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IoT device makers stand to lose out on software licensing revenues, warns Gartner

Gartner claims many IoT device manufacturers could lose out on recurring revenues by failing to safeguard their software investments

Device manufacturers that fail to protect the software intellectual property embedded in their offerings stand to lose out as the internet of things (IoT) trend gathers momentum.

According to market watcher Gartner, the IoT trend is unwittingly turning many device makers into software suppliers, and – as such – many are failing to appreciate the additional revenue opportunities the software running inside their hardware can unlock for them.

Therefore, the analyst house is urging the makers of IoT devices not to overlook the benefits that adopting a full-proof licensing and entitlement management (LEM) strategy can provide.

Particularly as its research suggests very few IoT device makers have bundled, or intend to, commercial LEM technology in with their products.

Technologies in the LEM category allow device manufacturers to lock down the software embedded in their devices, and make additional revenue on the back of this by getting users to purchase the rights to use it.

According to Gartner research director Laurie Wurster, companies that don’t go down the LEM route will generate less revenue than IoT device makers that do.

“The IoT is creating a new type of software vendor for whom LEM is vital to protect, differentiate and monetise their offerings,” she said.

“We expect that by 2020 a failure to put in place an LEM system will result in a 20% drop in potential revenue generated from software for device manufacturers connecting to the IoT.”

This is because, Wurster added, suppliers that shun LEM will be missing out on valuable recurring licensing revenues, which have the potential to bring in billions of dollars in additional value.

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“For example, with an estimated 25-billion ‘things’ in the marketplace, if manufacturers are able to collect an average of $5 for software from each of these installed units, that translates to additional revenue estimated at $130bn.”

With so many devices expected to fall into the IoT category, the software inside them is likely to become a key differentiator for their offerings. Therefore, suppliers must take steps to protect their investments, Gartner has cautioned.

"By controlling product functionality and the features and capacities of internet-connected devices via flexible licensing, device manufacturers will be better able to compete in current and new markets. They will also be able to come to market quicker with new products, new feature combinations and product enhancements," Wurster said.

"Moreover, software-controlled configuration gives manufacturers more flexibility to regionalise their offerings and develop niche solutions for specific markets without having to manufacture separate product stock keeping units.”

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Controlling product functionality via flexible licensing and software controlled configuration makes me think of the cellphone market and the providers who modify the OS with their own tweaks to create, for example, and AT&T branded version of the Android OS. While allowing IoT device makers to better monetize their offerings, it will also create a culture of innovation as users work to root or jailbreak their devices to either extend the device’s functionality or make use of latent capabilities.
I agree with mcorum. As a home automation developer, the main bugbear is incompatibility between devices and the protocols they use. Closed devices with their own unique (patentable) protocols mean incomatibility and a race for dominance which will stifle the growth of practical IoT. Large companies will battle it out in a war that will make the VHS vs Betamax conflict look very simplistic, and other smaller players will be forced to fail or wait to see who they have to pay dues to. When we have had open M2M protocols like MQTT for many years already, it's disappointing to see another encouragement to diversify further, and fragment more. In effect, what Gartner is encouraging is the creation of a speculators' market in IoT stocks as investors take bets on the few eventual winners, stifling the growth of something that could be of great benefit in terms efficiency and convenience to the world.