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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchSoftware-first OEMs aim to earn from a product after its initial sale by licensing features, charging for connected services, or selling ongoing support. The shift can create more ways to serve customers and collect revenue, but recurring payments alone do not guarantee higher profit. The outcome depends on whether customers see enough new value to pay, whether the OEM can deliver and support the software economically, and who controls the customer relationship.
What changes when an OEM becomes software-first?
A hardware-led manufacturer typically differentiates products through physical configurations and collects much of its revenue when equipment is sold. A software-first approach treats some capabilities as products in their own right: the machine or vehicle provides a platform, while software can add, update, or enable functions over time.
That changes both the product and the revenue clock. Instead of building and managing a different physical configuration for every customer need, an OEM may sell a smaller number of platforms and license capabilities separately. After the sale, it may also deliver software fixes, security updates, performance changes, or new features. The approach is especially visible in vehicles and industrial equipment, though the specific products and economics differ by sector.
How can OEMs monetize software over a product’s life?
There is no single software revenue model. Automotive options described by the International Energy Agency (IEA) include one-off feature payments, subscriptions, and pay-per-use. Automation World describes modular licenses, flat subscriptions, and consumption pricing for industrial software. Roland Berger identifies per-vehicle, per-ECU, per-feature, and developer-seat pricing among automotive supplier options. These structures differ in when customers pay and how closely payment follows use or value.
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| Model | How payment works | Commercial consideration |
|---|---|---|
| One-time feature fee | The customer pays once to enable a feature. The IEA lists one-off payments as an automotive option. | Can suit a clearly defined capability, but does not by itself create ongoing revenue. |
| Subscription | The customer pays on a recurring basis for access or service. The IEA describes this option for automotive features; Automation World reports flat subscriptions as an industrial software approach. | Revenue depends on continued perceived value and renewal; the OEM must account for continuing support and updates. |
| Pay-per-use or consumption pricing | Payment varies with use. The IEA identifies pay-per-use for automotive features, while Automation World describes consumption-based industrial pricing. | Can link payment to usage, but requires a workable way to measure and bill for it. |
| Modular license | The customer licenses selected software capabilities. Automation World describes licensed modules in industrial equipment; Roland Berger lists per-feature pricing in automotive supplier software. | Lets customers choose capabilities, but requires clear packaging and coordination with the hardware offer. |
| Supplier licensing | Automotive suppliers may price software per vehicle, per electronic control unit (ECU), per feature, or per developer seat, according to Roland Berger. | The pricing unit needs to match how the software is delivered and valued by the buyer. |
| Maintenance or support contract | Customers pay for ongoing support or maintenance. Thales product manager Dale Hopkinson told Automation World that maintenance is a typical recurring-revenue route for hardware. | Can extend the commercial relationship, but should be distinguished from payment for new software capabilities. |
These are available approaches, not evidence that one model reliably produces better margins. McKinsey notes that customers may resist paying separately for software they previously considered part of the hardware purchase. The relevant question is whether the offer delivers a distinct outcome customers recognize—not simply whether the OEM can put a new price on an existing feature.
How does software differentiate hardware without changing the machine?
In an industrial example reported by Automation World on March 5, 2026, Stäubli Robotics uses licensed software modules for capabilities including simulation, programming, monitoring, and ecosystem integration. Customers can add capabilities without replacing the machine. The article reports that one software package can turn capabilities on or off, and that the company was considering additional subscriptions as it scaled.
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This illustrates a shift from selling many physical configurations toward selling capability choices on a stable hardware platform. That may simplify the set of physical variants an OEM manages while enabling customers to expand what a machine can do after purchase. Automation World’s account is an operating example, not an audited financial result or proof that the same economics apply across manufacturers.
What must change inside the business?
Software cannot be treated only as an engineering add-on if it is to become a distinct product. Roland Berger argues that automotive Tier-1 suppliers first need to separate software capabilities from hardware-and-software bundles to price them distinctly. It also points to product management authority over roadmaps and releases, continuous deployment capability, and lifecycle governance.
McKinsey’s industrial software analysis likewise says companies need to rethink packaging, pricing, go-to-market strategy, and the sales organization. Hardware and software teams may have different incentives: McKinsey reports that industrial companies can worry software pricing will reduce hardware sales. Coordinated commercial ownership matters when a software offer could complement the equipment, displace a bundled sale, or change how customers compare products.
Who controls the customer, updates, and data?
In its October 2, 2026 analysis of automotive value and control points, PwC identifies software architecture, update authority, data rights, customer identity, connected services, and partner ecosystems as factors that shape value capture after a vehicle sale. PwC recommends retaining control of points connected to differentiation, safety, brand, customer identity, proprietary data, or recurring monetization, while using partners where shared scale, speed, or standards matter. It also emphasizes that OEMs should retain integration and the interfaces linking vehicle, customer, and ecosystem.
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Partnerships can share the cost and complexity of building software capabilities, but they also require explicit agreements about updates, data access, customer contact, and commercial rights. The IEA’s May 20, 2026 review describes incumbent automakers shifting some work toward partnerships after fully in-house transitions proved difficult: Volkswagen scaled back its goal of developing core software entirely in-house in 2023 and pursued partnerships including its joint venture with Rivian; Ford abandoned its fully networked vehicle project in 2025. These examples show trade-offs among investment, speed, control, and differentiation—not that outsourcing is always preferable.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What evidence shows—and does not show—about the financial upside
PwC says its analysis covered 1,306 publicly announced investments and initiatives across 25 traditional OEMs and suppliers and 14 mobility and technology players. It reports that battery investments led in 2024 and declined in 2025 as vehicle electronics, sensors, semiconductors, and compute architecture gained prominence; by early 2026, business-model and monetization innovation led automotive investment themes. These are rankings of announced activity and themes, not measured revenue or profit.
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The sources describe mechanisms, examples, and execution challenges, but do not establish a comparable cross-industry causal estimate of how much software-first lifecycle models add to OEM profit or valuation. A recurring license is not a profit measure: software development, security updates, customer support, sales operations, and renewal costs also matter.
How should an OEM assess a software-first offer?
Before launching a feature, subscription, or licensing model, decision-makers can assess it across six connected questions:
- Customer value: What customer outcome improves, and is that improvement distinct enough to support a separate charge?
- Revenue timing: Does a one-time fee, recurring subscription, usage charge, module license, or maintenance contract fit the way customers receive value?
- Lifecycle economics: What will development, updates, cybersecurity, support, and renewals cost over the product’s life?
- Customer and data control: Who owns the customer identity, data rights, update authority, and ongoing commercial relationship?
- Build or partner: Which capabilities are sufficiently differentiating to retain in-house, and where could a partner provide scale, speed, or shared investment?
- Commercial readiness: Are product management, packaging, pricing, sales coordination, and lifecycle governance ready to support the offer?
McKinsey’s warnings about resistance to unbundling and fear of hardware cannibalization make the first and final questions particularly important: price a software capability around a recognizable customer benefit, and ensure the people selling the software and the hardware are not working at cross-purposes.
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