The “Internet of Things” is on the horizon. It is an expression that describes how the Internet will link traditional smart devices, along with a wide range of additional physical assets that allow these endpoints to generate and share data.
Nearly every product will have an Internet Protocol (IP) address and communication capability: not just networking and telecommunications devices, but also industrial equipment such as buildings, medical devices, test and measurement systems, construction equipment, and oil and gasoline machinery, as examples – that will link to other devices and services over the web.
This isn’t so farfetched. In its September 2011 report “The Internet of Things Is Coming”, Gartner recommends that CIOs and IT leaders set aside time as early as “before mid-2012” – in other words, now – to develop a strategy for this scenario.
The trend of pervasive Internet is already gaining hold and is described today using a variety of terms in different industries: Machine-to-Machine (M2M) communications, intelligent device management, telematics, telehealth, and smart infrastructure are some examples. Gartner forecasts that there will be more than 30 billion permanently connected devices and more than 200 billion intermittently connected devices by 2020.
Opportunity beckons intelligent device makers. They must re-design products from fixed-function, disconnected devices to flexible, seamlessly connected systems. This can be done by understanding and adopting a software-centric approach to manufacturing and selling hardware.
In this new model, embedded software controls a devices’ functionality or configuration. For example, a manufacturer might traditionally create a line of chips with two cores and a line of chips with four cores, costing X and Y respectively to manufacture.
Using embedded software – typically along with an embedded licensing and entitlement management solution – the manufacturer controls the proliferation of configurations by producing a single physical unit at a lower cost of Z, and the embedded software configuration controls the actual number of cores enabled.
At time of manufacture, some chips are loaded with a configuration for two cores and some are loaded with a configuration for four cores. The different chip configurations continue to be sold at different prices based on the varied configurations, but the manufacturing process and inventory is simplified and reduced. This lowers the chip’s manufacturing costs by reducing the number of stock keeping units (SKUs), yet at the same time allows for the variability of chip models to satisfy diverse market needs.
Naturally, the design process for a device or component changes when using embedded software. Instead of manufacturing the full range of discrete device configurations, the embedded software is instrumented to correspond to the desired configurations. In the simplest model, at device startup time, the code reads the available configuration or licence rights corresponding to the number of cores. Based on the results, the chip determines whether to behave as the two-core model or the four-core model.
Determining what the different configurations describe is an important part of the design process, which differs based on the type of device. In some cases, configurations are a simple on-off switch for a discrete part of a component; in other, configurations describe a “value” in a range or collection of values (for example, device capacity – the number of ports enabled for a router or the resolution enabled by a camera ). The two-core or four-core chip scenario described here is a borderline case that could be implemented using either interpretation.
In addition, the use of embedded software enables new value opportunities such as the ability to design a device that supports field upgrades. A field upgrade enables a lower-end system user to later upgrade to a higher-end system, without having to return the device to the manufacturer or dealer to be replaced with a new higher-end unit.
This is an important benefit of Internet-connected devices. Instead, the manufacturer designs the embedded licence rights to be updateable, providing a mechanism (such as an application that runs on the host system) that enables the customer to purchase an upgrade code that unlocks the additional tier of functionality for that device. In the previous example, an internet-connected version of the two-core chip configuration could be upgraded to the four-core chip configuration.
This type of embedded licensing model has been successfully used in many devices – mobile phones with unlockable GPS functionality, routers sold in tiers based on number of supported ports, and cameras with different signal-processing algorithms based on available licences.
Creating Internet-connected smart devices offers many benefits, including:
1. Product Life Extension . It extends the life of the manufactured device. Much of the functionality of devices is managed and controlled using embedded software, instead of being hard-coded into the device’s physical components. As a result, product upgrades and enhancements can be delivered using software commands communicated to the device over the internet.
This enables the customer to derive more value from the device over a longer period of time with minimal disruption. It’s good for the manufacturer too because it offers more up-sell opportunities for new functionality at minimal expense and effort. Finally, it’s good for the environment, as less physical machinery needs to be manufactured and disposed.
2. Automated Support. The Internet of Things provides enhanced support experience to customers, at significantly reduced costs to device manufacturers. Manufactured goods have the ability to monitor operations and report back malfunctions and their causes –drastically streamlining the troubleshooting process. Potential problems get flagged by monitoring for trouble signs and patterns, and then resolved by the system by anticipating malfunctions before they actually occur and suggesting preventative remedies. Many of these problems are addressable remotely through software commands, fixes and upgrades, thus eliminating the need to send personnel onsite to fix the problem.
3. Reduced Manufacturing and Distribution Costs . Internet-connected devices controlled by embedded software significantly reduce manufacturing costs. Companies reduce the number of models they must manufacture by controlling features, capacity, configurations and throughput via software and software entitlements – allowing them to build once and “package” functionality in any number of formats. Configuration of the products can be postponed until the exact requirements of the customer are determined. This manufacturing flexibility means that producers, distributors, and resellers require fewer inventories – greatly streamlining the supply chain.
