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Flexera believes IoT manufacturers can create sticky revenue from the software embedded into the hardware

Flexera believes IoT manufacturers can create sticky revenue from the software embedded into the hardware

Selling more devices won’t result in big spikes in profits that Internet of Things manufacturers are hoping for, according to software provider Flexera. Instead, manufacturers will have to figure out how to create sticky revenue from the software developed to configure and power their products, the firm said.

“The software they create to power their intelligent devices has enormous value,” said Mathieu Baissac, a software licencing expert on the IoT at Flexera Software.

“By unlocking the value of that software through licencing and entitlement management – manufacturers can simultaneously generate significant new value for their customers and higher revenue for the company, all while lowering manufacturing costs.”

The firm believes the key to monetising the IoT is to use licencing to turn on and off product features and capacity in different combinations to create additional value in the intelligent devices themselves, and in the software that runs them, tiering services for instance. It also said companies could experiment with different payment models, such as metered or pay per use, and see how consumers respond.

“Once you build software licencing into your business model, the opportunities to flexibly configure your products and offer value added services is virtually infinite.  And it doesn’t result in an increase in manufacturing costs,” he explained.

Many vendors are flocking to the fledging Internet of Things market but few have a clear idea of how IoT solutions will be effectively monetised over the long term beyond the software vendors currently catering to the space. Baissac’s views echo some of those found in a report authored by Gartner analyst Laurie Wurster, which argues that tiering product and service capabilities and standardising hardware could be one way IoT sensor manufacturers can protect and monetise their embedded software IP.

“The Internet of Things transforms all hardware and appliance OEMs into software providers,” Wurster said. “Licensing and entitlement management technology provides the locking capabilities that enable manufacturers to protect and monetise the embedded software IP running on these connected devices.”