There are a number of trends fueling business growth and profit strategies for hardware device vendors. Today, more and more hardware device vendors are transforming their business models from one-time sales transactions to ongoing relationship-based models with recurring revenue streams. Increasingly, device vendors are leveraging the software within their hardware devices to innovate and differentiate their devices in order to gain a competitive edge and grow their businesses.

What forces are driving these trends? What are the challenges vendors face when transforming their businesses to address these trends? And what can they do to manage the transformation and take full advantage of the opportunities for business growth?

Gemalto’s Director of Product Management, Laila Arad-Allan, addresses these and other questions in her recent interview with

Laila starts out by explaining some of the forces driving these trends:

  1. Pricing pressures and lower margins for hardware products
  2. End customer preferences and perception of value
  3. The costs & complexity of supporting numerous hardware product variants
  4. Gray market revenue leakage
  5. Revenue peaks and valleys due to refresh technology cycles

In terms of pricing and margins, Laila explains that device vendor revenue has traditionally come from the sale of a physical device. As devices have become more and more commoditized, device vendors have had to deal with pricing pressures and lower margins. Intelligent device vendors spend over 70 percent of their development effort in the software that’s embedded in the devices. The software has become the unique selling proposition for devices and provides the real value. However, device vendors won’t gain additional revenue from the value the software provides if they don’t have the ability to charge for and license specific features and functionality.

When talking about end-customer preferences and their perception of value, Laila points out that it is the device vendors’ end customers that are demanding a frictionless customer experience, more budget-friendly ways to purchase, and easy-to-access upgrades. Many customers want the ability to scale up or down based on demand or capacity of their device use. Therefore, device vendors need a way to offer the capabilities and functionalities that their customers value and are willing to pay for, while providing the best possible customer experience.

This is just an overview of the challenges intelligent device vendors face as they transform to selling value. The full interview goes into much more detail and also describes the biggest pitfall vendors need to avoid as they undergo this transition.

Read the full interview to learn how intelligent device vendors are successfully transitioning from selling boxes to selling software-enabled value.