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Flexera Software 2016 Predictions: 6 predictions in the IoT market for 2016

Virtualization and Cloud executives share their predictions for 2016.  Read them in this 8th Annual series exclusive.

Contributed by Steve Schmidt, Vice President of Corporate Development at Flexera Software

6 predictions in the IoT market for 2016

The Internet of Things (IoT) has made its way into most business models today. A recent Flexera survey found that 21 percent of device manufacturers that don't offer intelligent devices today, say they plan on doing so within the next 12-24 months.  Additionally, 34 that don't offer IoT devices today say they plan on doing so in the next 12-24 months. With growing interest in the Internet of Things, organizations should look to maximize revenues and profits by monetizing not only the devices, but the software applications they create to power those devices.  According to a recent Gartner report, this requires software licencing and entitlement management automation - a mainstay in the traditional software industry. By leveraging software licensing, device makers will be able to transform their business models to enable innovation, flexibility and new revenue streams and gain competitive advantage.

As we ring in the new year, Flexera Software has shared its top IoT predictions for 2016. 

1.     IoT Hacking Will Make More Headlines - Increasing Pressure on Device Makers to Focus on Security and Remediation: Recently, much attention has been paid to potential security threats facing smart internet-connected devices - from refrigerators to Jeeps.  News that common Internet-connected devices used by consumers and businesses can be hacked has sent shivers down the collective spine of an entire industry.  As incidents of these device hacks continue to mount, Flexera Software predicts that device makers will need to make security more bullet-proof - both to prevent hacking and to quickly remediate the problem if hacking does occur.  Device makers will need to:

o   Use tamper resistant licensing code to help reduce hacks for applications that sit at the operating system level

o   Invest the time to reverse engineer embedded software on the device and make changes at the machine level if necessary

o   Ensure that the applications on their devices, mobile device management systems and other systems have an easy, automated mechanism for getting the latest security patches and updates as fast as possible. This will include:

  • Encouraging and incentivizing customers to register their devices
  • Encouraging and reminding customers to upgrade firmware or software on these devices

o   Proactively monitor devices for application issues

o   Monitor and track patch levels so device makers are aware of their exposure and to make sure only authorized users are using their applications

o   Send software and firmware patches and updates to entitled customers using secure download URLs that expire

2.     Intelligent Device Makers Will Look More Like Software Companies to Garner IoT Profits: Increasingly, the value of physical devices is defined by the embedded software inside of those devices, or the control software that helps to manage those physical goods.   Simply selling more device units will not result in the massive spike in profits manufacturers are hoping for as they make a play to compete in the Internet of Things (IoT).  Manufacturers will have to start thinking and acting more like software companies, leveraging the software applications they build into their products as a driver to reduce manufacturing costs, increase product innovation, and capture new revenue streams.  Taking a software-centric approach means manufacturers will start re-designing products from fixed-function, disconnected devices to flexible, seamlessly connected systems. A software-centric approach will streamline all aspects of the supply chain, from manufacturing to monetization.

3.     Enterprise Software Vendors Will ‘Go Freemium': Apple's App Store exponentially increased the market for consumer apps, and consequently their value to consumers and revenue for app producers.  How?  It perfected the try-and-buy, "freemium" model. Using this model, most of us go onto the App Store, browse for apps and download the ones that seem helpful, interesting or fun.  Because they're usually "free" - there's no risk or barrier to trying the app.  The ones we don't like we simply delete.  And when we do like an app and use it - we quickly bump into the limitations of the free version.  But Apple makes it mindlessly fast and easy for us to upgrade to a paid version, so that we can enjoy the app's full functionality - without missing a beat.  Enterprise software vendors increasingly see this freemium model, and they're smelling money.  Over the next 12-24 months we will see more traditional enterprise software developers offer "freemium" and "try-and-buy" versions of their software.

4.     Rise in Internet of Things Device Will Fuel 3rd Industrial Revolution: The first industrial revolution ushered in a global transformation as the means of production transitioned from human labor to machine driven automation.  The second industrial revolution accelerated change through the growth of the railroads, iron and steel production, manufacturing automation, the use of steam power, oil, electricity, and electrical communications. With the introduction of embedded software and app-driven hardware into manufactured devices, and the ability, through software licensing, to monetize those device functions and features - devices have become intelligent solutions and capable of generating completely new types of revenue streams.  Connecting those intelligent devices to the Internet (the "Internet of Things") is accelerating the third industrial revolution by enabling services, solutions and big data offerings around every day industrial and consumer goods.  Perhaps the two most revolutionary advances in recent years to hit the device manufacturing industry revolve around intelligent and Internet-connected "Internet of Things" (IoT) technologies.  Intelligent devices are defined as physical devices that include embedded software (or external software applications) that control product features, function and/or capacity.  Internet of Things devices are Internet-enabled devices that help accomplish specific user scenarios by bringing their data and functionality together with other devices. 

