The internet of things is ushering in a new industrial revolution that will forever alter our relationships with the objects we use on a daily basis. We are now entering the era of “anything as a service.”
Manufactured goods used to be built on a particular use-case to perform a particular function. When needs changed, that manufactured item became obsolete and a replacement item was required. However, with “intelligent devices” constantly gathering data, there is a new paradigm in this connected world. Manufacturers can now offer customizable, upgradable products and services flowing from a single device. Customers can alter the function and the value delivered by IoT devices.
Take Tesla for example. The auto manufacturer announced that for $3,500 it was allowing customers to download a software update that would upgrade their existing car with an autopilot feature. Tesla owners were no longer constrained to wait for a new automobile to take advantage of new features, and Tesla proved to the modern world that a car is no longer a fixed object but an ever-changing, ever-customizable service that can be tailored on an ongoing basis with new capabilities of value to customers. Want added convenience when driving? Pay for a software upgrade and now your automobile operates the way you would like it to.
Tesla has innovated a new mechanism for differentiating its products. By leveraging the power of software to deliver new products, features and enhancements to existing customers, Tesla:
- Differentiated its product from every other automobile on the market by offering a way to automatically upgrade existing models with new, in-demand functionality
- Created a new revenue streams by monetizing its autonomous driving software upgrade — adding to the revenue potential of both new and existing customers
- Minimized manufacturing costs by offering this functionality via software rather than requiring the development of a new physical hardware model
- Established a direct, ongoing relationship with the end-customer and deepened that relationship
As manufacturers seek new ways to build customer relationships and grow profits, they will need to become more strategic. Like Tesla, manufacturers of internet-connected devices are poised to reap the reward of recurring revenues from sales of hardware, upgrades, apps and services. The recipe driving this transformation consists of platform + apps + service. This is delivered through a combination of:
- Hardware platform (the actual hardware device and its component parts)
- Software applications that control features and functionality of the hardware, software and services delivery
- Software monetization (licensing and entitlement management, which sorts out which device features, functions and services a customer has paid for and can therefore access)
With services becoming critical to selling solutions, monetizing software will be essential to profitability. By adopting software monetization processes, for instance, building automation manufacturers can equip their control panels with every feature and upgrade available — and simply turn on or off specific features via software and licensing based on what the customer has purchased. Such an approach will allow IoT device makers to monetize every single feature in their product at no additional costs.
We have seen this trend already reshaping the manufacturing space. The key challenge for traditional device manufacturers will be to stop viewing their products as fixed objects with fixed-in-time features and functions. They must start thinking and acting like service providers, who can deliver new value to existing customers to accommodate their changing needs. This will be done by understanding how software monetization plays a role in transforming new value propositions into revenues.
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