The IoT is revolutionising the marketplace for traditional hardware and device companies who have for decades manufactured a ‘hardware’ product which has been sold to a customer. This product (with a few exceptions) is then fully owned and belongs to whoever purchased it and they have freedom to do with it what they will.
The integration of software and firmware into these products has, for many companies, been a way to provide greater versatility to a hardware device and has not been commonly distinguished during the sale as a separate product. Again, traditionally for manufacturers and the end-customer this hasn’t, seemingly, really mattered as the software isn’t necessarily visible and is hidden away in the device and there, for many, lies the problem.
Software is not visible – you can’t pick it up or touch it and at the end of the day a customer, from their perspective, is just buying a device. So why is this a problem?
Ok, ‘problem’ is a strong word. For some it can become, or is, a major problem, whilst for most it is something to understand and embrace in order to maximise the digital revolution whilst protecting and growing your business.
With software there are a couple of fundamental rules:
- If you’re software producer and you are embedding software in your devices you need to be sure you own the intellectual property and have the rights to offer it to your customer base.
- Once you know you own the software, unless you want to give away your rights to it, you never, ever, sell the rights to that software!
Let’s address with the second rule first, which will go some way to answering the first.
For a company who has a background solely in manufacturing hardware and devices this can be a bit of a shock! After all, you sell hardware, why is the software so different?
Because software is essentially a work of art that has been created rather than built it is treated, in law, as being intangible and needs to be protected from copying and improper use. If you were an artist and sold a painting you would lose all rights to the work of art immediately after the sale. We all understand that concept. The same applies to software which at first glance might sound odd as mainstream software is widely ‘sold’. If you sell the software to a customer they generally, by default, become the owner of the software and this is known as the First Sale Doctrine. Not a good situation when you’ve invested the future of a company on monetizing software into your products and you’ve sold it to Joe for £50!
To overcome this rather substantial ‘challenge’ you will probably have gathered there is a simple solution. Rather than selling the software, you grant customers the rights-to-use your software normally through a software license agreement (SLA). Whilst there are many ways of executing an SLA you will all have gone through this experience when you have downloaded software onto your computer or cell phone.
As you install the software you get a message titled ‘End-User License Agreement’ (also known as a EULA – which is a different acronym for what is essentially a SLA) and are then given the opportunity to read the document before agreeing or declining the offer. I’m sure you all read this agreement in great detail (OK maybe not! But that’s for another blog) before you accept the agreement and the software is installed and if you don’t agree it doesn’t install!
So the doctrine is that you license the customer or end-user to use your software, they never get to own the software and can only use the software so long as they adhere to the agreement which normally (and should) set out to establish:
- When they can or can’t use the software
- Where it can and cannot be used
- What it can and cannot be used for
- Who can and can’t use it
- Which other restrictions applies
- How they can or can’t use the software
You now have a brief overview of the reasons why you don’t sell software, but instead grant the right-to-use your software which partially answers the first. As I indicated earlier, for a manufacturer with no previous experience of software licensing this can initially be a surprise – and then one that brings about a realisation that if they’re going to effectively better monetize and protect their software there needs to be a fundamentally different approach in how they go to market.
In my future blogs I’ll start to look at the broader impact of being a software provider can have for traditional hardware manufacturers and also offer some helpful tips and tricks.
Note: I should add a health warning at this point as what I’ve discussed is essentially concepts and doctrine around the laws that relate to the protection of intellectual property and contract. For those who are familiar with the ‘Law’ you will know there are always exceptions and different interpretations from one jurisdiction to another. The same applies here but generally these two rules hold good worldwide.