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Internet of Things a Boon to Device Manufacturers - at Least to Those Who "Get It"

11/12/2013 13:15 GMT | Updated 09/02/2014 10:59 GMT

Device Manufacturers have seen better days. Razor thin margins. Increased competition. Globalization. All of these forces have allied, making it harder to make a profit. But just when things were at their bleakest for device manufacturers, the dawning of the age of the "Internet of Things" - Internet-connected devices powered by software - promises to transform the industry.

By making their devices "Intelligent" via software, and allowing those devices to communicate through the Internet -- manufacturers are now able to simultaneously slash manufacturing costs (by having to create fewer device models), while making products that do more and are infinitely flexible and configurable. Imagine logging on to your family car's internet portal and, for a small fee, upgrading its engine to "high performance" so you can relive your youth by racing across the Autobahn on a weekend jaunt. Or a dishwasher smart enough to know when it's about to break down, that schedules a service call for repairs - ensuring you won't be inconvenienced for a second. New options for the consumer. New revenue streams for the device manufacturer. Good for everyone.

Despite the promises of the Internet of Things, and the riches it promises to bring to intelligent device manufacturers - a new Flexera Software Application Usage Management Survey prepared jointly with IDC, suggests that while most device manufacturers are "going intelligent" - they aren't connecting the dots - leveraging their software-driven devices to make more money. These are the manufacturers that will not survive this era of the Internet of Things.

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.

Manufacturers That Leave Money on The Table Will Not Survive

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 -essentially 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.

Amy Konary, Research Vice President - Software Licensing & Provisioning, IDC, provides some insight into the issue:

"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. If they don't take these actions - they will likely not survive. Because there will always be a competitor that "gets it."