Embedded System Licensing: What, Why, and How
March 07, 2019
With embedded system licensing, manufacturers can offer a base product and provide customers with access to desired features through upgrades.
Embedded system licensing is the commingling of hardware and software in a single offering. A great way to convert hardware vendors into software vendors, it enables manufacturers to position products as "all-in-one" via software that enhances a machine's capabilities while giving consumers more “bang for the buck.”
With embedded system licensing, manufacturers can offer a base product and provide customers with access to desired features through upgrades. By reducing the entry-level product cost, manufacturers often increase demand – and give customers an opportunity to access more features as they grow or as needs evolve. This tends to generate more lucrative long-term relationships.
Let's look at the impressive set of benefits of embedded system licensing:
Ø Segmentation – Successful marketers have long employed segmentation strategies to appeal in laser-like ways to specific market segments. By unbundling product features into a set of products, you’re able to potentially achieve wider market penetration at a cost-effective rate.
Ø Revenue – Here's an obvious one: By cost-effectively achieving wider market penetration, you're able to grow revenue – and your bottom line.
Ø Savings – With embedded licensing, you have the option of creating fewer actual hardware "products" while raising profits. Your offering becomes relevant to a greater number of target groups. You gain added differentiation. Unbundling features is a way to make a small manufacturer look big.
Ø Security – Embedded licensing protects against IP theft, tampering, reverse engineering, unauthorized use, and unauthorized distribution – including the grey market. It deters businesses from building hardware that illegally runs your software.
Ø Customization – By enabling customers to only buy what they need and pay on a per-feature or per-use basis – or by timeframe of use – your product appeals to more potential customers.
Ø Manageability – Embedded licensing means eliminating human capital needed to monitor and track use. Features automatically shut off as uses and times expire.
Ø Satisfaction – When customers save by getting only the features they need and nothing more, customer satisfaction rises – along with profits.
Ø Support – Customer support tends to improve when you’re able to break down support teams into specialized groups (e.g., by feature or application). You diagnose and resolve customer issues more easily.
Ø Versatility – Another major advantage of embedded licensing is the ability of manufacturers to more easily offer products spanning different operating systems and environments. As a result, you’re able to capture more customers.
These three elements are key to a successful embedded system licensing strategy:
1. PRICING: It begins with the actual cost of hardware plus the cost of each feature or application. Embedded licensing means not having to price in the full cost of software; you can build a pricing strategy using the cost of hardware plus each feature. This often enables greater price competitiveness.
2. PACKAGING/DELIVERY: This requires you to examine how each unit will be sold and delivered to customers and how additional features will be bought (e.g., cloud, email, other). All this must be considered.
3. PRODUCT MANAGEMENT: This includes identification of all uses of your product (with monitoring of usage); understanding data trends to expand into new markets; and discovering opportunities to create new products without creating a new physical device (e.g., offering new software features). It's about having the agility to quickly adapt to new customer wants and needs, as well as to changing demographics.
Once you have thought about the three elements to successful embedded system licensing, you can start to explore the options to enforce these, because without an enforcement to your strategy you might as well not have one. There are three main ways to enforce your strategy: hardware, software, and cloud. All options require you to plan your strategy beforehand how you want to license, what your strategy is, and if you plan to make changes in the future. Each solution’s vendor will have a different way to implement with your system, but typically they use a software wrapper, or code changes.
There are distinct advantages and disadvantages to each method of enforcement.
Ø Cloud– Cloud licensing uses a centralized licensing server, usually on the cloud, to track and maintain the licensing parameters setup by the vendor. Because the license is stored on the cloud, the device must also be connected to the internet to retrieve the information, which can be difficult for some machines in remote locations or without access to the internet. However, always being connected to the internet allows for much greater visibility to the developer. Many solutions that utilize the cloud allow for usage tracking as well as other streams of data from the machine in real time.
Ø Software– Software licensing utilizes secure licensing files placed on the system to carry out the wishes of the vendor. The license file can be shipped with the system or added at a later date. Since the license does not require access to the internet, you can use this system for more remote locations or places without connectivity to the internet. There won’t be as much, if any at all, visibility into usage or other data metrics. Updating software licenses usually requires the transmission of new licensing files and replacing the old ones.
Ø Hardware– Hardware licensing utilizes external hardware dongles or chips to enforce the license. Like the software version, these can be shipped with the embedded system or separately and used like keys to operate the machine. Since all licensing parameters are included in the external hardware, no connection the internet is necessary to update it. Updating the hardware with new licensing parameters usually can be done remotely but requires the end user’s action like plugging the dongle into a computer with internet access or transferring a license file to the system. The physical nature of the license container makes for the most secure option for licensing as well as easy portability. Moving the license can be as easy as unplugging the dongle and moving it to a new system.
Gone are the days of selling a device for a one-time fee and allowing the customer perpetual access. Now embedded systems are sold as offerings with the potential to generate recurring revenue. If you don’t plan, implement, and execute a licensing strategy for your embedded system, you are going to leave revenue on the table, alienate potential customers, and lose business to more savvy competitors.