Cengiz Özemli
Akademisyen
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## Software Licensing Transforms Industrial OEM Revenue Models
For years, manufacturers of industrial automation devices and equipment differentiated their products by producing many hardware variants and models to meet different customer needs. However, this approach increased costs and reduced profitability for OEMs, as it required them to manage hundreds of product lines and thousands of components.
As the complexity created by hardware diversity increased, profit margins fell, and this model became economically unsustainable. Software-based solutions, on the other hand, allow manufacturers to offer multiple features based on software rather than hardware. In this way, OEMs can not only reduce operational costs but also create new revenue streams and build strong relationships with customers.
### Digital Transformation and the Importance of Software
Dale Hopkinson, Senior Product Manager at Thales, states that there is a clear shift in the industry from a hardware-centric model to software differentiation. Hardware development and certification are costly and lengthy processes, making hardware adaptation difficult after production for both manufacturers and end-users. In contrast, software supports numerous use cases on the same platform, increasing the device's lifespan and value.
While OEMs segment their existing customers in more detail, the software-based model increases scalability, providing recurring revenue streams. While it is often difficult to generate recurring revenue from hardware, except for maintenance revenue, software licenses can make revenue continuous through access rights and packaging plans.
### Industrial Software Licensing Models
Hopkinson cites Stäubli Robotics' strategy of differentiating its products with software that controls its robots as an example. Through software licensing, the company can keep the hardware stable while enabling or disabling customer-specific modules and offering new features with software updates or add-ons. This approach also supports plans to develop more subscription models.
### Revenue Predictability and Customer Value
It is emphasized that software-based differentiation increases revenue predictability and eliminates the need for customers to purchase maximum hardware capacity upfront. End-users gain more flexible access to the system through software updates and feature purchases according to their needs. OEMs, in turn, achieve more stable and sustainable revenue streams.
### Considerations for Choosing a Licensing Model
The most common model is a fixed-fee subscription system that includes all functions. However, usage-based and modular licensing models are also preferred. OEMs develop hybrid models that can enable or disable specific modules, offering plans tailored to different user needs. These models provide economic advantages, especially in artificial intelligence applications.
### Granularity and Flexibility in Software Licensing
Too much detail can complicate the customer experience and hinder sales. However, with modular licensing, different modules can have their own subscription or usage rights, and active usage periods can also be controlled. This model requires understanding the customer and gauging the market's willingness to pay. It is recommended to start with a flat subscription initially, then find the optimal balance with user data. Furthermore, it is important to establish a flexible structure to allow for separate configurations for large customers.
This transformation enables industrial OEMs to both innovate their business models and better respond to customer needs through software licensing.
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