By John Lipsey
Flexera Software’s just-released Application Usage Management Survey, prepared jointly with IDC, shows that while most hardware manufacturers are developing applications for their products – transforming them into “intelligent devices” -- the majority are still not monetizing that software – leaving money on the table. The Application Usage Management survey of more than 750 respondents from application producers and end-user enterprises, including more than 125 device manufacturers, resulted in this report covering all aspects of software license lifecycle management.
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. Reducing time to market for creating product enhancements (37%), reducing manufacturing costs (36%), and low margins (23%) also topped manufacturers’ lists of concerns.
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. Moreover, most respondents say an intelligent device strategy will help with the key challenges noted above. For instance, 60% said that going intelligent enhances their ability to react quickly to changing market needs and/or new market opportunities. 56% said it helps reduce time to market for creating new products. 55% said it reduces time to market for creating product enhancements. 46% said it helps reduce manufacturing costs. And 26% cited increasing margins as their reasons for building software for their smart devices.
Intelligent Device Manufacturers Are Leaving Money On The Table
While the majority of respondents have already or are moving to the intelligent device model (87%), the survey results show that device manufacturers are not monetizing the apps they build for their hardware – potentially leaving money on the table. According to the survey a clear majority of respondents –58% -- indicated that they do not currently monetize the software for their devices.
Of the manufacturers that do monetize their apps, 25% use capabilities delivered via software to enable customers to purchase more capacity on their devices. 21% make money by charging for the amount of software that is used on the device. A smaller percentage – about 7% -- are using software to turn on and off product features in the device that customers have license to use.
Amy Konary, Vice President - Software Licensing & Provisioning at IDC, had this to say about the report results:
“With shrinking margins on hardware sales, manufacturers are increasingly looking to leverage the software assets developed for their devices in various ways. However, in the past, this software may have been given away with the hardware or bundled with the hardware in such a way that the value of the software was not called out separately. These firms are finding that monetizing or licensing their software can provide an additional high-margin revenue stream, protect intellectual property (IP) 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 monetizing 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 monetizing 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 monetize their software in solutions that combine software and hardware.