Capitalising on the Industrial Internet of Things requires new business models and processes
Global players in many industries such as telecommunications, medical, industrial and manufacturing, and transportation are changing their business models to create new offerings and to capture their share of the trillion dollar Internet of Things (IoT) market. This is not an easy task; it means fundamental change to operations, sales and marketing, product management and operations as well as a redefinition of pricing and go-to-market strategy. Here, Eric Free, the senior vice president for strategic growth at Flexera Software, discusses the four business process areas that are key to monetising the IoT – licensing and security, entitlement management, delivery and updates, and in-product analytics
IoT Now: We’ve all seen the predictions from Gartner, IDC and many other analysts on the expected size of the commercial – as opposed to consumer – IoT market but the question is, regardless of all the hype, how are businesses actually going to make money or better yet save money with IoT and improve processes and customer experience while doing it?
Eric Free: The general IoT numbers are quite staggering and will require a transformational shift as companies evolve from a traditional hardware product mindset to an Internet of Things solution mindset. Manufacturers of all sizes, from startups to conglomerates, must have monetisation strategies in place to capture value at all stages of this transformation.
We’re seeing an emerging class of intelligent device – hardware – manufacturers that are going through a business transformation that encompasses business model and core business operations changes. Every discussion about this change involves software – either embedded on devices or connected to them to deliver additional services, often involving data analysis and business intelligence. This puts software at the very heart of any Industrial IoT (IIoT) solution. As a result, the initial hardware sale will cease to be the main source of revenue and software monetisation models will have to be put in place to add value through software and services. This includes subscription revenue as well as additional application functionality sales.
In addition, in the IIoT world, manufacturers can unlock operational and manufacturing efficiencies by using software to differentiate and build exactly the right solutions, rather than building different hardware products or product lines. The reality is that all of this is for nothing if the manufacturer does not take into consideration the customer experience and deliver on customer expectations. In this new IIoT paradigm, knowing and understanding how customers use and consume products is paramount to customer success.
IoT Now: Are there specific examples you have seen in the commercial, consumer and industrial IoT markets?
EF: We’ve worked with many manufacturers across a broad range of industries that had very different business models and requirements. A few use cases that come to mind include:
- A medical manufacturer that needed to meter how many times a doctor is allowed to use a MRI scanner and store images in the cloud so that data could be easily shared with authorised parties
- An audio producer that needed to enable customers to download apps from their app store, as well as update features on the device and then store that media in the cloud to capture buying patterns
- An industrial cleaning device manufacturer that wanted to sell the whole product as a service and charge it per square meters cleaned – including maintenance and service processes, functionality updates and usage analysis
- A networking manufacturer that used a gateway model where all the end devices needed to send usage and profile data to a common gateway and the application running on the gateway controlled the behaviours of the end devices
All of these examples have a common theme – and that is making hardware more intelligent by using software, so a key consideration is to architect IP with technology that enables manufacturers to protect and monetise in a variety of ways as well as understand how, when and where products are being used so that manufacturers can profit from the IIoT through innovation and predictive analytics.
IoT Now: So, for a manufacturer making that shift from hardware to software and IoT, what processes or systems need to be considered and implemented to support this?
EF: First of all, manufacturers need to ensure that business operations are aligned with strategic objectives. Running a software and IoT business is very different from running a hardware business. Ensuring systems and processes are in place to support a digital supply chain and manage hardware, software and IoT offerings requires a hybrid approach. Software monetisation is a critical requirement for implementing and managing a digital business and supply chain. It includes four business processes areas that manufacturers need to consider as they shift to IoT:
1. Licensing and Security which enables manufacturers to implement business models by defining how products are packaged, sold, monetised and protected against overuse and tampering.
2. Entitlement Management which enables manufacturers to track usage rights, such as which customers have access to which products, to manage the licence lifecycle, to uncover cross-sell and upsell opportunities, to manage maintenance and renewal processes and to provide anytime, anywhere access and visibility into entitlements.
3. Delivery and Updates which enables manufacturers to automate the process to deliver both the initial software and subsequent product software and firmware updates, such as security patches, seamlessly and transparently to entitled customers.
4. Telemetry and In-Product Analytics which provides manufacturers with intelligence about how products are being used so that they can improve customer service and make better, smarter product decisions.
IoT Now: From your experience, what advice can you share with executives that are responsible for this shift from physical to digital solutions?
EF: The shift to hardware plus software has and will continue to transform IoT business models and provide great opportunities for those that take this path. Nevertheless, it is a big change. We encourage manufacturers to build a plan, create a vision and get executive alignment. We recommend by starting with a manageable project, like a single product or product line. We like to say: “Think big, start small, act quickly”.
For example, implementing an entitlement management platform can be complex but is absolutely essential for running a successful software business. Often hardware manufacturers don’t realise how unique managing software and the licence lifecycle processes are or the number of departments it will impact. So it is very important to get executive and department alignment before starting any project.
There are tremendous opportunities for manufacturers to create new usage-, valueand outcome-based revenue models to establish new and recurring revenue streams. At the same time, this is a huge change to financial processes like cashflow and revenue recognition. To that end, finance should be involved in these projects early on to make sure that this change gets managed accordingly.
It’s an exciting time and manufacturers that make the transformation and adopt a software monetisation platform will be will poised to capture their share of the IoT market.