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Software-first OEMs aim to earn value after the initial hardware sale by licensing features, selling connected services, and supporting products throughout their useful lives. That can create more ways to serve customers and generate revenue, but it does not guarantee higher margins: results depend on whether customers see enough new value to pay, whether the product architecture supports updates, and whether the OEM can manage software, sales, support, and customer relationships over time.
What changes when an OEM moves beyond hardware sales?
A traditional hardware-led model tends to concentrate revenue at delivery: the OEM sells a product configured for a customer segment, then may earn additional revenue from parts, maintenance, or upgrades. A software-first model treats some capabilities as separable products that can be added, updated, or licensed after the hardware is in service.
This changes both the product and the revenue clock. The physical platform may remain stable while software changes what it can do. Instead of making a different hardware variant for every capability, an OEM may offer a smaller set of platforms and sell functions as modules or services. Customers can then add capabilities as needs change, while the OEM has a potential commercial relationship beyond delivery.
The approach differs by industry. In industrial equipment, licensing can distinguish functions on a machine that a customer already owns. In vehicles, software-defined architectures and over-the-air (OTA) systems can support updates and paid features after purchase. In both cases, the opportunity depends on more than technical possibility: the offer must solve a customer problem worth paying for.
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How software turns configurations into capabilities
Industrial manufacturers have often differentiated equipment through physical configurations. Automation World’s March 2026 report describes an alternative: use a stable hardware platform and make selected capabilities available through licensed software modules.
In the reported Stäubli Robotics example, software can enable functions including simulation, programming, monitoring, and ecosystem integration. Dale Hopkinson, a senior product manager at Thales, said Stäubli uses one licensed software package to turn capabilities on and off and was considering additional subscriptions as it scales. The example illustrates a possible operating model; it does not establish audited financial results or prove that the economics transfer to other manufacturers.
The potential advantage is flexibility: customers can expand a machine’s capabilities without replacing or reconfiguring its hardware, and the manufacturer may have fewer physical variants to manage. The trade-off is that the OEM must define, secure, support, price, and maintain the software offers as products in their own right.
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Which lifecycle revenue models can OEMs use?
There is no single software pricing model that fits every product. A one-time fee can suit a capability with a clear, durable benefit; a subscription can fund continuing access or updates; usage pricing can align payment with consumption. Licensing may also be paired with maintenance or support.
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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 match| Model | How payment works | Fit and trade-off |
|---|---|---|
| One-time feature or module fee | The customer pays once to unlock a capability. | Can be straightforward when the value is clear at purchase; revenue is less inherently recurring than a subscription. |
| Subscription | The customer pays on a recurring basis for access to software or services. | Can support ongoing access and updates; requires customers to see continuing value and the OEM to manage renewals and support. |
| Pay-per-use or consumption pricing | Charges vary with usage or consumption. | Can connect payment to use; requires a workable way to measure usage and may make customer costs less predictable. |
| Modular license | The customer licenses selected capabilities, potentially adding modules over time. | Can separate capabilities on a shared platform; packaging and module boundaries must make sense to customers. |
| Maintenance or support contract | The customer pays for maintenance or related support, either separately or alongside a license. | Can extend the commercial relationship after delivery; the OEM must account for the ongoing obligations that the contract creates. |
Automotive options described by the International Energy Agency include one-off payments, subscriptions, and pay-per-use for paid features. Roland Berger describes additional licensing bases for automotive suppliers, including per vehicle, per electronic control unit (ECU), per feature, and per developer seat. These are pricing options, not evidence that one method outperforms the others.
Each model shifts a different burden onto the OEM. A subscription depends on renewal; usage pricing depends on measurement and customer acceptance; modular licensing requires clear packaging; and a support contract carries service obligations. Compare expected customer value and lifetime delivery costs, not just the frequency of invoices.
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Why software-first requires a different organization
Software cannot simply be extracted from a hardware bundle and priced as a standalone product without deciding what the customer is buying and who is accountable for it. Roland Berger argues that automotive Tier-1 suppliers need to separate software capabilities within hardware-and-software bundles before they can price those capabilities distinctly. It also identifies the need for product-management authority over roadmaps and releases, continuous deployment capability, and lifecycle governance.
