Why Retaining IP In IoT Devices Has Been All But Impossible — Until Now

Every hardware leader wants to create the best device possible at a competitive cost. But they don’t want to do so at the expense of their own confidentiality, especially when leakage is an ever-present risk.

Manufacturing and testing frequently happen at an outside facility, meaning companies have a limited seal on their technical information as it flows from design to manufacturing.

So, what’s the solution?

In the past, companies were more vertically integrated and typically did their own manufacturing. This approach had direct benefits — namely the ease that came with protecting confidential aspects of a product.

Unfortunately, it was wickedly difficult to level production as product designs changed more often.

Manufacturing electronics isn’t the same as making aluminum cans.

It was simply too difficult to match capacity to demand for a single company’s product portfolio. Inevitably, companies were scaling production for peak demand and struggling with over-capacity during the downturns.

Michael Marks and his team at Flextronics recognized this in the 1990s.

Now called Flex, the company realized they could grow far larger than any single customer’s production capabilities if they focused only on manufacturing. They could lower unit costs by aggregating purchases of components and reallocating capacity to service demand across many customers.

However, while Flex created a new business model with improved efficiency and specialization, it also created conflicting interests — conflicts that persist in the industry today.

At the end of the day, brand owners are driven to protect their IP.

While Flex’s customers no doubt appreciated the savings, it came with a price.

Sure, customers could avoid the headache of managing inventory and trying to do everything in-house, but they also had to give sensitive information to Flex in order to get their product made. The benefits outweighed the fear around exchanging secure information, however, and Flex’s model subsequently shifted the industry.

In fact, it’s still being used today, though the anxieties around sharing information continue to grow.

Look at Apple.

For the past two decades, they haven’t done in-house production — they don’t have a single factory and they’ve made that model work for them very well (considering they’re now worth over $1 trillion).

Their strategic partnership with Foxconn, by far the world’s largest electronics manufacturing company, was one of the biggest creations of value I’ve ever seen in my life — for both firms.

Apple and Foxconn grew at lightning speed by trusting and letting each other do what they were good at.

Foxconn built massive factories and hired armies of workers in Shenzhen on the word of Apple; and for a long time, Apple sole-sourced their flagship products with Foxconn. And while that trust was absolutely required (and thus far has been valued), there is still a downside.

If you give everything away to another company, even one locked into a manufacturing contract with you, those secrets become much harder to keep from competitors.

Predictably, Foxconn now makes products for all of Apple’s competitors, and that’s a cause of some misgiving. So how do you maintain an advantage if everything’s going through the same factories?

Meanwhile, on the other side of the equation, contract manufacturers don’t have an easy time either.

Contract manufacturers can’t afford mercurial clients.

They’re trying to produce a product based on a fixed design, even though the practical reality is that the design is not fixed at all — it’s fluid.

The cost of keeping it flexible and fluid really ought to be with their customers, but the customers are frequently reluctant to accept the responsibility for changing things.

We know this to be true at Blue Clover Devices because we run into this situation often. For example, we may get a set of design files that we’re asked to give a quote for. Ideally, we’d sign a contract and purchase the parts needed. However, while we’re ordering, the parts needed may change due to an update in the designs from the client. This back and forth with the client creates an uncharged expense for the manufacturer that they then have to recoup.

In addition to constantly changing plans, customers move around all the time, so taking the time to understand a product and how it’s built can be a risky investment for the manufacturer.

What happens next is a natural defense mechanism on the contract manufacturing side: Companies build complex machines to make and test product, but don’t explain how they work to anyone else.

This internal knowledge becomes a bargaining chip to keep customers with them rather than moving on to a competitor.

Now we have a customer that is anxious about trusting the manufacturer with protected information, and a manufacturer that is anxious about keeping the customer over a sufficient period of time.

All this being said, there is a way for companies to retain their IP and eliminate waste on both sides of this relationship.

We invented something we call a Production Line Tool (PLT) that enables a brand-and-design firm (typically called an “OEM”) to develop the tests themselves and retain control over their firmware and testing routines throughout production.

The PLT is a box the size of a toaster oven that we make in small batches so that one sits with the OEM, while a few other identical units reside at the contract manufacturer (CM).

When receiving the PLT, the contract manufacturer is getting an exact procedure for programming and testing the product and does not have to figure it out based on pumping the client for information.

The PLT then sends production data back to the client automatically. So if there are delays due to design changes, the CM can point to the logs and clearly show the impact this has on their efficiency.

And with greater accountability on both sides, everyone can win.