4 Trends Driving Software Monetization

April 21, 2017
Companies are rushing to adopt IIoT- and cloud-based solutions, but if they can’t turn them into assets, they’re throwing money away.

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Companies are investing in software largely for financial and security benefits, whether they are turning “dumb” devices into smart ones or shifting business models. Simultaneously, consumers want more options and control of their devices and data, especially as the Internet of Things (IoT) continues to develop. These converging mindsets are helping propel a growth in software development, with a particularly strong emphasis on monetization.

The U.S. Bureau of Labor and Statistics anticipates a 17% increase in employment between 2014 and 2024 for software developers. This demand indicates the transition to a software society will be gradual; nevertheless, it is accelerating thanks to software’s ability to monetize, customize, and create a responsive digital environment. As companies evaluate their software development strategies, it’s clear that monetizing their investments has emerged as a prime focus. The following four trends will continue to further drive the software monetization market:

Image courtesy of Thinkstock

New Business Models and Revenue Streams

The transition to more software-based business models will continue to rise in 2017 and beyond. According to a recent poll of our customers, the need to adopt a flexible business model and simplify product development is one of the main reasons software—and more precisely, monetization software—is a priority. With this in mind, it is crucial that hardware companies expand their current market base, adapt to customer demands, and (most importantly) utilize data collected from devices to develop new revenue streams.

When it comes to a shift in business models, subscriptions and usage are key. Offering customers a “pay-as-you-grow” model or subscription options not only opens the door to potential new customers, but also helps in product development. Designing one product and adding software monetization means hardware makers can upgrade device functionality remotely to allow for different features, functions, and price points. This is all made possible by licensing and usage-based technology enabled by the software.

Capitalizing on the IoT

Monetizing the IoT is one of the biggest challenges and drivers of software monetization. The key to realizing the value of the IoT is not just inventing or selling a new connected gadget. Rather, focus should be placed on the software and services a connected device enables, in addition to monetizing and capturing that additional value.

That said, we are seeing, and will increasingly see, more device makers integrating software technology to monetize their products and the data they generate. Adding a monetization strategy to the IoT business model means entry into new business markets. It also marks an important shift from hardware-based revenue to software value-added services like data analytics, supporting the ability to offer new licensing and pricing models. According to our recent survey, 64% of respondents are continuing to explore how to monetize the IoT over the next one to five years, a statistic that further illustrates its importance.

Image courtesy of Thinkstock

Increasing Adoption of Cloud-Based Technology

The cloud is playing a key role in the ability to provide usage based and pay-as-you-grow business models. Many enterprises are now developing products which are cloud-friendly to bring versatility to their business models, enable real-time data collection, and monitor the usage of their devices. More than half of our customers report that they leverage the cloud with at least a quarter of their products.

Protecting Investments

Another software driven trend is intellectual property (IP) protection and licensing compliance. Safeguarding the company’s investment in the device and software is just as important as the revenue. While cloud and IoT bring massive benefits, they also bring new challenges for companies.

For instance, misused or manipulated devices often lead to safety concerns and/or negative brand consequences. In the case of product “copies,” the imitation will likely not work as well as the original device, and eventually, the brand suffers and the bottom line is impacted. Stolen or gray market copies directly impact the bottom line because purchase revenue is going to the “pirate/thief” and not the company that invested in the IP.  

Pervasive connectivity is taking the possibilities of software and its monetization ability to new levels. These four trends will be major drivers for software to protect and monetize anything from devices to IoT applications. Still, just like Rome wasn’t built in a day, these trends and the part software plays will develop and morph over the next few years.

Still, make no mistake: It’s a software world, with enterprises and consumers wanting to take advantage of developments to consume data and devices in a whole new way. Similar to how the automobile quickened the pace of societal evolution, the road to monetization—if navigated successfully—will rapidly take organizations further in a software driven world offering dramatic potential and promise.

Todd Steel is product manager of Software Monetization at Gemalto.

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