This document discusses the physical to digital transformation that network equipment manufacturers are undergoing. It describes how devices are now renewed and updated through software over longer lifetimes. It outlines four levels of maturity manufacturers can achieve in developing hybrid hardware/software business models, including reducing SKUs, offering digital add-ons, pooled capacity, and virtual/elastic capacity. It positions Flexera's software licensing and entitlement management solutions as enabling this transition by supporting various pricing models, reducing costs, and providing excellent customer experiences throughout the software lifecycle.

1. DATASHEET
The Physical to Digital Transformation
Achieving Business Model Flexibility with Software Monetization Solutions
The days of network equipment being defined,
designed, manufactured, shipped, installed, and living
its entire life until obsolescence without any further
changes or upgrades are over. With connected,
intelligent devices, the lifetime is much longer and more
complex. Devices are renewed, refreshed and updated
through the use of software to extend a product’s life
over a longer period of time.
For most network equipment manufacturers, the
majority of their intellectual property is now based in
software, rather than in hardware. Industry trends like
Software Defined Networking and Network Function
Virtualization are emphasizing the importance of
software and as a result, a number of manufacturers
are offering virtual versions of their traditional
hardware appliances that can run on commercial
off the shelf hardware.
As the Internet of Things becomes a reality and more
device manufacturers move to shifting value to the
software from the device, some manufacturers are also
taking the approach of offering their Devices as a
Platform, opening them up for 3rd applications.
As a result of these drivers, today’s network equipment
manufacturers must move to hybrid software and
hardware business models and develop business
processes and supply chains that can support both
their physical and digital products. This shift for
many can’t happen fast enough. Throughout their
journey, manufacturers will achieve various levels
of maturity, including:
Level 1 - SKU Reduction
With software license-enabled flexible feature sets
the manufacturer is able to cut manufacturing, supply
chain and support costs by reducing the number of
unique SKUs required to be manufactured. This enables
manufacturing cost savings, efficiencies in forecasting
and stocking in the channel, and reduction in finished
goods inventory.
Level 2 – Device + Digital Add-On
With the ability to provision and add capabilities over
time the manufacturer can easily upsell additional
features while enabling the customer to manage the
quantity of features they consume. This requires a
hybrid business model where the hardware product is
sold and fulfilled using a hardware business model and
supply chain, and the software/digital add-on is sold
using a software business model. This hybrid model
enables recurring revenue opportunities for the network
equipment manufacturer through feature add-ons and
subscription revenue.
Level 3 - Device + Digital Add-On + Pooled Capacity
As companies move to Level 3, they start adding
flexible capacity and “pay as you grow” models to
the mix to sell based on capacity rather than physical
boxes. This enables your customers to manage the
geographic distribution and consumption of their
licensed capacity as needed. As your service providers
and large enterprises demand an easier way to do
business with you, offering pooled capacity models for
“site-based volume purchases and upgrades” will
Transformation
At-A-Glance
Changing Endpoint
Device (Network Element)
Lifecycle
• From “one and done”
• To being renewed/
refreshed over time
• To becoming a
platform for
additional capabilities
Need for Business
Model Flexibility
• From perpetual and
node-locked
• To recurring,
subscription and
consumptive
revenue models
• To digital add-ons and
“pay as you grow”
Support for Network
Function Virtualization
• Being driven
by operators
• Changing
deployment models
• “Elastic capacity”
“Femtocells look like
hardware products but
the sophistication and
strategic differentiation
is in our embedded
Femto-Engine software.
It is therefore vital for us
to be able to customize
the capabilities of
Femto-Engine to
meet each customer’s
specific requirements.””
Keith Day
Ubiquisys
LEVEL 1
SKU Reduction
LEVEL 3
Device
Digital Add-On
Pooled Capacity
LEVEL 2
Device
Digital Add-On
LEVEL 4
Virtual/Physical
Appliance
Elastic Capacity

2. Flexera Software LLC
(Global Headquarters):
+1 800-809-5659
United Kingdom (Europe,
Middle East Headquarters):
+44 870-871-1111
+44 870-873-6300
Australia (Asia,
Pacific Headquarters):
+61 3-9895-2000
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+86 10-6510-1566
For more office locations visit:
www.flexerasoftware.com
Copyright © 2014 Flexera Software LLC. All other brand and product names mentioned herein may be the trademarks and registered trademarks of their respective owners.
