IoT in 2018: New software business models create growth

For Internet of Things (IoT) companies, technology changes at a fast and furious pace will continue in 2018, making it a challenging time and an exciting time.  The challenge – keeping up with the lightning speed of changes.  The excitement – how technology can help IoT companies try new monetisation models and know more about what customers need and value. 

The Big Monetisation Shift from Protection to Growth 

In fact, new technology has completely changed how people think about software monetisation.  In the past, most discussion about monetisation focused on how to stop revenue leakage and protect intellectual property.  Today’s discussion is in a completely different vein.  It’s all about new, more customer-centric business models and business growth coming from recurring revenue streams.  To this point, aligning price with customer value and monetising more effectively will be a key driver in the industry in 2018. 

In a report released earlier this year, Disruption in Software Business Models Creates New Opportunities for Monetisation, Gartner analysts commented that, “Technology strategic planners will find next-generation software monetisation is not about protection, limited to IP licensing, but about growth from enabling new models with repeatable revenue streams.” 

2018: A Fresh Approach to Client Care and Monetisation 

This big shift from models that protect, to models focused on growth, will be a key theme in 2018 and lead to a completely fresh approach to taking care of clients and finding new revenue.  To prepare, you need to explore new perspectives about revenue models, customer satisfaction and data on whether your clients find value in your software.  The new world of software monetisation in 2018 will include: 

1. Software buyers will demand increased transparency 

No one wants to pay for shelfware.  No one ever wanted to.  But in the past software buyers were often left in the dark about what they used.  They figured it out themselves.  They leveraged Software Asset Management (SAM) tools, and they will continue to do so.  But they’re also looking towards their suppliers and asking for more help, transparency and ease of use.  Suppliers should show what buyers are allowed to use and what they’re actually using.  This builds trust and strengthens the customer relationship.  Suppliers should embrace this data as well, and grow customers that aren’t yet using what they paid for.

2. IoT companies need deeper insight for customer growth 

Customers today have higher expectations that IoT companies will understand their needs.  That means the guessing game about how customers use software and services needs to go away.  The good news--the latest technology provides instant information about customer health, consumption and renewal data.  Which puts a completely new level of strategic revenue management in play.  Companies can identify upsell opportunities and uncover when subscription renewals are at risk. 

3. Managing SaaS as part of hybrid models will be key for growth 

As more software suppliers move to SaaS, they’ll bring new offerings to market.  The reality is that on-premises applications won't go away immediately and hybrid models will exist for a long time.  To drive growth, suppliers need to create an environment that easily manages hybrid deployment and monetisation models.  That will result in true customer insights, offering data around software adoption across a multi-product portfolio.  Companies who prepare an infrastructure that smoothly manages all scenarios will be ahead of the game and ensure that SaaS revenue continues to increase. 

4. Let the customer experience rule 

Don’t let the deployment model drive your customer's experience.  Make sure that customers are provided with self-service, ease of use and a seamless software experience for all of your products.  Even if you’re using different deployment models, your software products should be managed centrally and connect to the same back office, rather than being operated in silos. 

5. Opex will rise with the subscription economy 

The move to opex models is imminent.  ISVs and device manufacturers alike are moving to recurring revenue models.  Subscription models are widely adopted already.  Suppliers should proactively increase the number of subscribers and automate subscription and renewal management processes.  Those that manage the customer journey continuously and start thinking about the renewal when the subscription period starts will be ahead of the game and benefit from high renewal rates, customer satisfaction and business growth. 

6. Increased demand for individualised products and monetisation strategies  

There’s no one-size-fits-all – for products and for monetisation.  Software buyers expect individualised products and few are willing to pay for a feature set that’s not being used.  Modular products and features that can be switched on and off meet these expectations.  The same is true for monetisation and pricing.  In the past you just defined the one model that worked best for your product and customer base.  Today, monetisation is more agile.  According to Gartner, 80 percent of ISVs will use multiple licensing models by 2019.  And many do so already.  A well-known example are SaaS apps priced per user, with additional cost for online data storage.  More of these hybrid models are on the rise, and software suppliers should get their back office ready for it today. 

Preparing for the 2018 Shift 

To get ready, it’s time to ask these key questions: 

  • Are your pricing and packaging structures aligned with customer needs and value delivered? 
  • What processes and tools can you put in place to become more transparent with clients? 
  • Do you have data that tells you what customers value in your software at a deep level? 
  • Have you created a great customer experience whatever the deployment or monetisation model? 
  • Are you thinking about the customer renewal from day one or waiting until it’s renewal time? 
  • What products in your portfolio offer the opportunity for a more individualized approach? 

While these questions and trends create a “big gulp,” it can also create a big “wow” for 2018 and beyond.  The “wow” includes customers that feel like you understand their needs, provide the information they want and support a more personal experience.  Then there’s an equally big “bang” for your business.  You can transform into an organisation that is nimble with change, responsive to new needs and action-oriented in creating new programs.  In 2018, new technology and approaches to software monetisation will come together to make this a reality, helping you find new and repeatable revenue through new monetisation models.      

Eric Free, Senior Vice President of Strategic Growth at Flexera 

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