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What “software-first” means for an OEM
An original equipment manufacturer (OEM) traditionally competes through the physical product: its performance, configuration, price, and maintenance. A software-first approach makes software an independently managed part of the offer. It can differentiate capabilities on shared hardware, deliver improvements after purchase, and create a basis for separate licensing or services.
This is not simply a decision to add a subscription. It changes what the company sells, how it develops and updates the product, and who controls the relationship with the customer. The evidence is clearest in automotive and industrial equipment; it does not establish a single transition path for every OEM sector, including IT infrastructure.
How software changes the product and revenue model
One platform, selectable capabilities
Instead of maintaining many hardware configurations to serve different needs, an industrial OEM may use one or a small number of platforms and distinguish them through software. In a March 2026 Automation World report, Stäubli Robotics is described as using licensed modules for capabilities such as simulation, programming, monitoring, and ecosystem integration. Customers can add functionality without replacing the machine. The report describes an operating approach, not audited evidence of its financial results or proof that it will work equally well for other manufacturers.
#1 Best Overall
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This model can make capability upgrades available after the initial purchase. It also shifts complexity: fewer physical variants may mean more work in software packaging, licensing, compatibility, and customer support.
Revenue after the sale
Connected vehicles and over-the-air (OTA) systems can support software fixes, cybersecurity updates, performance changes, and new features after a vehicle is sold. The International Energy Agency (IEA) describes paid automotive features offered through one-time payments, subscriptions, or pay-per-use. In industrial software, Automation World describes modular licenses, flat subscriptions, and consumption-based pricing. For automotive suppliers, Roland Berger also outlines per-vehicle, per-electronic control unit (ECU), per-feature, and developer-seat pricing.
These arrangements move some revenue from the purchase date into the period when a customer uses or renews a capability. Licensing deals can also combine an upfront fee with maintenance. The payment structure alone does not show whether a model is profitable: the OEM still has to account for software development, updates, security, sales, support, and renewals.
Rank #2
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| Model | When the customer pays | What it can fit | Commercial consideration |
|---|---|---|---|
| One-time feature payment | When a feature is unlocked or purchased | A distinct capability the customer wants to add | The offer needs a clear benefit that justifies a separate purchase. The IEA describes this option for automotive features. |
| Subscription | On a recurring schedule while the service or capability is subscribed to | Ongoing access to software or connected services | Requires a continuing reason to renew and an operating model for support and lifecycle updates. Described by the IEA and Automation World. |
| Usage-based or pay-per-use | According to usage | Capabilities whose value or consumption varies with use | Payment can track use, but the OEM must define and administer the usage measure. Described by the IEA and Automation World. |
| Modular license | For selected software modules; exact timing depends on the license arrangement | Industrial capabilities customers may add as needs change | Requires clear module boundaries and a way to manage entitlements. Automation World reports this approach at Stäubli Robotics. |
| Per-vehicle, per-ECU, per-feature, or developer-seat license | According to the chosen licensing unit | Automotive supplier software sold to vehicle programs or development organizations | The unit determines how price scales with deployment. Roland Berger presents these as licensing options, not as a universal standard. |
| Upfront license plus maintenance | An initial fee plus ongoing maintenance payments | Software licensing arrangements that pair initial access with continuing support | The contract needs to define what maintenance includes; the source material does not establish a standard fee or margin. |
Why this requires a different kind of product business
Software cannot always be priced cleanly when it remains bundled with hardware engineering. Roland Berger argues that automotive Tier-1 suppliers need to separate software capabilities within hardware-software bundles before charging distinctly for them. It also identifies product-management authority over roadmaps and releases, continuous deployment capability, and lifecycle governance as organizational requirements.
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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →Scan for outdated or missing drivers - takes under a minuteDriver Scan →McKinsey’s analysis of industrial software likewise points to changes in packaging, pricing, go-to-market strategy, and sales organization. A company accustomed to selling equipment at delivery must be able to explain, contract, deliver, update, and support a software offer over time. Hardware and software teams also need coordinated commercial incentives, particularly if software could affect demand for hardware configurations.
