Device manufacturers have seen better days.
Razor thin margins, increased competition, globalisation; all of these forces have allied, making it harder to make a profit.
But just when things were at their bleakest for device manufacturers, the dawning of the age of the “Internet of Things” promises to transform the industry.
According to IDC, by 2017 the Internet of Things market will amount to $7.9 billion, with the biggest growth predicted in consumer, manufacturing, resource and public sector verticals.
If this growth estimation is correct, manufacturers must evolve their revenue models to monetise their connected devices and ultimately, stay alive.
Yet, as a report by Flexera Software indicates, most manufacturers are still in the dark on how to make money from their innovations.
In Australia, the great enabler for the Internet of Things is the roll-out of high- speed broadband infrastructure. Faster, better connections will mean millions of devices will soon be interlinked.
For device manufacturers in this country in particular, the Internet of Things is set to be a real game- changer.
In making their devices “Intelligent” via software and allowing those devices to communicate through the Internet, manufacturers will now be able to simultaneously slash manufacturing costs (by having to create fewer device models), while making products that do more for more people.
Imagine logging on to your family car’s internet portal and, for a small fee, upgrading its engine to “high performance.”
Imagine a dishwasher smart enough to know when it’s about to break down, so it schedules a service call for repairs. With the Internet of Things, there are endless options for the consumer, new revenue streams for the device manufacturer and everyone benefits.
Despite the promises it heralds though, a new Flexera Software Application Usage Management Survey prepared jointly with IDC, suggests that while most device manufacturers are “going intelligent” – they aren’t connecting the dots – leveraging their software-driven devices to make more money.
These are the manufacturers that will not survive this era of the Internet of Things.
Top Challenges: Agility, Costs & Margins
According to the survey, device manufacturers say their biggest concerns today center around agility, costs and margins. 48% said that a major concern was reducing time to market for creating new products.
38% of respondents said enhancing their ability to react quickly to changing market needs and/or new market opportunities are paramount among their major challenges.
Most respondents agreed however that an intelligent device strategy will help with, if not alleviate completely, the challenges mentioned here.
Surprisingly, 87% of survey respondents indicated they either already have “gone intelligent” by integrating software with their hardware products – or they plan on doing so within the next 12-24 months.
But are they monetising the applications they build for their hardware? Well, according to the survey, a clear majority of respondents- 58%, indicated that they do not currently monetise software for the devices- thereby leaving money on the table.
Surviving in The Internet of Things
According to Amy Konary, Research Vice President – Software Licensing & Provisioning, IDC, with shrinking margins on hardware sales, manufacturers should look to leverage the software assets developed for their devices in various ways.
Those who do so are finding that monetising or licensing their software can provide an additional, high-margin revenue stream. So too can it “…protect intellectual property from misuse, simplify product packaging while allowing for more flexible configurations, and lower inventory costs by decreasing the number of SKUs needed to satisfy unique customer demands.”
It is clear that device manufacturers are moving to the intelligent device model to be more agile. Market-innovators have also proven that monetising the apps built for devices, substantially increases margins and profits.
Most device manufacturers, however, are still early on in the maturity level when it comes to monetising their software applications.
But there are concrete steps they can take today to substantially grow their revenues, increase competitive differentiation and solve more strategic problems for their customers.
To do so, they will need to employ flexible licensing and entitlement management to monetise their software in solutions that combine software and hardware.
If they don’t take these actions – they will likely not survive. There will always be a competitor who “gets it.”
[Tom Canning is VP Asia Pacific, Flexera Software.]