IoT platform licensing models

Behind the benefits of connectivity and big data that the IoT promises there remains a question: Who will pay for it? And how?

This article will take a look at the available models and give a few tips on choosing what’s best for you.

Making money from your devices

Before IoT appeared device makers got their money from selling the hardware; there was no recurring income unless and until the user added more devices or updated/upgraded the existing equipment. But as far back as  2015 IDC predicted a steady shift from perpetual licensing to cloud delivery and subscription-based pricing models. This is not remotely from a new idea, of course; it was used in years past by King Gillette — “Give ‘em the razor; sell ‘em the blades” — and Eastman Kodak, and is used today by computer printer manufacturers.

How much money is involved? That same year (2015)  Gartner noted warned that device makers who did not pay attention to licensing and entitlement management (LEM) would be losing out on as much as 20 percent of potential income from those devices. Such LEM systems would “control access to the Internet-connected device, its functions, and its features. LEM also enables flexible pricing and packaging, allowing manufacturers to bundle product features, capabilities and capacities, ensure payment, provide verified upgrade paths and create new revenue streams.”

Omkar Munipalle adds that the way for a vendor to monetize the IoT and create cash flow is to expand its product from merely a device or a software package by adding, perhaps, an application or service layer. Then, as a seller of IoT solutions, it is vital to “understand how your software licensing solution needs to interact with the customer.” Also,  that licensing strategy should be feature-based, with more features available at incremental price points. This, he says, not only generates more revenue for the vendor but also saves money for the customer — and at the same time builds loyalty. “Feature-based licensing and entitlement management, he adds, “enables device manufacturers to ship the same product with different functionality to different customers at varying price points, and the products can be upgraded remotely. Also, field upgradeability replaces the one-and-done product mentality of the past and reduces the impact of obsolescence. Additionally, with flexible software-based licensing solutions, customers can use just the features they want, turn them on and off themselves and pay only for what they use.”

Paying for an IoT platform

A company installing an IoT platform is confronted with the question of how much it costs, and what’s the best way to pay it. That depends on the choice of serverless or open-source platform.

If you go serverless — use a platform from a commercial provider —  that company can take care of everything for you for a monthly fee. As far as functionality is concerned, you won’t be able to change much. With an open-source platform you can customize to your heart’s content, but whatever happens — including maintenance — is your responsibility. You’ll also probably pay a monthly subscription fee for support and access to continuous updates and releases. Aside from the amount of work involved, which is the most cost-effective?

An open-source system has a fixed annual cost, as mentioned above. An excellent article by Igor Ilunin explains that a serverless system’s cost starts quite low but increases with usage. Ilunin analyzes costs for hypothetical serverless and open-source systems and concludes that for low data rates, serverless is undeniably the least expensive. However, once you reach about 15 million messages per day, the monthly costs are equal. Additionally, as data rates increase beyond that, the serverless system rapidly becomes expensive, costing twice as much as open-source at 35 million messages per day and climbing linearly after that.

Summary

For a device vendor, the way forward is to add software-based features and, if possible, get the customer to subscribe to them. If you’re putting in a system, the choice pretty much comes to how much data you’ll be pushing through it. For small amounts of data, go serverless and pay the per-minute or per GB fee. For larger installations, the flat rate is a better choice. Just be ready to do a lot of your own support.