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February 10, 2015

Key to IoT revenues lies in software licencing models

60% of device makers use software licensing to monetise IoT devices.

By Amy-Jo Crowley

Software licensing models and entitlement management technology are key to unlocking revenues for manufacturers specialising in the Internet of Things, according to research.

A survey, conducted by software licencing firm Flexera Software and IDC, found that 60% of device makers use software licensing and entitlement management systems to monetise their intelligent and Internet-connected devices.

This allows them to develop new offerings that bundle hardware, services and consulting.

"The report supports a long-proven truism in the high-tech arena – that innovation, alone, isn’t sufficient to transform an industry. There must also be a practical means to monetise new technology in order to profit from it," said Vikram Koka, VP of Intelligent Devices & IoT at Flexera Software.

"Software- and Internet- enabled products are spawning a vast new category of products and services previously unimaginable. The data from today’s report shows that in conjunction with their new products and services, device makers are also beginning to transform their business models via flexible licensing and entitlement management – enabling them to turn their innovations into revenue."

The same report also found that the number of manufacturers in IoT will more than double within two years, with only 30% of respondents currently developing IoT devices, and 34% planning to do so over the next two years.

Another 50% of respondents said they are developing software-enabled intelligent devices, while 21% said they will do the same over the next two years.

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The report also found that 79% are or planning to add remote monitoring and maintenance to their products or service, while 66% will add business intelligence capabilities, and 37% will improve their supply chains with new services, such as automatic replenishment of used goods.

The number of device makers who say that 50% or more of revenues comes from hardware will decline by 5% over the next two years, while the number of device makers who say that 50% or more of revenues comes from services will increase by 6% over the next two years.

"Hardware device makers are faced with a variety of challenges associated with thin margins, inflexible and costly supply chains, and limited revenue streams," Amy Konary, IDC’s research VP of software licensing and provisioning, said.

"By transforming their business models via software, Internet connectivity and licensing capabilities, device makers can enter new markets, diversify and increase their revenue streams, improve margins, and differentiate from the competition. The survey data indicates that that is exactly what is happening now."

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