Software Monetization Featured Article

Transformation into a Software Company is Challenging, But Crucial

April 06, 2016

There is no longer any doubt that the 2011 Wall Street Journal opinion piece by Internet pioneer Marc Andreesen, Why Software Is Eating The World, was prophetic.  The reasons have become self-evident.  The world is becoming more globally connected and truly software-centric. Regardless of an organization’s size, location or vertical market, software is at the heart of “E”verything we do. Indeed, the software content of the products, and now services, offered by what we used to consider “hardware” vendors is now where the majority of their value-added is generated with the percentage constantly growing.  Hence, the optimal monetization of that software through licensing and entitlement management has become paramount.

 The well-documented facts are that market-leading hardware manufacturers who have transformed into software businesses are out-performing their competitors. In short, thanks to the moves by leading-edge companies, initiated by the rise of the cloud and Software as a Service, we are in the midst of a profound paradigm shift as companies look to capitalize on the move to subscription and usage-based billing.  Business models are changing and touching all aspects of the way in which vendors package and price their solutions and customers consume software-based services. 

The impacts of this paradigm shift are outlined in a recent study by the researchers at Frost & Sullivan (News - Alert) with the intriguing title, Get Connected to Profit: Embracing Software Propels Growth in IoT Era:
Device Vendors Must Transform into Software Companies – or Become Obsolete

As the study says:

“…for all vendors in embedded and hardware markets, is that a change in mindset is crucial. If traditional manufacturers such as industrial automation vendors and healthcare devices vendors do not transform into software companies with expedience, they run significant risks of falling profits, eroding market share and increasing irrelevance…. The truth is, however, that we are squarely in the midst of a revolution. As such, transformation is inevitable and the time for an incrementally evolutionary approach has passed. Moreover, there are clear and compelling business benefits to be gained from aggressive investment into and effort toward that transition.”

Unlike most such reports, as can be seen in the above citation, this one is as much a call to action as it is a prediction.  Its message makes it a “must read.”

The simple graphic below tells the story well.  

Source (News - Alert)Frost & Sullivan report, Get Connected to Profit: Embracing Software Propels Growth in IoT Era: Device Vendors Must Transform into Software Companies – or Become Obsolete

The report details each of these benefits with multiple proof points that readers will find compelling. Indeed, they provide ample validation for use with management that in what I have called “The Age of Acceleration”—where the only constants are change and the speed at which it is increasing—failure to make change your friend by leveraging the paradigm shift to software monetization could be fatal.

The F&S researchers sum it up in non-equivocal terms:  “There is a seismic shift underway in how customers are choosing, using and paying for their devices and software, with a corresponding revolution in device design and monetization. This is driven by the paradigm of the Internet of Things; the power of analytics to leverage Big Data and decimate costs or multiply profits; and the push toward instant-on purchase and provisioning even in enterprise scenarios….To capitalize on this revolution, hardware vendors must embrace a software mindset and transform their business and products accordingly.”

As noted, the proof is already in the use cases. This is an instance where forewarned really is being forearmed.

Edited by Stefania Viscusi