4. New Markets & Revenue Streams. The Internet of Things enables the creation of entirely new revenue streams as well as opportunities to grow the customer base. Using a software licensing model, manufacturers can easily offer product enhancements through software updates, and charge for the enhanced functionality based on a software maintenance and update model. There are opportunities to charge for new levels of software support while simultaneously delivering a better customer experience.
And because embedded software allows for flexible product configurations – manufacturers can quickly, easily and inexpensively package and price their devices to uniquely address new, emerging or niche markets that would previously have been impractical or prohibitive due to costs. The additional data generated by intelligent, connected devices can also be turned into intelligence and used to identify new potential markets and opportunities.
For instance, rapid uptake of a unique product configuration in a particular geographical market might signal a trend that can be marketed more explicitly and then leveraged for other regions. With the flexibility to run additional software on the intelligent device, there is also the option of selling loosely related products and services, developed by the same manufacturer or by partners. In essence, connected devices controlled by embedded software become highly flexible platforms delivering unprecedented value to customers and revenue to manufacturers.
Each of these benefits is a natural result when manufacturers combine the benefits of an embedded software model with the connectivity of the Internet. And they are often realised in the sequence presented here, as manufacturers ascend the maturity model.
And while the first two benefit points are most often associated with the “Internet of Things” or “M2M”, the true magnitude and promise of this technology is realised as companies move up the maturity model shown below to the third and fourth benefit points. As shown in Figure 1 below, this maturity model consists of the following goals: Stage 1 – Product focus; Stage 2 – Product and service focus; Stage 3 – Solution management and Stage 4 – Ecosystem management.
Clickon image to enlarge.
As shown, embedding licensing and entitlement management software is the enabling technology that helps intelligent device manufacturers make their products ready to leverage an all-pervasive Internet environment. Embedded licensing and entitlement software offers capabilities that allow manufacturers to personalise offerings without having to manufacture multiple models.
Simple changes to the embedded software in the device enables manufacturers to customise the product based on customer needs by managing how it behaves – i.e. by activating or deactivating features, setting device capacity and otherwise controlling the behavior of the product. This greatly simplifies product lifecycle management, and facilitates supply chain management.
The usage data provided by the embedded software offers insight into how customers are using hardware, what software they use most often and new services that could potentially be created. Further, product usage information enables manufacturers to make conscious choices pertaining to trade-offs between cost and value of service when packaging products and services for customers and markets.
Already, there are sophisticated embedded licensing and entitlement management solutions available that enable intelligent device manufacturers to tailor their approach to product development and business to meet the demands of a highly competitive and connected marketplace.
In a world where the number of connected devices already outnumber people, anticipating an all-pervasive Internet landscape is reasonable. Intelligent device manufacturers must transition to the concept of the “Internet of Things” by thinking and acting like software companies, not simply product manufacturers. Key to their success will be their ability to understand and adopt a software-centric approach to manufacturing and selling hardware.
There are some key points intelligent device manufacturers should consider when making the leap to a software-centric model:
1. Securing business buy-in for the transformation – this is broader than just engineering or product management, and requires coordination across business groups.
2. Understanding the traditional software licensing methodology and its proven approaches that can be leveraged in the intelligent device context.
3. Determining the appropriate software licence compliance policies and enforcement mechanisms among a wide spectrum of available options, and anticipating the flexibility needed to make changes later as business conditions change
4 . Understanding the difference between delivering hardware and digital goods – the distribution mechanisms should be coordinated, but can be unique
5. Understanding the software value lifecycle – as opposed to a one-off hardware transaction, it is an ongoing process and is increasingly subscription based.
6. Creating business processes to support the value cycle of the software.
7. Implementing a customer self-service portal – it can reduce operational costs and increase customer acceptance of software.
8. Defining and executing a product management and go-to-market strategy.
9. Implementing sales training and compensation policies – selling is not about selling numbers of hardware pieces, but about selling “value”.
10. Continuously fine-tuning strategy for product development, delivery and execution to optimise revenue and margins.
By leveraging embedded software for licensing and entitlement management, manufacturers create connected devices that unlock new revenue streams, protect intellectual property, and implement configure-to-order manufacturing – dramatically reducing inventory while facilitating greater responsiveness to changing market conditions.
As manufacturers make the transition to embedded software and connected devices – they must also think through the layers of management and support associated with this new model, especially when selling to other businesses. For instance, the IT Operations team in a purchasing organisation may want control of some or all of the processes. This implies infrastructure changes, including the need to link the connected system to an IT operations management center, which can then be used to gather, filter, analyse, and respond to the data from the new system.
In whatever way individual device makers implement these strategies – there can be no doubt that the “Internet of Things” and “M2M” connectivity enabled by embedded software, licensing and entitlements represents a permanent transformation that impacts on every vertical industry.
As Gartner suggests, smart companies already understand the size of the opportunity and are planning their strategy for this transformation – and some are already there.
For those that have not started down this path – it requires top-down desire, imagination and creativity, as well as input from experts and thought leaders from all parts of the business to enable a hardware company to think and act like a software company.
Robert Dickau is a principal engineer at Flexera Software, currently focused on implementing the FlexNet Producer Suite for Intelligent-Device Manufacturers. He has a master’s degree in mathematics from University of Illinois.