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Why Selling Software is a Losing Proposition in the Age of IoT

July 08, 2016

The Internet of Things (IoT) has led to a new age of innovation and development as companies break the mold by adding intelligence and versatility to traditional hardware appliances. Bundling software and firmware with offerings is a great way to distinguish a solution and give it a competitive advantage in the marketplace. But getting a return on that software, in the form of a sales or licensing agreement, is a much trickier proposition.

For Flexera Software, a company that specializes in software licensing and optimization solutions, the issue boils down to two fundamental rules. Businesses and developers that choose to embed software in their hardware devices must ensure they own the intellectual property they are embedded and also have the rights to offer it to their customers. Also, once a business owns the software, they must never sell the rights to it.

Businesses need to understand that software is treated as an intangible creation and, unlike hardware, must be properly protected from copying and misuse. For instance, once software is “sold,” the customer technically becomes the owner of the software. This doesn’t work so well for a company hoping to monetize its software innovations in the age of IoT.

Flexera recommends granting customers the rights to use software via a software licensing agreement (SLA) in lieu of software sales. Once software is installed, users are shown an End-User License Agreement (EULA) and must agree to those parameters before they are able to use the software. Those parameters typically cover when and where software can and can’t be used along with what it can be used for and by whom. A EULA also covers any additional restrictions that may apply to usage along with exactly how the software may or may not be used.

Taking these preliminary software licensing steps protects companies from losing the ownership and rights to their software, at a minimum. Actually monetizing on software and firmware in the IoT era is a different matter and an area of specializing for Flexera. The company plans to publish additional information on this topic in the near future.

Edited by Maurice Nagle
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