Licensing and Entitlements strategies will be key drivers in monetizing Internet of Things and beyond

This blog is part of the series on evolving new business model in the high tech industry and beyond. You can find the introductory blog detailing out some of the trends, responses and follow-up blog on the challenges that companies are facing to transform their business.

As we saw in the previous blog, to innovate and stay relevant, it is critical for companies to be able to offer turn-key solutions, address new service based models with flexible payment options.  In this blog, we will focus on the entitlements and growing importance of software in the new, evolving business
models.

High Tech companies are taking advantages of the advances in technologies and developing new business models – giving rise to Internet of Things and Cloud Based Models (see blog discussing other factors).   An IDC report estimates opportunity related to Internet of Things to be worth over $5 trillion by 2020.  Additionally, IDC highlights that 82% of net-new commercial applications are built specifically for Cloud delivery models and $1 of every $5 spent on applications is via SaaS models,

Software forms the integral part of the strategy to enable this new business models and growing trend of OEM companies acquiring Software companies to offer differentiating solution to their customers. PwC report further confirms the growing trend of OEM vendors into the Top 100 Global Software Leaders.

Software can be

• Embedded Software – typically do not track them individually but as part of the hardware – e.g. embedded software on Printer may enable vendors to offer printing, scanning, faxing or copying features. It may also allow to collect usage information and handle remote diagnostics
• Application Software – developed typically by independent software vendors and often bundled by hardware vendors as part of their turn-key solutions.  They are tracked individually, have its own life cycle (can be re-hosted on another hardware) and complex licensing models
• Software-as-a-Service – newer software applications are now delivered over the internet and is licensed on subscription basis and typically vendors includes services as part of the models

To differentiate their offerings from companies are bundling digital & physical products with additional services.  Whether consumers are paying for access movies online, for unlimited text messaging, or for cloud storage space, or for accessing certain functionality of software online or accessing feature on the printer, entitlements are changing our definition of ownership, and business models are adapting. And it’s not limited to the digital world. Entitlements can bridge the gap between physical products and less tangible services, in the form of support and maintenance services.

Morgan Stanley projected that number of devices connected to reach 75 Billion by 2020 and if you have to ensure that the services are been offered as per the entitlements you agreed at the time of sales, you have to meticulously track and need to honor them at the point of service.

Entitlements are the rights customers receive upon purchase of software, hardware and/or services. Below are some examples in software only or combination of software, hardware and services.

As the delivery model is becoming more digitized, companies are increasing making sure to have 360 degree view of customers, order history, entitlements and usage data to offer the right solution at the right time.

Hardware manufacturers can now derive new revenue streams with value added services, protect their IPs from misuse, simplifying product packaging with flexible configurations and reduce the inventory costs by not having to maintain unique hardware configurations. You can now fulfill the unique needs of the customers by activating the features via embedded software, develop continuous commerce strategies based on customer interactions with your products across your channels.

Many people confuses licensing with entitlement management, however there is significant distinction between both of them. Licenses are the terms & conditions and the boundaries attached to the use of a specific good or service, while entitlements are the rights granted to a customer (organization, user, partners etc…) and extend beyond the life span of license.

Increasingly, we are seeing companies often enticing customers with lucrative maintenance programs that offer certain entitlements (e.g. free training days) based on the total spent or type of product line purchases.  The entitlements are often tied to multiple orders and not specifically to a particular product.  There are often complex business rules defined based on product, total spent and/or geographic regions.  You may want to check out Microsoft Licensing and their Software Assurance program to understand the complexity of entitlements handling. Also, check out Gartner report on Licensing and Entitlement Management will be one of the keys to monetizing the Internet of Things.

As we discovered, there could be different types of entitlements, with different set of attributes and life cycle. It is important for the entitlement solutions

• to scale quickly as platform adoption ramps are steep in High Tech,
• provide flexible modeling environment to introduce different types of entitlements quickly,
• determine eligibility of entitlements at the point of sales
• validate the entitlements consistently at the point of service
• provide 360 degree visibility into the entitlement positions
• track the entitlement consumptions
• integrate to sales, service and downstream systems such as license key generators
• provide continuous commerce (as you can now get the visibility of customer behavior, assets and preferences)

Below is the graphic showing the typical Entitlement Lifecycle

Some of the benefits that companies can gain with strategic planning and tactfully executing the entitlement programs

• Keep customers engaged and enhance the customer experience through “continuous commerce”
• Increase customer loyalty by combining entitlements with promotions
• Collect valuable data and insights about customer behavior, assets and preferences
• Increase up-sell and cross-sell opportunity by having the 3600 view of all entitlement positions for a customer
• Reduce time to market for new Entitlement Programs
• Manage Incremental Sales effectively (additional features, additional licenses, services) based on existing Entitlement information
• Identify Entitlement Renewals on time and auto-generation of opportunities/quotes to build sales pipeline
• Avoid revenue leakage with validation of Entitlements at the point of providing service
• Gain complete traceability of changes to the Entitlement Positions including consumptions of the Entitlements

Please share your thoughts on how you are addressing the entitlements in the new business model at your enterprise.

You can reach out to or to further discuss on entitlements and to learn how SAP has helped other customers.