So, how do you make money in IoT?

A recent InfoWorld article proclaims "The Internet of Things is not paying the rent." In it, Adobe's VP of Mobile Matt Asay cites data from VisionMobile and McKinsey & Co. to point out that "less than 10 percent of IoT developers are making enough to support a reasonably sized team," and that "developers need to get real about what they're selling and to whom," which "probably involves a 'dull' enterprise-facing business." This begs the question, how do you make money in the IoT?

In a column last year on hardware commoditization I discussed the idea of "IoT-as-a-Service," wherein Internet of Things companies could potentially transition away from one-off IoT platform sales and into business models that allow for accretive growth by means of data and feature . In this cloud-based approach, companies could establish service plans or provide additional features to end users similar to how your cell phone or cable company operate, generating recurring streams of income that continue to flow after the initial platform sale (or perhaps, giveaway) to help offset ongoing maintenance, service, and support costs. Furthermore, this paradigm permits a new way of thinking about the product development lifecycle, as rather than offering a portfolio of hardware platforms each with different features engineered into individual SKUs, can be utilized to enhance or reduce functionality on a given platform (or set of platforms) by turning capabilities on or off.

However, one setback of this model is that it relies on services and licensing fees as the primary source of revenue generation. With the Internet breeding a generation of developers and consumers that expect things for free or nearly free, how do you ensure ROI? In addition, while the smartphone, cable, and utilities markets have matured to the point where providers can afford front-end revenue hits on hardware in lieu of lucrative service payouts over time, in the fledgling IoT it's hard to rely on commitments to long- or even short-term commitments at the expense of a large upfront payday. Especially if you're a small IoT startup, asking a group of angel investors to risk bankrolling today's IoT devices in exchange for the uncertain promise of tomorrow's data- and software-driven dollars seems like a prayer.

This leaves IoT developers at a crossroads, as although the increasing amount of value and a more economic approach to electronic system design is now rooted in software, capitalizing on that value has largely been restricted to traditional, hardware-centric ROI models (Figure 1).

 



 

 

Figure 1: Traditional product-centric business models limit the earning capacity of Internet of Things (IoT) solutions as they are typically earmarked by a single income phase followed by extended periods of service and maintenance costs.

 

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Management and control are key to monetizing IoT

By its very nature, the IoT is based on the real-time or near-real-time delivery of software and services, so getting capabilities to the end user is not the issue. Rather, the problem is one of control and management – control that ensures IP can't be stolen or reverse engineered so potential users are able to take advantage of features for free, and management that facilitates the distribution of software and services in such a manner that data or feature utilization can be monitored for appropriate billing (Figure 2).

 



 

 

Figure 2: New approaches to feature monetization should provide mechanisms for protecting IP from piracy as well as entitlement management that opens new revenue streams for IoT developers.

 

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In a meeting with Aurelius Wosylus, Director of Business Development at Gemalto (www.gemalto.com) earlier this summer I was introduced to the company's Sentinel Licensing Development Kit (LDK) that addresses these challenges in multiple ways. From a and IP protection perspective, the Sentinel LDK represents an evolution of Gemalto's licensing protection products into a single "Cross-Locking" technology suite that allows developers to implement a combination of hardware and/or software-based . In software, keys are exchanged using the Sentinel Envelope, a wrapper that uses code encryption at system boot up and system-level anti-debugging, among additional features, to control access to executables, libraries (DLLs), and other software data files so they can only be decrypted by authorized parties (Figure 3). Hardware-based encryption can also be utilized through technologies such as AppOnChip, which locks applications to individual devices so that specific code blocks can be authenticated at the hardware level using tokens.

 

Figure 3: Gemalto's Sentinel Envelope, part of the Sentinel LDK, provides an encryption wrapper around products to prevent tampering and theft of valuable IP.

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Once software IP is secure, developers are able deploy software features to target devices with confidence, enabled by the Entitlement Management System (EMS) built into the Sentinel LDK. A web-based solution built on an SAP backend, the EMS allows software updates to be remotely pushed to target users and devices while also retrieving usage metrics that make flexible licensing models possible, including pay-per-use, pre-pay, and post pay. In addition, usage data can also provide insight into the behavior users exhibit when interacting with various products, which in turn can be leveraged for future R&D, marketing, and so on. Figure 4 shows an example  architecture using the Sentinel LDK and ' LabVIEW application software.

Figure 4: The EMS features of Gemalto's Sentinel LDK permit flexible remote software licensing through reporting that can be used to support pre-pay, post-pay, and pay-per-use models.

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With control and management technologies serving as the foundation, developers can take a new approach to product definition that reduces hardware dependency and enables innovative software packaging and licensing models, many of which can provide recurring revenue streams.

A pragmatic approach to the bottom line

In my travels around the embedded industry the general consensus is that while consumer IoT is currently driving about 80 percent of IoT's hype, the "enterprise/industrial IoT" will amount to 80 percent of its actual value. However, nebulous projections like this don't answer the core question of how IoT companies will survive, whatever the flavor. Software monetization strategies are a big step towards getting black figures on the bottom line sooner rather than later.

This article was published on October 1st, 2015.

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