Intelligent and IoT devices also leverage software, software licensing & entitlement management, and Internet connectivity in ways that address many of the big challenges respondents reported earlier in this report.  For instance, leveraging software and software licensing, manufacturers can turn device features and/or capacity on and off as appropriate, allowing them to charge customers for capabilities they want, while not charging for capabilities they don't. Managing entitlements also plays a key role. For instance, knowing which customers have which features turned on allows the device makers to target segments of users for cross/up-sell opportunities.  Leveraging licensing and entitlement management, therefore, gives device manufacturers many more options to monetize features and functionality

5.     Manufacturers will Start Realizing Financial Gains from the Internet of Things:  While the innovations and use cases now possible with smart and Internet-connected devices serve as the fuel for industrial revolution - there must be an accelerant to ignite that fuel.  In a business context that accelerant is the lure of money.   In last-generation devices, device makers were fairly limited in terms of monetization options.  Their primary revenues derived from the sale of the hardware device, and perhaps maintenance revenue associated with the purchase.  The next big revenue opportunity typically would arise when that device required replacement. According to a recent survey, device makers are indeed aggressively adopting new business models associated with monetizing the embedded and external software that's increasingly powering their intelligent and Internet-Connected devices.  And to monetize the software they're leveraging software licensing and entitlement management - a mainstay in the traditional software industry. 

According to a recent Flexera Software survey, 60 percent of device makers use licensing and entitlement management systems to develop new offerings that bundle device, services and/or consulting, and 17 percent more plan on doing so within the next two years.  Software is also the vehicle enabling IoT makers to bundle product offerings, services and feature sets in new and creative ways.  For instance, 32 percent of respondents use software to electronically turn features on and off based on purchases (i.e. for $5 a customer can purchase the music player, for $10 the customer can purchase the music player and Internet radio capabilities). 19 percent more plan on doing so within two years.  31 percent use software to leverage data from sensors embedded in devices to uncover new services opportunities (i.e. device repair services, etc.).  28 percent more plan on doing so within two years.  29 percent use that data uncover new sales opportunities (i.e. new product sales). 27 percent more will do so within two years.

6.     "Everything as a Service" - IoT Is Transforming Objects into Services: As IoT manufacturers seek ways to deepen their relationships with customers, a key goal will to become more strategic and provide ongoing solutions tailored to evolving customer needs.  Services will be a critical element to selling solutions.  For instance, medical device makers will be able to use big-data to provide better diagnostics based on segmenting national, socio-economic or ethnic characteristics of an overall population pool.  Or auto manufacturers will be able to equip their cars with every feature and upgrade available - and simply turn on or off the feature via software and licensing based on what the customer has purchased.  In these scenarios, the device maker can make a strategic decision about whether or not to monetize a feature or to provide it at no cost.

According to a recent Flexera Software survey, over the next two years the proportion of revenue associated with services is poised to increase for IoT makers - indicating device makers' commitment to evolve into solutions providers.  38 percent of respondents say that half or more of their revenues derive from hardware today.  That proportion will decrease to 33 percent in the next 12-24 months.  32 percent of respondents say that half or more of their revenues currently derive from services today.  That figure will increase to 38 percent in the next 12-24 months.


About the Author

Steve Schmidt is the Vice President of Corporate Development at Flexera Software, responsible for strategic planning and M&A processes, as well as other cross-product line initiatives. Steve has previously led product planning, positioning and market delivery of Flexera Software's industry-leading licensing and installation solutions, including the FlexNet, InstallShield and AdminStudio product lines.  Steve began his 20+ year technology management career running global IT projects for Procter & Gamble's Advanced Technology Group. Steve received a Bachelor of Science in Electrical and Computer Engineering from the University of Notre Dame and an MBA from the Kellogg School of Management at Northwestern University.

Published Monday, December 07, 2015 6:32 AM by David Marshall
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