Blog Entry

Jul 26
2011 

Manufacturing: An Industry in Transition towards Software Licensing

Part 1 of 3 from the series “Take on Licensing: What High-Tech Manufacturers Need to Know”

If you’re an equipment manufacturer in the high-tech sector, you are probably already deeply involved in the evolution from a pure hardware manufacturer to a software vendor.   Whether you are in the business of selling software-driven equipment for the automotive industry, medical imaging and diagnostics, digital printing, sophisticated surveillance systems, coin-operated gaming and casino gambling, the change to software licensing is impacting your business.

An increasingly important part of the value you bring to your customers – and competitive advantage – is in the software you provide, rather than in the hardware, as it was in years past. In fact, when you look at your organization, the ratio of software engineers to hardware engineers is continually growing in favor of the software engineers.

You probably more than just ponder the idea of your company becoming a software company; it is clear to you that the inevitable process has begun, hardware is being commoditized and, going forward, you will base your business more and more on software. It’s a long process that started years ago, it is likely to take many more years before the transition is complete and maybe it will never be complete and you will always have a hardware component in your offering.

Challenges faced by High-Tech Equipment Manufacturers

Although moving to a software business model makes your company much more competitive and enables you to create significant competitive advantages, it also encompasses significant challenges and risks.

Intellectual Property Theft

In the past, theft of your Intellectual Property (IP) involved reverse engineering and cloning of your unique machine design and then building a production line to manufacture similar equipment – not a small undertaking.

These days, a significant part of your hardware product is based on off-the-shelf components, and the lion’s share of your IP now resides in the software developed to drive that hardware.  This significantly lowers the barrier to stealing your IP.  You could potentially lose years of investment in your solution.

Monetization and the Competitive Landscape

As you incorporate more and more competitive advantages into your software, and your investment in software development increases, you want to monetize your investment by winning more customers.

You want to be assured that your business maximizes the profit from your investment in creating these competitive advantages, and you want to make these advantages last as long as possible.

Coming soon, I’ll address the phases to move from a hardware-based to a software-based manufacturing company, and where the most common pitfalls happen.