McKinsey’s industrial-software guidance likewise points to changes in packaging, pricing, go-to-market, and sales organization. In practice, hardware and software teams need to coordinate: software pricing may affect the perceived value of the equipment, while hardware sellers may worry that customers will see formerly bundled capabilities as newly charged extras.
- Product definition: Specify the function, customer outcome, supported platform, and update path for each software offer.
- Pricing and packaging: Make the distinction between included functionality and paid additions understandable to buyers.
- Release and lifecycle management: Plan for ongoing development, deployment, cybersecurity, compatibility, and support.
- Sales coordination: Align the hardware and software commercial teams so that software offers extend the product’s value rather than confusing or undermining the original sale.
Who controls the customer relationship after the sale?
Software-first economics also depend on control: who can update the product, access relevant data, identify and communicate with the customer, and deliver connected services? PwC’s October 2, 2026 analysis of automotive value capture describes these as control points, alongside software architecture and the partner ecosystem. Its strategic distinction is between areas tied closely to differentiation, safety, brand, customer identity, proprietary data, or recurring monetization—which an OEM may want to own—and areas where shared scale, speed, or standards make partners valuable. PwC also argues that OEMs should retain integration and the interfaces connecting the vehicle, customer, and ecosystem.
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Partnerships can help with the cost and difficulty of building software capabilities, but they also require explicit boundaries around data rights, update authority, customer access, and the commercial relationship. The International Energy Agency’s May 20, 2026 review describes incumbents 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 moved toward partnerships, including its joint venture with Rivian. Ford abandoned its fully networked vehicle project in 2025.
These cases do not prove that outsourcing is generally superior. They illustrate the choices between investment, speed, control, and long-term differentiation. An OEM can partner for capabilities while still defining the architecture and interfaces it needs to preserve its role with customers.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the recent automotive investment evidence does—and does not—show
PwC says it analyzed 1,306 publicly announced investments and initiatives across 25 traditional OEMs and suppliers and 14 mobility and technology players. In its account, battery investments led in 2024 and declined in 2025, while vehicle electronics, sensors, semiconductors, and compute architecture gained prominence. By early 2026, business-model and monetization innovation led PwC’s automotive investment themes.
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This is evidence of announced activity and changing strategic emphasis, not a measurement of realized software revenue, profit, or return on investment. It shows that companies are paying attention to monetization and control, but does not establish that software-first models have already improved OEM economics overall.
How to assess whether a software-first offer is worthwhile
Evaluate a specific offer against the customer outcome and the full lifecycle commitment. A recurring charge is not itself proof of recurring value, and software revenue is not automatically more profitable than hardware revenue.
- Identify the incremental customer outcome. Explain what the software newly enables or improves, rather than charging separately for a capability customers believe was already included.
- Test willingness to pay and hardware effects. McKinsey reports that customers may resist paying more for software previously bundled with hardware, and that companies may fear software pricing will hurt hardware sales. Establish whether the paid offer adds value or mainly shifts value from the equipment sale.
- Compare pricing models against usage and value. Consider one-time fees, subscriptions, usage pricing, module licenses, and support contracts in terms of customer acceptance, predictability, implementation effort, and renewal operations.
- Account for lifecycle costs. Include development, updates, security, deployment, support, compatibility, and governance—not only the cost of the initial software build.
- Set control and partner boundaries. Decide who owns customer identity, data rights, update authority, integration, and the commercial interface, and where partner scale or speed is worth sharing control.
- Measure outcomes over time. Track realized customer value, adoption, renewals or churn where applicable, support obligations, and margins alongside revenue. The available evidence does not provide a comparable cross-industry estimate of incremental OEM profit from this shift.
The practical conclusion for OEMs
Software-first is best understood as a redesign of the product, commercial model, and post-sale relationship—not as a guaranteed margin upgrade. The strongest case is where an OEM can offer a capability customers value, keep it reliable over the product lifecycle, price it transparently, and retain enough control of architecture and customer access to capture a fair share of that value. Partnerships can contribute expertise and scale, but they do not remove the need to decide what the OEM must own.
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