For some of the most clinically advanced technologies on the planet, the commercial model behind many medical devices is surprisingly old-fashioned. A device ships as a box with a fixed configuration, a single price, and a lone SKU. Revenue is recognized once, at the moment of purchase.
That model made sense when the device was the product. However, today, much of the value is in the software: diagnostics algorithms, imaging capabilities, workflow automation, and predictive analytics. Hospitals are now wanting that value in different ways: subscriptions, pay-per-procedure access, and flexible licensing based on use.
The tension is less about pricing than it is about architecture. Medical device manufacturers built their businesses around CAPEX hardware transactions. The market is now asking them to operate like software companies.
Why the Old Hardware SKU Model Is Breaking Down
Historically, device manufacturers managed product differentiation through hardware variation. If a vendor wanted a “standard” and “premium” version of a system, they often shipped two distinct hardware configurations. Each SKU represented a particular feature set.
The approach worked, but it carried real operational costs. Every additional SKU increased manufacturing complexity, inventory management overhead, tooling costs, and logistics burden. Maintaining dozens of variants simply to represent different software capabilities quickly becomes unsustainable.
More importantly, it constrains market reach. Entry-level customers may be priced out because they cannot afford the full device configuration, while high-end customers may receive advanced features that are never fully monetized because they are bundled into the hardware price.
Hospitals are also adapting their buying behaviors. Capital budgets are still constrained, particularly in the public healthcare systems, while operational budgets are being seen as the new way to acquire technology. A payment model based on actual device usage is seen as easier to incorporate into the buying process than a seven-figure outright purchase.
Some in the industry call this the "packaging trifecta": three questions that a commercial model must be able to answer, and keep answering, across the lifecycle of a device.
- The first is capability: which features does this customer actually need, and which are they paying for but not using?
- The second is payment structure: does this customer need to spread cost across an operating budget rather than commit to a capital expenditure?
- The third is value alignment: does the price reflect what the customer believes the device delivers, not just what it costs to manufacture?
The traditional hardware SKU model answers these questions only once, when the device leaves the factory. Software-driven products require answers that can evolve.
What Software Licensing Actually Unlocks
This is where software licensing and entitlement management change the equation.
Through flexible pricing and packaging, the ability to define commercial offers independently from the underlying device. The second is business model agility, which means the ability to support subscription, perpetual license, and usage-based models without changing the product or rebuilding the sales infrastructure.
The shift in the operation is not immediately obvious but is very powerful. Instead of building different devices to represent different feature sets, manufacturers can build a single hardware platform and enable the features through software entitlements.
Feature-based licensing makes this possible. A single device might support a base diagnostic package, advanced analytics modules, specialized imaging algorithms, or regional regulatory features, all of which can be activated or deactivated through licensing policies.
One large manufacturer of cancer treatment equipment faced exactly this challenge. The company’s portfolio included more than 20 hardware platforms and over 200 software features that could be combined into different clinical offerings. Product management teams needed the ability to package those features differently, for some 2,000 customers, depending on geography, clinical specialization, or hospital budget constraints.
Without a systematic licensing strategy, each packaging change would require engineering work or operational impacts.
The company finally deployed a licensing and entitlement management solution that enabled them to bundle or modify feature sets without changing underlying device software.
Scalable monetization requires a clear separation between software engineering and commercial packaging. When that separation exists, product teams can experiment with pricing and packaging without pulling engineering resources into every commercial decision.
Real-World Proof: A Diagnostics Company Scaling Globally
The importance of this separation becomes even more apparent in younger companies scaling internationally.
Companies scaling internationally consistently encounter the same inflection point. Their early-stage, homegrown licensing infrastructure, adequate at launch, can’t support the multi-dimensional pricing models that hospital procurement across different geographies demands.
The company wanted to implement subscription-based models for annual recurring revenue. It also wanted a multidimensional pricing model based on geography, hospital size, and diagnostic volume. It wanted its distribution partners to be able to use the product for trials, downloads, and activations without involving the core team's engineers.
Adopting a dedicated licensing and entitlement management platform changed this. Licensing policies, pricing models, and entitlements could now be configured without engineering intervention. Distribution partners had access to self-service portals for license activation and product trials, and the company could align its pricing structures with how hospitals actually used the technology.
This led to smoother operations, created the commercial infrastructure needed for international expansion, and supported the company’s preparation for a future public listing.
Why Packaging Is Never a One-Time Event
One of the most consistent lessons across the industry is that product packaging is not static.
Hospitals may initially purchase a base configuration but later want to add advanced features. Some customers will discover that certain capabilities go unused and ask to downgrade. Others will move from perpetual licensing to subscription models as budgeting priorities change.
The ability to adapt to these changes without the need for engineers is a form of competitive advantage.
This means that medical device companies must consider business model flexibility as an operational capability. Licensing, entitlements, and usage intelligence are the building blocks for packaging flexibility.
In the absence of this infrastructure, complexity grows exponentially with revenue.
A Strategic Question for Medical Device Leaders
The medical device industry is entering an era in which software defines clinical value and competitive differentiation. AI-based diagnostics improve with every update. Imaging systems gain new capabilities without new hardware. Connected surgical tools generate data that feeds the next generation of algorithms.
But a device that improves continuously through software creates a commercial problem if the revenue model only fires once. The question worth asking is not whether to modernize monetization; most device leaders already know the answer. The more useful question is operational: when a hospital calls to add a feature, upgrade a license tier, or shift from perpetual to subscription, how many people and how many manual steps are required by that change?
The answer to that question is a fairly accurate measure of how far there is to go.
BIO
Kirsten Doyle has been in the technology journalism and editing space for nearly 24 years, during which time she has developed a great love for all aspects of technology, as well as words themselves. Her experience spans B2B tech, with a lot of focus on cybersecurity, cloud, enterprise, digital transformation, and data centre. Her specialties are in news, thought leadership, features, white papers, and PR writing, and she is an experienced editor for both print and online publications. She is also a regular writer at Bora.
