Markets across industries are embracing the Internet of Things (IoT). From widely adopted consumer goods, like watches and thermostats, to applications in aerospace, healthcare, construction & building management, oil & gas and beyond, intelligent devices are driving growth and innovation.
As found by the VDC Research Group, top reasons why organizations utilize or provision IoT solutions include meeting customer and enterprise requirements, identifying new strategic opportunities or service-oriented business models, addressing competitive pressure and cutting time to market. The prevalence of this trend is noteworthy: More than a quarter of engineers report incorporating firmware over the air updates (FOTA) into current projects; more than three quarters of organizations have plans to offer post-deployment service and content.
With the embrace of IoT and intelligent devices comes the need to change approaches to monetizing those devices, recognizing the shift away from transactional hardware sales to ongoing sales of software and services. Capturing the potential recurring revenue for the software associated with those devices requires appropriate new business models that support device manufacturers, software suppliers and users.
This inflection point merits a fresh look at best practices for monetizing intelligent devices.
- Support multiple monetization models.
Device manufacturers are shifting from making one-time hardware sales to a subscription (or term licensing) model for access to the software and functionality enabled on intelligent devices. Software products are increasingly deployed on IoT devices, requiring software companies to build products that are easily adapted and that support different monetization models, particularly for recurring revenue. Annual recurring revenue (ARR), which measures the sum of subscription revenue in a year, is a primary goal for companies and is supported through subscriptions.
As the trend toward software as a service (SaaS) deployments and subscription monetization continues, as detailed in the Revenera Monetization Monitor: Software Monetization Models and Strategies 2022, software suppliers are embracing hybridized deployment and monetization models to support pricing and packaging changes. While some customers may still require on-premises deployment models with perpetual licenses, those must be offered in tandem with subscription monetization models suited to the SaaS and cloud-based deployments common with intelligent devices.
- Minimize complexity while optimizing functionality.
Software entitlement management refers to the process of how access to software, devices, systems ,and content is administered, include granting and revoking access to users and enforcing rights. Entitlement management enables device suppliers to reconcile what’s being used with what’s been purchased, delivering a clear view of entitlements and use rights, the version each customer is on and what features each user has adopted.
Entitlement management is vital for intelligent devices, ensuring that functionalities are in place to:
- Update devices, including those that are only intermittently connected to the internet,
- Upgrade those customers who are eligible for software renewals,
- Provision features to users or to IoT devices.
The embedded and on-board software of IoT devices can beupdated remotely, based on existing entitlements. The efficiencies here are significant. A supplier can reduce the number of hardware stock keeping units (SKUs), prioritizing functionality driven by software enabled on it. The time and expertise of field service engineers — who not that long ago traveled to in-person site visits for updates of on-board software — can be put to better use only where absolutely necessary. Software upgrades can take place at the most opportune times, when the device isn’t needed or during scheduled downtime.
- Deliver ease and value to customers.
As Lori Haggart, global general manager, logistics sensing & software at Honeywell described during Revenera’s SoftSummit 2023, customers aren’t looking for a widget; they’re looking for solutions to business problems. A consultative approach to customer outcomes aids this, whether the customer is looking for edge capabilities, healthcare solutions that meet emerging medical needs, more transparent supply chains, analytics-based solutions that improve everything from manufacturing to workplace safety, sustainability and beyond.
The overall customer experience (CX) improves when a device company offers innovative intelligent devices, connected solution offerings, flexible options for payments and a low-touch customer experience. An effective entitlement management system adds efficiencies by improving and automating the operating and ordering processes; rather than customers waiting to receive hardware dongles, they provide a license key, simplifying orders and eliminating manual processes.
Customers buying subscription need more flexible, scalable products than someone making a one-time purchase. A recurring revenue model offers multiple benefits for customers. It ensures cost predictability and reduces up-front capital expenses, as subscription shifts costs from CapEx to OpEx; helps customers scale usage as needed, while reducing licensing complexity; and provides access to the software products and version that each user needs, with entitlements managed accordingly.
- Deliver greater value for your internal stakeholders.
Growing recurring requires a cross-organizational approach to business practices that meet the priorities of various internal stakeholders. That means not only creating new revenue streams through subscriptions, but optimizing the full sales cycle of the quote-to-cash (QTC or Q2C) process, creating better visibility and reporting and standardizing the licensing technology.
Establishing a software engineering center of excellence (COE) can help deliver the necessary organization-wide buy-in from development and DevOps teams, engineering, product and project management teams, licensing and customer success, for example. Evaluate how systems and IT infrastructure support growth with a connected architecture that unites systems including entitlements and licensing, billing platforms, data and management and enterprise resource planning (ERP).
A centralized entitlement management system enables a 360-degree view, functioning as a central warehouse for applications and cutting through the clutter that can get in the way of understanding key performance indicators (KPIs) about usage and customer engagement that support the QTC process. Metrics — e.g., real-time access to data, software revenue, service level agreements (SLAs), user engagement and business flow optimization—all provide value for multiple stakeholders. Improvements can drive greater customer engagement and renewals, shorter sales cycles (aided by metrics such as the number of free/freemium trials and conversions) and more to secure recurring revenue. Additionally, centralized entitlement management allows for easier integration with business systems, both downstream and upstream within the QTC process.
- Future-proof your goals.
Finally, embrace resources that can help grow business. Architect software with a focus on delivery of continuous business value to maximize intelligent device revenue and control costs. Carefully evaluate how to integrate services to optimize profits while simultaneously streamlining processes; this may require a fresh approach to billing, tracking, product lifecycle management, predictive maintenance models and more. Be open to outsourcing certain functionality (e.g., compliance, entitlement management, security) to third-party providers who specialize in new service models or net new services that can be offered through the IoT.
Last, but not least: Optimize the data provided by intelligent devices. Data-driven insights, guided by a comprehensive software usage analytics programs, can evaluate factors such as how products are being used to guide future innovation, investments and product differentiation.
