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IoT profits shifting from hardware to services: Flexera survey

The Internet of Things (IoT) profit margin is predicted to shift from hardware devices to services in less than two years according to a recent survey from software asset management vendor, Flexera Software.

Steve Beards, VP APAC, Flexera Software said, “In the survey, 38% of respondents derive half or more of their revenues from hardware today. That proportion will decrease to 33% in the next two years.

“While 32% of respondents derive half or more of their revenues from services today. That figure will increase to 38% in the next two years.”

He believes that services will become a critical element to selling solutions.

“For instance, medical device makers will be able to use big-data to provide better diagnostics based on segmenting national, socio-economic or ethnic characteristics of an overall population pool. Or auto manufacturers will be able to equip their cars with every feature and upgrade available – and simply turn on or off the feature via software based on what the customer has purchased.”

The survey also found that device makers are aggressively adopting new business models associated with monetising the software that’s powering their internet-connected devices. More than half (60%) currently create new offerings by bundling device, services and/or consulting, and 17% more plan on doing so within the next two years.

According to Beards, device makers are also using software in new and creative ways–to electronically turn features on and off based on purchases (i.e. for $5 a customer can purchase the music player, for $10 the customer can purchase the music player and Internet radio capabilities) and to leverage data from sensors embedded in devices to uncover new services and sales opportunities (i.e. device repair services).

He said this trend is set to increase by 28% in the next two years. "The IoT market also looks set to significantly heat up with 21% of respondents that don’t offer intelligent devices today, and 34% that don’t offer IoT devices, all saying they plan on doing so within the next 12-24 months."

Intelligent devices are defined as physical devices that include embedded software (or external software applications) that control product features, function and/or capacity.

Internet of things devices are Internet-enabled devices that help accomplish specific user scenarios by bringing their data and functionality together with other devices.

Beards said, “To garner these profits manufacturers will have to start thinking and acting more like software companies, leveraging the software applications they build into their products as a driver to reduce manufacturing costs, increase product innovation, and capture new revenue streams.

“Taking a software-centric approach means they will start re-designing products from fixed-function, disconnected devices to flexible, seamlessly connected systems.”

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