As software becomes increasingly integral to the competitiveness of industrial firms, many are seeking ways to incorporate smarter, more innovative solutions into their offerings. The potential benefits are significant, with successful implementation potentially boosting enterprise value by up to 1.5 times. Yet, despite substantial investments, industrial entities are struggling to achieve meaningful software revenues, raising questions about the return on these investments. One executive expressed this frustration, noting, “We have invested in and developed over 100 software products but have had limited software revenues to stand behind.”

Current Landscape of Industrial Software

Industrial companies are increasingly viewing software as a transformative factor in their business strategy, contributing to enhanced equipment functionality through connectivity and bespoke solutions. Notably, around 70% of top-performing companies leverage proprietary software to set themselves apart from competitors, in contrast to just 50% of others in the market. Investments in software can lead to significantly higher company valuations—typically three to four times those of hardware-focused earnings.

Major acquisitions illustrate the trend; for instance, Rockwell Automation’s acquisition of Plex for $2.22 billion and Keysight Technologies’ purchase of ESI for nearly $1 billion exemplify aggressive software investment strategies.

In a survey conducted with around 500 executives from various industrial firms, around 95% reported having software in their product offerings. Of these, a fifth mentioned generating software revenues exceeding $1 billion. The monetization strategies varied widely, with some companies creating embedded software to enhance hardware, while others established joint hardware-software solutions or standalone software products.

Challenges in Software Commercialization

Despite the enthusiasm for software monetization, industrial companies face several common obstacles:

• Fragmented and complex software portfolios, often resulting in commercially unviable products.
• Software provided at nominal costs, diminishing perceived value among customers.
• Sales teams lacking a software-focused approach, often hindering potential business opportunities.
• Weak organizational strategies to effectively engage a departure from traditional hardware buyers to software buyers.
• Inadequate infrastructure for managing customer relationships post-sale, leading to poor renewal visibility.

Strategies for Effective Software Commercialization

To reap the benefits of software investments, industrial companies must pivot their market strategies. Successful companies have seen revenue boosts of 20 to 40 percent year over year following comprehensive adjustments. Here are five crucial strategies for enhancing software monetization:

1. Prioritize Product Portfolio

Firms should assess their software offerings through a customer-centric lens to identify market-ready products. Many internal software assets, while valuable, may not be suitable for external market demands. An effective strategy involves classifying offerings into three categories—ready for market, needing development, and unviable products—to target high-potential solutions rapidly.

2. Establish Software Value Independently from Hardware

Many industrial firms historically bundle software with hardware, detracting from its perceived value. To rectify this, companies should redefine their software pricing strategies and communicate the distinct value propositions attached to their products. The shift may require rebranding existing software to justify higher pricing structures, similar to strategies adopted by companies like HP.

3. Reform Sales Operating Models

Transitioning to software-driven sales necessitates a revised organizational structure. Firms can opt for several go-to-market (GTM) models, including independent teams that focus solely on software or a collaborative approach where hardware and software teams synchronize their efforts. The selection of an effective model is crucial for maximizing sales efficiency across different buyer personas.

4. Cultivate Relationships with New Buyer Personas

Software typically attracts distinct buyer personas compared to traditional hardware sales. Industrial companies must adapt by building relationships with key decision-makers like CIOs, rather than relying solely on established hardware channels. Anchor hires—experienced individuals in software sales—can facilitate this transition and provide vital insights into engaging new customer segments.

5. Invest in New Capabilities and Post-Sale Support

The nuances of software sales call for specific skills and expertise. Establishing a dedicated customer success function will proactively engage users to enhance software adoption rates and renewals, transitioning from merely providing support to facilitating successful usage. Additionally, a focused renewal operations effort is critical to managing contract renewals effectively.

Conclusion

As the role of software in industrial firms continues to grow, unlocking its true potential for generating revenue remains a challenge that must be addressed. Companies can no longer divide their focus solely on traditional hardware solutions. A successful transformation in their go-to-market strategy is essential to meet increasing performance expectations and realize significant growth in this new software-centric landscape.