Embedded system licensing: Why or why not?

May 14, 2019

tregas-May 14, 2019

Embedded system licensing is the combination of hardware and software into a single offering, converting traditional hardware vendors into innovative software vendors. This enables manufacturers of hardware to position products as "all-in-one" through software that enhances a machine's features while giving consumers more flexibility.

Manufacturers can offer a base product and grant customers access to desired/purchased features through simple licensing updates. With fewer features included in the base product, the entry-level cost to consumers is reduced, often increasing demand. This also gives customers the ability to access more features as their needs evolve, generating more lucrative long-term relationships.


Let's look at some of the benefits to embedded system licensing:

Segmentation – Successful system manufacturers have employed segmentation strategies to focus on specific market segments. By reducing the number of product features into smaller product sets, you’re able to offer a more cost-effective solution leading to greater market penetration.

Revenue – Here's an obvious one: Grow your bottom line by increasing market penetration with more cost-effective solutions.

Savings – Reduce the number of physical embedded systems you manufacture and increase profits by offering different “products” on the same hardware controlled by embedded system licensing. This is an easy way for small manufacturers to grow their product offering without having to increase capacity.

Security – Embedded licensing helps protects against intellectual property theft, unlicensed use, reverse engineering, tampering, and unauthorized distribution– preventing grey market manufacturing where your software is used to run a counterfeit piece of hardware.

Customization – Offering customized purchasing options allows customers to purchase only what they need on a per-feature, per-use, or by time frame of use, ultimately leading to wider product appeal.

Manageability – Embedded licensing reduces the human capital required to track and monitor usage and licensing. Features can automatically be added or turned off as purchases are made or licenses expire.

Satisfaction – Customers save by purchasing only what they need and nothing more, increasing their satisfaction

Support – With specific product groups you are able to create tailored support teams to each product. Focused support teams tend to improve support times and resolve customer issues more quickly.

Versatility – Another advantage to embedded licensing is allowing manufacturers to quickly adapt to changes in the competitive landscape, by changing feature sets or supporting new operating systems.

Why not?

Now that you’ve read some reasons for why you would include Embedded System Licensing, let's explore some situations where you would not need a licensing system.

Price – If your embedded system is inexpensive to manufacture and has a relatively low selling price, it may not make sense to spend resources on a licensing system. The ultimate goal with licensing systems is not to create an impenetrable fortress; it is to make it more expensive to steal than it would be to purchase.

Honor System – There is still a place for the old fashioned honor system. If you maintain close relationships, and completely trust your customers, there may not be a need for a licensing system.

Development Restrictions – Some embedded systems are so niche that there is not a suitable off-the shelf-licensing system. While most licensing companies will work to support your system, they may require payment making the cost exceed the benefit of enforced licensing.


If the “why’s” outweigh the “why-not’s” for your situation, the next question is how to how to get started. There are three key elements to a successful embedded system licensing strategy:

  1. PRICING: It starts with the manufacturing cost of the hardware then the additional cost of each feature or feature set. Embedded system licensing means you are not forced into pricing for your whole software package; you can create a pricing strategy for individual features. This allows for greater pricing flexibility ultimately increasing price competitiveness.

  2. PACKAGING/DELIVERY: You will need to consider how each unit will be sold and delivered to customers. How will each feature be bought? How will they be delivered (e.g., email, website, cloud, or other). All this must be decided before going to market.

  3. PRODUCT MANAGEMENT: One aspect is to identify all uses for your product by monitoring usage and understanding the data gathered through the monitoring. Using the data, you can identify opportunities to expand into new markets and uncover new opportunities for products or features. Using software updates, you can create new offerings without having to create new physical devices. It’s all about the ability to adapt to new customer demands and wants as well as a changing competitive landscape.

Once you have considered the three elements to licensing, you need to find a strategy to enforce them, because without one all your planning and strategizing will be for naught. The three main options to enforce your licensing are hardware, software, or the cloud. Each option requires careful planning and execution before implementation. Each solution will have a unique way to implement but the most common are through software wrappers and/or code changes.

There are specific advantages and disadvantages to each enforcement method:

Cloud– Cloud licensing, as the name implies, typically uses a centralized server on the cloud to create, track, and enforce licensing created by the vendor. Since the license is on the cloud, each device must be connected to the Internet in order to check and validate parameters. This can be a problem for some systems because they are in remote or secure locations with restricted or no Internet connectivity. Since the devices are always connected to the Internet, cloud licensing systems usually come with features to allow real time visibility and data collection on the usage.

Software– Software licensing uses licensing files and applications placed directly on the embedded system to enforce the vendors scheme. The software for licensing can be shipped already loaded on the system or added after installation. Because all licensing information is stored within the files or licensing application, Internet connectivity is not required. Unlike the cloud options, usage and data statistics will not be real time. Updating software licenses typically requires new license files, which can be transmitted through email, file sharing servers, or other methods.

Hardware– Hardware licensing uses external hardware devices, like dongles or security chips, to implement and control licensing. Similarly to software, the hardware can be shipped already embedded in the system or separately. Hardware security dongles can be used to operate the software as a key. With all licensing parameters contained in the external hardware, Internet connectivity is not required. Most external hardware systems can be updated remotely, but usually require the end user to take some action during the update process. The physical devices adds an additional layer of security and portability. Should the system go down, transferring the license can be as easy as plugging the USB dongle into the new system.

Figure 1. Example of a small form factor security dongle plugged into USB port. (Source: KEYLOK)

The days of selling a device for a large upfront fee with unlimited access and features are long gone. Now the hardware is sold and the embedded system to run the device is licensed, generating recurring revenue. It is imperative to plan, implement, and execute a well thought out licensing strategy as to not leave potential revenue streams on the table and to stay competitive in the rapidly changing embedded system landscape.

Tim Regas is a product expert and general manager at KEYLOK. With over 35 years of experience, KEYLOK helps software developers license and secure software using hardware security dongles.

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