Surface, like its Apple iPad, Google Nexus and Samsung Galaxy competitors is at its core an “intelligent device” – a device provisioned with embedded software and, frequently but not always – connected to the Internet.
Whether Microsoft succeeds or not depends on whether Microsoft believes in the ‘holy trinity’. No, not the religious precept but the tripartite formula – a ‘holy trinity’ as it were – which dictates whether or not an intelligent device will become commercially viable:
Robust hardware platform + embedded software + flexible software licensing & entitlements = commercial Viabilit.
This holy trinity is, in fact, transforming the entire manufacturing landscape today – not just the mobile device space. For instance, device producers in virtually every industry – from telecom and medical devices, to test and measurement and building automation to name a few – are transforming their business models by adopting this holy trinity formula.
How does the holy trinity work?
Manufacturers are transforming their product lines, making their devices intelligent by controlling features and functionality through embedded software. This allows them to very quickly tailor and customise products for different customers, markets and regions – eliminating the costly requirement of manufacturing different physical models to accommodate variation. By using software to turn on and off specific functionality, manufacturers can accommodate exponential levels of customisation without incurring the additional manufacturing costs that can pare down margins until they are virtually nonexistent. Manufacturers can moreover create new revenue streams under this model, as well as create pathways for product upgrades and upselling, because it allows them to very quickly and on the fly customise products, leap onto trends, create ‘new’ models and respond very quickly to fluctuations in market demand.
Fundamental to the success of this formula is flexible software licensing and entitlement management. A device becomes infinitely customisable, upgradeable, and therefore valuable because the software allows it to behave differently over time according to the needs of the user. Because value is captured as part of software provisioning over the life of the product – and not necessarily just at the time of initial purchase, as was the case with traditional devices – the software must have adequate licensing and entitlement controls, so that only those that have paid for the desired functionality can actually access it on the device.
This is why, of course, as transformational trends like the Internet of Things and Machine to Machine (M2M) take hold in the device space – companies are transforming themselves to act more like solution companies, where software is the predominant driver of differentiation and value. The new model allows manufacturers to leverage their software through licensing to monetise their devices, protect their intellectual property, and create new revenue streams.
There are, admittedly, significant differences between the broader intelligent device marketplace, and the mobile device space. In the former, the business transformation driven by embedded software and flexible licensing is at an earlier stage. Device manufacturers are just learning how to think and act like solution companies. Those capable of making the transition and successfully leveraging flexible licensing in their revenue models will be the winners. And they will do this by bringing in-house or acquiring the software development capabilities to create intelligent devices, and leveraging best-of-breed licensing and entitlement management systems enabling them to monetise those devices.
In contrast, the mobile device and tablet space has developed as a closed, proprietary system. Apple has internalised, and some say, perfected the execution of a closed system version of the holy trinity formula in its iTunes & App Store. A perfectly integrated, seamless licensing and entitlement management system that enables users to personalise their devices through the apps they download, and capture enormous revenue in the process by licensing those apps to paying users. Apple’s roots were in hardware – and it has brilliantly transitioned to the intelligent device space by creating a thriving embedded software market, and robust licensing and entitlement management environment in its iTunes and App Store.
Microsoft’s roots, on the other hand, are in the software space. So it could be argued that it should more easily be able to make the transition to the intelligent device space because, at its core it lives and breathes software, licensing and entitlement management. Moreover, in its XBox products, it also has a strong track record in creating a robust, successful hardware platform. And, with Windows 8, Microsoft’s new Metro app framework and App Store launching, Microsoft is gunning for Apple with an integrated hardware, software and licensing platform that promises to be a strong competitor to Apple, with tighter integration of business apps that currently do not work with the iPad.
Whether, in fact, Microsoft has meaningfully internalised the holy trinity formula remains to be seen. We will know soon enough. Device design and architecture aside – whether or not the Surface takes off will depend on the diversity and perceived value of the apps made available to it on the app store, and the experience customers have in in the App Store. And as noted above, that hinges upon the tight integration of the Surface, the App Store, and the seamless purchase, licensing download and delivery of those apps.
Mathieu Baissac is vice president of product management at Flexera Software.