More than ever, embedded software is playing a central role in intelligent device manufacturers’ go-to-market strategies.
This trend is especially apparent in industrial automation, where manufacturers are under increasing pressure to innovate, rapidly enter new markets, control costs, maximise incremental revenue from existing customers,and deliver a competitively differentiated customer experience.
As software has become more integral to their business, more and more industrial automation manufacturers are discovering the power of software licensing. With 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. Licensing thus enables manufacturers to more effectively use software as a means of managing and monetising features and functionality.
By adopting the right licensing models for the embedded software within their devices, industrial automation providers can:
- Produce different products on the same hardware chassis. This drives down costs by eliminating the need for additional production lines and minimizing the number of SKUs that have to be kept in inventory.
- Create innovative products on existing hardware chassis. This reduces the cost and time it takes to bring differentiated products to new or existing markets.
- Up-sell existing customers by simply activating additional device capabilities or capacity. This makes it easier to capitalize on incremental revenue opportunities.
- Meet evolving customer needs without requiring them to swap out hardware or otherwise disrupt their operations. This makes for a more positive ongoing customer experience.
These examples highlight why software licensing is such a compelling best practice for manufacturers. The skill with which manufacturers structure the licensing of their embedded software – and the diligence with which they manage their customers’ entitlements – may well turn out to be what separates market leaders from other players.
Leveraging Software in Industrial Automation Device Manufacturing
Today, many intelligent device manufacturers are applying software- based licensing principles to hardware to control and manage a wide range of functions including:
- Building management, as the green building movement drives the development of sophisticated systems to control heating, ventilation, air conditioning (HVAC) and lighting.
- Machine-to-machine (M2M) communications between connected devices are unleashing a wave of new productivity such as improved asset management and new service initiatives.Manufacturers seeking to leverage M2M for their Internet-Connected devices and monetise new capabilities will need to think leverage software enabled devices controlled through flexible software licensing.
- Mobile-device control running on tablets or smart-phones, allowing floor managers to move about the facility while monitoring operations in real-time..
The increase in software licensing in manufacturing automation is being driven by a number of macro-economic factors, including
- Changing economics of intelligent device manufacturing: The underlying hardware and core operating system software in many devices is being commoditised, as manufacturers seek to gain economies of scale by using more standardized components. To reduce costs and increase efficiencies, manufacturers are increasingly buying, versus building, core subsystems and system software. As a result, their role is evolving to more of an integrator, and less of a manufacturer. Solution providers seek better ways to differentiate themselves through embedded software.
- Growing revenue contribution from software: As a corollary to the commoditisation of hardware, many manufacturers are focusing more resources on software development, as this enables new revenue sources and provides a way to deliver a superior,differentiated customer experience. Indeed, for many manufacturers, their staffing growth is being fuelled primarily by new software developer hires.
- Software-enabled supply chain transformation: With the underlying hardware becoming more powerful and at the same time commoditised, manufacturers can now build fewer base configurations and deliver more functions. Product capabilities, capacity, versions and pricepoints can be created and modified based on functions that can be turned on and off by licensing of the embedded software. This enables manufacturers to create different price points for the same piece of hardware – allowing them to gain new entry-level customers, with clear upgrade paths and upsell opportunities. It also streamlines the supply chain and manufacturing processes, as well as lowers inventory carrying costs.
- Customer preferences: In today’s ultra-competitive business environment, customers are demanding more flexible pricing models, easy access to upgrade features, and a superior customer experience. Embedded software licensing capabilities allow industrial automation solution providers to meet all of these customer requirements by enabling important capabilities such as field upgrades and a consistent,streamlined customer experience across products.
Operating More Like Software Companies
As industrial automation solution providers address these trends, they increasingly recognize that they face similar issues as software companies. They must leverage their software through flexible software licensing and entitlement management in order to:
- Reach new markets by creatively packaging and pricing software/hardware combination
- Build revenues by better monetising capability and capacity (kind of repeat of the above)
- Cut manufacturing costs by using software to differentiate capabilities on devices, and thus reduce the number of SKUs
- Accurately track customer entitlements and usage (to track service upgrades, firmware updates etc.)
- Track channel partner activity, and maximise service and maintenance revenues (I would take that out-not relevant to this market)
- Prevent unauthorised use of capabilities without cutting off legitimate customers
- Reduce the operational costs associated with shipping software upgrades and patches (and reduce risk by automating software upgrades) (e.g., Ford example)
- Cut customer support costs by offering customers and channel partners self-service and keeping them current on the latest version (I would kill it-not relevant)
- Make better development and marketing decisions based on device usage data
- You aren’t talking about usage-based licensing which could be relevant to this market.
In order to do this, they must adopt a software licensing and entitlement management system. Whether they develop this in-house or acquire a third party solution, the system should have the following capabilities:
- High configurability: This allows key elements such as security and binding to be configured or replaced as needed,providing additional flexibility to fine-tune the device to meet exact requirements or take advantage of existing device capabilities, while keeping the footprint small.
- Hands-free activation: Hands free that don’t require registration improve the customer experience and increases upgrades/up-selling by enabling easy trials for new capabilities.
- Licensing, entitlement management and delivery from end to end: Implementing an end-to-end solution provides a single view for device manufacturers, their customers and channel partners to view and manage software embedded on devices and enables them to electronically turn on and off functionality.
As competition intensifies in today’s global market, maximizing customer satisfaction, increasing revenues and reducing costs remain top business imperatives. Adopting an embedded software model controlled by flexible licensing and entitlement management has emerged as the path forward empowering building automation solution providers to better compete and win.
Mathieu Baissac is the VP for Product Management at Flexera Software