To be a device manufacturer in today's marketplace can be brutal.
Increased competition from new players on the world stage have a commoditizing effect across the spectrum - from medical devices and telecommunications equipment to oil and gas machinery and building automation. Complex supply chains and rising commodity, fuel and transportation prices are driving manufacturing costs up and margins down. And rapidly evolving markets and changing customer needs require a heightened flexibility and nimbleness that most old-line manufacturers simply don't have.
While many device manufacturers are collapsing under the pressure, some are succeeding - spectacularly. The new winners in the global economy enjoy tremendous profitability, high margins and virtually infinite product customization capabilities. Their strategy represents the future of manufacturing. Their formula for success is a Holy Trinity of sorts that can, and should be copied by all manufacturers seeking to remain competitive on the global stage.
What is the strategy? Becoming solutions providers by going intelligent.
What is the formula? Intelligent Device = App-enabled Hardware + Flexible Licensing
How does it work? Look no further than Apple and the iPhone as an illustration. Rather than having to manufacturer hundreds of different iPhone models (SKUs), Apple only needs to manufacturer two or three. Built into those two or three models are all the functions and features the iPhone is capable of - GPS, Camera, light, voice, data, etc.
The iPhone is an app-enabled hardware solution - where the customer downloads the software she wants to address particular needs. The apps define what functions and features on the device get turned on and off - and in what combination. As a result, the iPhone is tailored to the exact needs and specifications of the customer - accomplished almost entirely via the apps. It is an almost infinitely customizable solution - yet Apple only has to produce a few models (minimizing manufacturing costs). And the functionality can be altered, enhanced and improved at the speed it takes to download a new app.
Then there's revenue and profit. How do the creators of the intelligent device and apps make money for their intellectual property? Again, using Apple as our illustration - revenue comes from both the hardware sale (iPhones can be purchased online and in stores). And a huge portion of the revenue now also comes through the software - the apps purchased on iTunes. iTunes is the portal by which the app is licensed, delivered to the end user, and entitlements granted - thus creating an ongoing relationship and revenue stream between the manufacturer and the customer.
This sort of monetization requires flexible licensing and entitlement management - in Apple's case, that's iTunes. For most other intelligent device manufacturers- this is accomplished through custom development - or more frequently nowadays - the purchase of a licensing and entitlement management solution that can be bolted on to the device's embedded software.
Apple is the most familiar intelligent device maker. But all of manufacturing is heading in this direction. Cars are now intelligent. Washing machines. Gaming equipment. Houses. MRI machines. You name it.
And as manufacturers start thinking and acting more like solutions providers - the new markets and revenue streams opening up to them are mind boggling. A sedan that, for a fee, can be upgraded to act like a sports car for a weekend ride on the autobahn. An office building that can be upgraded with the latest energy-saving power system via the Internet. A washing machine that can sense a failing part and schedule a service call before a breakdown occurs. A life-saving MRI machine that can be purchased by a cash-strapped community hospital because the device can be outfitted to function on a pay per use basis.
Not only is this happening already today - but the emergence of the intelligent device is one of the most transformative trends since the advent of electricity. And it's the inevitable future for manufacturers who wish to remain competitive, innovative and deliver value to their customers.
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