FPS-IDM_DS_Telco_Oct14
Achieving Business Model Flexibility with Software Monetization Solutions
become important. At this stage, your service providers and large
enterprise customers gain utilization benefits that can potentially
be monetized and as a vendor, you are easier to do business, that
will likely increase customer lifecycle value.
Level 4 – Virtual/Physical Appliance + Elastic Capacity
As Network Function Virtualization becomes more prevalent,
especially with service providers, large enterprises and public
clouds, “elastic capacity” models based on virtual appliances
that can be started and stopped on demand, will become more
prevalent.
Gartner Recognizes Licensing and Entitlement Management as
Enabling Technology for the Physical to Digital Transformation
Per Gartner, intelligent devices, with embedded software
applications, are recognized as the core value of device offerings
and enable manufacturers to transform from offering basic
devices to offering technology solutions with differentiated, high
value to customers and business partners. Flexera Software is
uniquely positioned to provide network equipment manufacturers
with licensing and entitlement management technology that is
foundational to their strategic software monetization initiatives
that enable business growth.
Drive Topline Growth and Recurring Revenue Streams
• Create unique, differentiated solutions that deliver greater
business value to customers
• Monetize of all aspects of their intellectual property – products
(devices and software), capacities, capabilities and versions
• Support an array of pricing and licensing models (e.g.,
concurrent, subscription, usage-based) to meet varying
market needs
• Enable new deployment models, such as virtual appliances,
and provide add-on services using cloud deployments to
appeal to varying market segments
Reduce Costs
• Control and provision the capabilities and capacity of
devices electronically
• Reduce manufacturing and fulfillment costs and control
contract manufacturers
Deliver Excellent Customer Experiences
• Provide 24x7 customer access to software products and
licenses through a self-service portal
• Establish direct relationships with customers through
multiple tiers of distribution
• Support the entire licensing and entitlement lifecycle
to maximize up/cross-sell and recurring revenue
Software Monetization Solutions from Flexera Software
Flexera Software is the leader in Software Monetization,
empowering application producers to maximize new and
recurring revenue through flexible software licensing, activation,
delivery and full lifecycle management of customer usage rights.
Our Software Monetization solutions enable rapid adoption
of new business models for on-premises, cloud, embedded and
mobile applications, streamline quote-to-cash processes, ensure
revenue recognition, deliver a positive customer experience and
reduce operational costs and complexities.
Proven Solution Architecture and Global Consulting Services to
Help Get You There
We help you develop an optimal user experience with a
proven solution architecture that enables network equipment
manufacturers to accelerate and increase the value they receive
from Flexera Software solutions. Through subject matter expertise,
best practices and a proven methodology, we can help you
develop, evaluate and implement strategies to achieve your
business transformation initiatives including the move from a
traditional provider of hardware to a strategic solution provider,
including new licensing and pricing business models, entitlement
lifecycle, licensing lifecycle, monetization, installation and
electronic software delivery and updates.
About Flexera Software
Flexera Software helps application producers and enterprises
increase application usage and the value they derive from their
software. Our next-generation software licensing, compliance
and installation solutions are essential to ensure continuous
licensing compliance, optimized software investments and to
future-proof businesses against the risks and costs of constantly
changing technology. Over 80,000 customers turn to Flexera
Software as a trusted and neutral source for the knowledge
and expertise we have gained as the marketplace leader for
over 25 years and for the automation and intelligence designed
into our products. For more information, please go to:
www.flexerasoftware.com
“While Harmonic’s expertise is in manufacturing state-of-the-
art video delivery solutions, we realize that the application
software in our products will be a strategic differentiator.”
Jason Ruppert
Harmonic