We envision a world where software updates are occurring every second of the day to improve the mobile user experience while generating additional value for mobile providers. The technology is here today to enable this vision, with OMA DM servers adopted widely by Tier 1 and 2 operators globally, and with about half of handsets already supporting over-the-air software updating.
Now, the business environment is catching up to market demand for software updates, as reflected by some recent changes to GAAP (Generally Accepted Accounting Principles).
In the old days when hardware ruled, consumer electronics manufacturers would sell a device and would recognize the sale of that device in that month. But then software got more sophisticated and more essential to the functionality of a product. If OEMs delivered software updates to the device after it was sold, it meant OEMs had to spread the revenue recognition throughout the device’s lifetime.
Years ago we heard more than one OEM cite the accounting implications if they were to deliver FOTA updates. Back then FOTA technology was used primarily as an insurance policy to prevent a product recall. Most OEMs had no intention of using FOTA unless to avert a crisis. But soon the leading OEMs and operators realized the strategic value of delivering continuous software updates. Today FOTA is much more than fixing defects; it’s used to deliver new features as well as to improve a device’s performance. New advancements in the technology enable updating individual software components over the air (SCOTA) on-demand to support consumers personalizing their device with new applications and services. Software updating has become an important way to keep consumers satisfied with their mobile service and loyal to the experience they get from their handset maker.
Changes to the GAAP rules now allow manufacturers that are delivering software updates to recognize more revenue sooner, even if they are offering those updates free of charge (otherwise bundled in the original price), and even if the contents of the software updates are unspecified at the time the original device is sold.
One of the most vocal advocates of this change has been Apple. The company provides free software updates to iPhone users. Because some of the value of the iPhone is delivered after the product’s initial sale and because the software updates are not sold separately, the former GAAP rules forced Apple to bundle the value of the iPhone with the software updates and spread the revenue over the 24-month AT&T subscription term. Now Apple and other manufacturers will be able to separate the value of the device from any future software updates. The product’s sales can be recognized in that quarter, while only the value of the device’s future software updates will be deferred.
Software updating is becoming increasingly commonplace in mobile phones and is spreading quickly to other wirelessly connected devices. New business models will emerge that capitalize on this powerful capability to meet the increasing demands of mobile consumers. Mobile devices are no longer static products whose functionality is set when the device ships. Mobile software management (MSM) is the key enabler that allows mobile providers to deliver more value to their consumers throughout the entire mobile user experience.
Lori Sylvia is executive vice president of marketing at Red Bend Software.