Part 1 discussed Defining the IoT.
Part 2 discussed Monetizing the IoT
In this blog post, Randy Littleson, Senior Vice President of Marketing at Flexera Software speaks with Rami Ahola – Global Electronics Center of Competence at IBM and Vikram Koka – Vice President Intelligent Devices and IoT at Flexera Software and asks them to share how licensing changes the revenue streams in support of IoT
Randy: How does licensing change the revenue streams of available to the traditional device manufacturer? For a company that’s making an intelligent connected device as a part of an Internet of Things overall solution, does licensing have the ability to change the revenue streams available to them?
Vikram: Absolutely. A lot of device manufacturers are used to perpetual or physical one and done revenue models, you design a device, go through the process of manufacturing it, ship it, sell it, and then it’s actually a consumer who installs and runs the device until it eventual atrophies. Now in some cases there’s an ongoing maintenance but that’s pretty much it. Once the device is connected, you have a set of applications underneath the system. These application scan change dramatically towards a recurring revenue stream, which could become a subscription base, where you can charge more for updates to the device. For some models down time is critical so being able to handle predictive maintenance is key. More importantly, it could also lead to a whole new set of applications and monetization models which could be transactional. This creates a brand new revenue stream for a device manufacturer. Licensing plays a core part of it, so does entitlement management around what are the capabilities of this particular device, because these capabilities have grown over time. This is no longer a device which performs the same as it did when it came from the factory. The device is refreshed over time and has grown in capability. We’re all used to this with our mobile phone when we add capabilities after a period of time the functionality is much greater than what we originally started with. Some of these capabilities originally are based on licensing, based on being able to grow the capabilities and have the functionality available as a subscription model, or it could be just for a period of time. An example is to use this capability when I’m going on a trip and then afterwards I’m done with it. That transactional flexibility drives innovation. Licensing and entitlement management are mechanisms of driving the monetization for making this happen.
Rami: Mostly what we’re seeing today is this indirect monetization, we’re not necessarily charging extra just for connectivity but driving value from some other means. In the industrial space its lower service cost, which is enabled by the fact that you have better insight into the actual conditions of the assets. Also in terms that can drive in the industrial case lower costs of maintaining your service parts inventory, and that’s where monetization comes in indirectly in most of the industrial cases. What Vikram touched on in his previous note, in the consumer space there’s still a lot of reluctance to paying a monthly service fee for anything that you buy. At the same time licensing enables you to sell additional features, time based where if you’re going on a trip you might want to enable a feature on your device that you don’t need when you’re at home. In the next couple of years I don’t see that changing much. People in the consumer space are simply not willing to pay a monthly service fee for a lot of things because that starts to add up pretty quick.
Randy: Interestingly enough on the business side we’ve obviously seen a huge shift in the way software is purchased where subscription models are now becoming extremely popular. Vikram, Do you share the opinion on the consumer side it’s going to be harder to make that leap over to subscription model, versus a more, I guess a consumer model would be like the Nest right?
Vikram: I do, in the consumer model there is a lot more interest in jumping to a direction based model. Even though naturally we tend to think about more perpetual based models and then subscription then to consumption are paid by use. In the consumer side definitely seeing a lot of interest in just directly jumping from I’ve got a core capability which is kind of baked in, then to jump to a consumption based model. I’m reminded of the original iPod, one of the key things that drove a lot of growth, was once you could buy music by track as opposed to by album. There was a small enough dollar amount which triggered exactly what I wanted when I want it. That consumption based model has really taken off especially in a lot of other geographies like Asia and has a good chance of taking off in IoT as well.
Share your perspectives—How do you define Licensing IoT?
Up Next: Part 4: Industry variations and how bundling works in IoT scenarios