By: Cris Wendt
High-tech manufacturers are typically effective at creating a supply chain that can build and deliver a piece of equipment to market, but often find it troublesome to deliver software or "digital goods" that occur after the initial delivery of equipment.
Software and other digital goods usually have a unique set of requirements that challenge typical hardware supply chains. While the comparison is imperfect, it is nonetheless instructive to think of why Apple manufactures and sells the iPhone and iPad through a dealer network, yet has created the Apple Store to sell songs, applications and other goods.
There are some underlying issues that need to be considered that make software delivery different than the delivery of high-tech devices:
High-tech devices (hardware) is typically produced, and then shipped once to customers. Revenue is recognized when freight on board (FOB) occurs, which means when the device has been provided to a shipper (and assuming other conditions for revenue recognition has occurred.) For software, the digital shipping dock—electronic software delivery—is simply a notification or email that tells the user that the software and any associated digital rights management (DRM) or software licensing is enabled and available to be downloaded. The actual delivery of the software and DRM typically does not have to occur to recognize delivery, but only the notification of availability. This will have important implications in later blogs when we discuss the software supply chain.
- Unlike hardware, software has a lifecycle. This means that after the initial download of software, the software license or software bits are periodically "re-delivered" in the form of updates, upgrades, end-of-life migrations, or movement to another machine or device. In these cases, it's important to separate "revenue activity" from "non-revenue activity" for software. Hardware supply chains are designed as a linear process from the time of order, to the time of shipment, yet this type of design won't work well in a software model for many types of activities. This is why, for example, you can easily move software from one iPhone or iPad to another without using your credit card for the transaction, but, a credit card is required if you purchase a new title.
As high-tech manufacturers look to become more software-like, it's important to think about how processes that have been institutionalized in a hardware supply chain need to change. More about these implications in subsequent blogs.
Did you miss Steps 1 – 3? You can access them here…
Step 1 – Understanding the Opportunity that Becoming a Software Company Can Offer
Step 2 – Use Software Licensing Methodology to Enable Product Agility in the Marketplace
Step 3 – Balancing Revenue Recovery & Customer Satisfaction with Your Software Compliance Strategy