMCnet Contributor

Much has been made of the impact of the coming Internet of Things (IoT) explosion—sooner rather than later, billions of new intelligent devices that communicate with the Web and each other will be poised to digitize pretty much every facet of our lives. There are plenty of ways for various stakeholders to make money on the trend—some more obvious than others. For connected device manufacturers, the IoT movement means fresh revenue opportunities from purpose-built software licensing and entitlement management technologies—and thus an opportunity to move away from the margin treadmill.

According to Gartner (News - Alert), 30 billion devices will be connected to the internet by 2020. That represents a vast new surface for innovation. And as these devices become connected, IoT poses a bigger impact on business operations for vendors. 

“This simple illustration shows one way that IoT is transforming products into solutions,” explained Flexera Software in a blog on how vendors can move beyond homegrown licensing tools. “One camera model is built and sold, while embedded software and licensing can help configure the one device into many models or packages.”

In other words, there can be two products based on one hardware platform—they’re merely differentiated with software. In the camera example, vendors can offer a basic edition and an advanced feature version.

“While the hard costs of the device are fixed, the right software licensing technology can reduce the manufacturers’ inventory carrying costs while driving new revenue streams without increasing the cost of manufacturing the device itself,” Flexera noted. “Not only can the camera manufacturer charge more [for the advanced version], there are further opportunities downstream to offer additional software and services via software licensing after purchase.”

This is critical as manufacturers wrestle with ever-thinning margins and falling pricing. According to research firm IDC (News - Alert), the number of device-makers who say that 50 percent or more of revenues comes from hardware will decline by 5 percent over the next two years, while the number of device makers who say that 50 percent or more of revenues comes from services will increase by 6 percent over the next two years.

"Hardware device makers are faced with a variety of challenges associated with thin margins, inflexible and costly supply chains and limited revenue streams," said Amy Konary, research vice president of Software Licensing & Provisioning at IDC. "By transforming their business models via software, Internet connectivity and licensing capabilities, device-makers can enter new markets, diversify and increase their revenue streams, improve margins, and differentiate from the competition.

Thus, IoT has the potential to disrupt the model for how devices have traditionally been sold and supported. That said, it’s a nascent opportunity, for now.

According to IDC, only 30 percent of-device makers currently develop Internet of Things devices. But 34 percent more plan on doing so over the next two years. And, respondents agree that the software possibilities are myriad.

In fact, a full 60 percent of device makers said that they plan to use software licensing and entitlement management systems to monetize their intelligent and Internet-connected devices, allowing them to develop new offerings that bundle hardware, services and/or consulting.

Customer-service value-adds figure here: For instance, 79 percent of respondents say they either already do deliver or plan on delivering remote monitoring and maintenance to their product/service mix; and 66 percent will add business intelligence capabilities.

"The report supports a long-proven truism in the high-tech arena - that innovation, alone, isn't sufficient to transform an industry; there must also be a practical means to monetize new technology in order to profit from it," said Vikram Koka, vice president of Intelligent Devices & Internet of Things at Flexera. "Software- and Internet- enabled products are spawning a vast new category of products and services previously unimaginable. The data from today's report shows that in conjunction with their new products and services, device makers are also beginning to transform their business models via flexible licensing and entitlement management - enabling them to turn their innovations into revenue."