The Internet of Things (IoT) – which includes intelligent devices ranging from smartphones to medical robotics – will increase to 26 billion units installed by 2020. The latest Gartner estimate represents an almost 30-fold increase, up from 0.9 billion units in 2009.
According to Gartner research director Laurie Wurster, the hyper-growth of IoT will require critical rethinking of underlying business models, including the manufacturing supply chain and the important role software plays in product development and revenue models.
“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,” she explained.
“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 will be required to protect the intellectual property contained in applications. Concurrently, they’ll need to monetize the IP via the adoption of licensing and entitlement management systems that control access to the Internet-connected device.
“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,” said Wurster. ”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.”
Wurster also warned that the adoption of licensing and entitlement management may be somewhat inhibited by the inexperience of many device manufacturers with software and the financial opportunities oftware-driven devices create. Indeed, numerous manufacturers still apply a traditional “box” mentality to their products, failing 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,” she added. “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.”