Many hardware manufacturers are currently developing software applications for their products – transforming them into “intelligent devices” , but the majority still do not understand the new revenue opportunities available to them by leveraging the power of their smart devices and the software that runs on top of them.

“They are leaving money on the table,” according to analyst Mathieu Baissac of Flexera Software. And that is the key finding from a new Flexera Software Application Usage Management Survey prepared jointly with IDC, which surveyed more than 750 respondents from application producers and end-user enterprises.

According to the survey 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. However, device manufacturers also said their biggest concerns today centred around agility, costs and margins. 48% said that a major concern was reducing time to market for creating new products. 38% 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.

“These responses show that most intelligent device manufacturers still have not fully embraced the power of their software (imbedded or external) and software licensing to increase flexibility, reduce manufacturing costs, and uncover new revenue streams through development of more strategic solutions, “ explained Baissac.

“With licensing, manufacturers can turn device features and/or capacity on and off as appropriate, allowing them to charge customers for capabilities they want, while not charging for capabilities they don’t. Licensing thus enables manufacturers to more effectively use software as a means of managing and monetizing features and functionality. “

According to the research by adopting the right licensing models for the their device applications, producers can:

  • Produce different products on the same hardware chassis, helping to drive down costs.
  • Create innovative products on existing hardware chassis.
  • Up-sell existing customers by simply activating additional device capabilities or capacity.
  • Meet evolving customer needs without requiring them to swap out hardware or otherwise disrupt their operations.

While some device makers are already breaking ahead of their competition by tapping into new revenue streams from their combined hardware/software solutions, most are leaving money on the table. 58% or respondents indicated that they do not currently monetise the software for their devices.

According to Baissac, “Most device manufacturers are still early on in the maturity level when it comes to monetising 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.”

Best-in-class companies are delivering substantially more value to customers while increasing margins in an increasingly commoditised hardware environment. This is clear enough when one looks at the most ubiquitous intelligent devices in the consumer marketplace – smartphones and tablets. For example, manufacturers such as Apple and Microsoft monetise both the devices and the apps accessible via their app stores.

In a B to B context, device manufacturers are applying software- based licensing principles to hardware to control and manage a wide range of functions.

“In order to reap the full value of the software developed for their intelligent devices, manufacturers must adopt a software licensing and entitlement management system,” suggests Baissac.

“Whether they develop this in-house or acquire a third party solution, the system should have the following capabilities: High configurability, Hands-free activation and licensing, entitlement management and delivery from end to end. Implementing an end-to-end solution provides a single view for device manufacturers, their customers and channel partners to view and manage software embedded on devices and enables them to electronically turn on and off functionality.”

According to the report as competition intensifies in today’s global market, maximising customer satisfaction, increasing revenues and reducing costs remain top business imperatives. Adopting a software model controlled by flexible licensing and entitlement management is emerging as the path forward empowering intelligent device manufacturers to better compete.