A recent Gartner study, Market Trends: Move Beyond Homegrown Licensing and Entitlement as the IoT Creates New Revenue for Software reveals that “By 2020, a failure to put in place a Licensing and Entitlement Management [Software Monetisation] system will result in a 20 per cent drop in potential revenue generated from software for device manufacturers connecting to the IoT.”
Gartner further indicates that many intelligent device manufacturers are not leveraging a commercial-grade Software Monetisation solution. Instead, they’re building the functionality themselves in a “homegrown” approach, which encapsulates developing software internally as well as customising existing Enterprise Resource Planning (ERP) or Customer Relationship Management (CRM) systems.
Below are some of the teams typically advocating for a homegrown approach to Software Monetisation:
- Software Engineering: Since they built the embedded software they figure that things like software licensing are marginal. Because they’re in the code anyway, they think it makes sense to just build-in the licensing functionality themselves.
- Information Technology: They want to bundle licensing and entitlement management functionality into ERP/CRM systems to (a) leverage existing systems as much as possible and (b) stretch the expenditure into these core applications.
- Hardware Engineering: Teams are already using an ERP system to track the hardware assets, so they think they can extend that to the “soft” functionality like managing software entitlements.
These teams are just a few of the stakeholders that will typically advocate for a homegrown approach. Unfortunately there are several pitfalls to the homegrown approach as we’ll review below:
- Application producers fail to take into account the operational aspects of licensing and entitlement management, such as re-hosting the software as a result of a hardware crash. What will it mean to your business and your customers if a hardware crash means that devices no longer function and your customers are denied access to the products that are instrumental to their workflow?
- If licensing code is not future-proofed to take advantage of changing preferences like software licensing models (e.g. prescription, usage-based) producers miss-out on new revenue opportunities since they won’t be able to offer new pricing models or product configurations as quickly as the market opportunities present themselves.
- Producers may be unable to quickly introduce new business models because homegrown systems require engineering resources that are finite and scarce. While you had the engineering group’s time and energy building the first generation of your homegrown system you may now be at the mercy of their project workload as you try to get their time to respond to new opportunities as the IoT continues to proliferate.
- Creating your own homegrown licensing and entitlement management system could negatively impact the customer experience associated with your products if you can’t push software updates to your devices quickly and efficiently. Forcing a customer to stop their workflow to find and download software updates via File Transfer Protocol (FTP) sites or a physical delivery mechanism will leave them frustrated.
- The costs associated with developing and maintaining the various components of Software Monetisation – license key generators, email notification capability, self-service user interfaces for customers, web services for in-product activations, and more - can be prohibitive. Look beyond the “hard” costs to “soft” costs like time spent and the opportunity cost of forgoing resources that could be spent building functionality that can differentiate your products. Instead these resources are unnecessarily diverted on building Software Monetisation functionality.
- If you plan on using your ERP or CRM systems to manage things like entitlements, heavy customisation will likely be required and with that comes high development and consulting costs. These systems typically need high levels of customisation since they’re built to manage hardware assets – and digital assets like software are very different. You’ll have to customise the systems to do things like linking assets to entitlements, tracking devices, storing activations, tracking all license and entitlement lifecycle events, dealing with the huge amounts of usage data (for usage-based licensing) and more.
- Your customers and channel partners tend to carry-over their experiences as consumers with consumer electronics where things like software updates just “happen” and the overall user experience is simple, effective and positive. If you present them with anything less than that – cumbersome systems, lack of license self-service, non-branded customer portals – they won’t view your product(s) in a positive light.
Spending time building Software Monetisation functionality into your intelligent devices means that you’re going to lose-out on opportunities. Why would you build it yourself when an industry-standard commercial platform is available? After all - if you needed a payroll system, would you build it yourself? Or look to a proven solution?
Many intelligent device manufacturers are questioning the wisdom of diverting high-value resources to develop and maintain Software Monetisation functionality.
Producers should look closely at the real costs of building their own systems and then consider the time, cost and efficiency savings they could gain by acquiring a commercially developed Software Monetisation solution.
Mathieu Baissac, VP of product management at Flexera Software