Who controls value after the sale?
For connected products, value capture depends partly on control of the systems and relationships that remain active after delivery. In an October 2, 2026 analysis, PwC identifies software architecture, update authority, data rights, customer identity, connected services, and partner ecosystems as automotive control points. Its strategic distinction is between capabilities tied to differentiation, safety, brand, proprietary data, customer identity, or recurring monetization—which may justify OEM control—and areas where partners can contribute shared scale, speed, or standards. PwC also argues that OEMs should retain integration and the interfaces connecting vehicle, customer, and ecosystem.
Rank #3
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Building everything internally is not automatically the answer. The IEA’s May 20, 2026 review describes the transition to software-defined vehicles as difficult in both time and investment. 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 illustrate the trade-off among investment, speed, control, and long-term differentiation; they do not establish that outsourcing is always superior.
PwC’s October 2026 analysis says it examined 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 the automotive investment themes. These are patterns in announced activity and thematic ranking, not measurements of realized revenue or profit.
Where software-first models can fail
Customers see a new charge, not new value
McKinsey warns that customers may resist paying separately for software they previously regarded as part of the hardware purchase. A fee can feel like a loss of included functionality unless the OEM explains what has changed and what outcome the paid option provides. McKinsey also reports that internal teams may worry separate software pricing will undermine hardware sales.
Rank #4
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- Next-Level 10Gbps & 3A Charging: No more slow 480Mbps, this usb to usb c adapter has a transfer speed of up to 10Gbps, allowing you to do more transferring in less time. This usb adapter fits both USB A and USB C charger, supporting up to 3A fast charging
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The revenue stream brings continuing obligations
A recurring license or subscription is not cost-free revenue. The OEM needs to maintain the software, deliver updates, address security, handle support, and manage renewals. A product architecture that enables continuous delivery also requires different development, release, product-management, and lifecycle-governance practices, as Roland Berger describes for automotive suppliers.
A partner owns too much of the customer relationship
External platforms and partners can contribute scale and speed, but arrangements that leave the OEM without meaningful access to customer identity, data rights, update authority, or the commercial interface may limit its ability to serve customers and capture future value. PwC’s automotive analysis frames these as strategic control points; the IEA’s examples show why the build-versus-partner choice also involves investment and execution risk.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How executives can assess a software-first offer
Before treating a software feature as a new revenue line, assess the whole lifecycle proposition. The right model depends on the customer outcome, the product architecture, and the OEM’s ability to deliver and sell the offer; the available evidence does not establish one pricing model as universally best.
Best Value
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| Decision area | Question to answer |
|---|---|
| Customer value | Does the software improve an outcome customers recognize and are willing to pay for? |
| Revenue timing | Does an upfront fee, recurring subscription, usage charge, module license, or maintenance arrangement match when the customer receives value? |
| Lifecycle economics | Can expected revenue support development, updates, security, support, and renewal work over the product’s life? |
| Customer and data control | Who controls customer identity, data rights, updates, and the ongoing commercial relationship? |
| Build or partner | Which capabilities are differentiating enough to keep in-house, and where do partner scale, speed, or shared standards outweigh the loss of control? |
| Commercial readiness | Can product management, sales, packaging, pricing, and hardware teams support the offer without creating conflicting incentives? |
Assess outcomes rather than treating recurring billing as a proxy for success. Useful measures include realized customer value, lifecycle costs, renewal or churn, support obligations, and the resources required to keep software current. McKinsey’s discussion of customer acceptance and the execution requirements identified by Roland Berger and the IEA make those checks central to the business case.
What the evidence does—and does not—show
The examples from automotive and industrial equipment show mechanisms for extending monetization beyond the hardware transaction: capability licenses, connected services, updates, and alternative pricing units. They also show organizational and control challenges that can affect whether those mechanisms work.
They do not establish a comparable cross-industry estimate of additional OEM profit or valuation caused by software-first models. Recurring revenue may improve the timing or visibility of receipts, but higher profit depends on customer willingness to pay and the full costs of developing and supporting the offer.
Quick Recap
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