By Jérome Rampon and Vincent Mouret, Algodone

The Shift to an as-a-Service (aaS) Economy

150 years ago, Charles Darwin observed that change is the basic law of nature, and the species that will survive are not the strongest, nor the most intelligent, but the one most responsive to
change. Beyond nature, the ability to adapt to the changing physical, social, political, moral and spiritual environment defines a successful individual, a business and even a civilization.

Changes are all too familiar in the semiconductor industry. In fact, Moore’s law – the number of transistors in an integrated circuit doubles every 2 years – dictates the speed of change in our
industry. Semiconductor innovations such as personal computers, the internet, smart phones, Internet of Things (IoT) and Artificial Intelligence (AI) have created a world drastically
different from the one 50 years ago. And the pace of change is only accelerating.

Changes can bring both threats and opportunities to businesses. Out of the Fortune 500 companies in 1955, only 60 remained on the list in 2016 [8], a stark reminder that Darwin’s law
is at work, and the ones that survive and stay relevant in today’s economy are the ones that are quick to respond to change.

In 1889, Edison General Electric Company (GE) started by selling lighting fixtures, today it has diversified into many market segments such as aviation, healthcare, and power, and derives
significant revenues from services. International Business Machine (IBM) became well-known for selling super computers, today it advertises about its cognitive data services provided by
Watson. Many new companies entered the arena and became major shakers and contributors in the economy by offering valuable services: Google, Facebook, Amazon, Netflix, AirBnB,
Spotify, Dropbox, Paypal, Baidu, Alibaba, and Tencent, to name a few. There is a common DNA shared by these successful companies: they generate recurring revenues by offering
services, sometimes based on products they do not even own. The world economy as a whole has shifted from a product-based economy to a service-based economy with a corresponding
shift to a subscription pricing model.

Three major consumer trends are driving the shift:

    • Sharing instead of ownership
      • Often, we buy products that we only use occasionally, a great waste of both
        money and space for storage. What’s even more important, with the rapid growth
        of world population, product ownership by all is simply not sustainable for the
        limited resources we have on earth. Sharing became a necessity. AirBnB made
        $2.7B revenue in 2017 [1] by simply allowing us to share our homes. It is
        predicted that by 2030, private car ownership will drop 80% and the number of
        passenger vehicles on American roads will go from 247 million in 2020 to 44
        million in 2030 [2], all due to ride sharing. At the core, the as-a-service model
        means sharing and paying based on usage.
    • Personalization:
      • More than ever before, we value and celebrate our unique individuality. We have
        different interests and taste; hence we demand different kinds of services.
        Owning a CD means everyone owns the same set of songs on the CD, yet
        through the Apple’s iTune store, we can choose our own music playlist. The asa-
        service model encourages diversity and allows us to make unique and finegrained
        choices in endless forms.
    • No planned obsolescence:
      • The products we own can become obsolete and be rendered useless over time.
        Yet we want continuous service and stay up-to-date with the latest features and
        security updates. Think about the software subscription model (so called
        software-as-a-service) that allows us the access to say Adobe Creative Suite
        anytime and anywhere. The as-a-service model keeps what we need available

These changes are abundant but certainly not limited to the consumer market. An undercurrent has emerged for the semiconductor industry to offer silicon as a service. It is true that the
semiconductor industry has enjoyed robust growth in recent years, driven by new technologies such as AI, 5G communication, IoT devices, autonomous vehicles, and crypto money mining
on the one hand, and on the other hand, continuous shrinking of technology nodes following Moore’s law for higher integration, lower power consumption and lower chip production cost.
For the most part, the semiconductor industry still employs a product-based business model. Why should the semiconductor industry change to adopt a more service-based business model?
Let’s examine if the current business model of the semiconductor industry is sustainable.

The Reality of the Semiconductor Industry

Let’s start by doing some elementary math.

Problem 1. A bag of 50lb rice contains roughly 1M grains of rice, and costs $25. How much
money does it cost to buy 400M grains of rice?
1M grains of rice costs $25
400 * $25 = $10,000.
400M grains of rice cost $10,000.

Problem 2. Use the data from the graph below [9], calculate how much money does it costs
buy a silicon chip with 400M transistors, assuming the latest 7nm technology?

Assuming CMOS technology where each NAND2 gate has 4 transistors, 400M
transistors cost the same as 100M gates, which at 7nm, is $1.31 according to the data above.

Problem 3. What can you conclude from this exercise?
Answer: This is crazy! A grain of rice is about 7600x more expensive than a transistor, which
costs $100M+ investment to design and manufacture? How can this be sustainable?

Indeed, this cannot be sustainable. According to a 2017 Accenture report [3], while the cost of production at 45nm is only marginally higher than that of 65nm, design and manufacturing cost
increases exponentially at newer technology nodes, 1300 percent from 65nm to 10nm. At 7nm, the total cost of design and manufacturing is expected to exceed $400M, and $600M at 5nm.
However, the rising cost doesn’t necessarily translate to rising revenue. In fact, the semiconductor industry is being tightly squeezed between the ever-increasing pressure of the
system makers to push down on the hardware cost and at the same time shoulder the burden of the rising technology investment needed as we come to the end of Moore’s law. As a
comparison, on the larger scale, worldwide electronic system revenue in 2017 is $1493B, 3.56x the revenue of the semiconductor industry at $419.1B [4]; on the smaller scale, the 64 GB
iPhone 8 sells for $699, 2.8x the bill of material cost at $247.51[5]. It is a paradox that the semiconductor industry, at leading edge for technology innovations which has no equivalent in any other
industrial domain, is having a hard time extracting value from its creation.

Something must be changed for the semiconductor industry to sustain healthy growth and to continue the semiconductor innovations. And that something is its business model. The industry
must learn from adjacent industries to adopt the proven as-a-service business model and make our silicon innovation not a cheaper-than-rice commodity product, but a continuous revenue generating service platform. This can be done and must be done. The time is now.

The Benefits of the as-a-Service Business Model
Let’s first take a look the familiar software-as-a-service business model. Decades ago, enterprise and consumer software were sold with perpetual licenses, often with potential high
entry fees and node-locked to a particular machine. Today, most software has moved to a time based licensing model, where users have to renew on a yearly or monthly basis. This transition
was enabled by the technology advancement in web connection, telecommunication network infrastructure, and software virtualization. But most importantly, the smooth acceptance of the
business model change was due to the many benefits it brings to its customers, namely:

  • Reduced entry barrier on cost (lower per time period subscription fee vs higher perpetual
  • Increased flexibility on access (anytime from anywhere on any device)
  • Improved Quality of Service with frequent software updates and 24×7 support

Software-as-a-service does not only benefit end users. For software providers, software-as-a service offers recurring revenue generation through time-based subscription, as well as further
monetization opportunities through feature upgrade, benefiting from the long-term customer relations. It is a clear win-win for all.

With the success demonstrated by the software industry, the as-a-service model has since been widely adopted by many other industry domains, such as infrastructure-as-a-service and
platform-as-a-service. Amazon Web Services (AWS) generated $17.459B in revenue in 2017, up 43% from 2016, with more than 54,000 databases from vendors such as Oracle migrated to
AWS [6]. Apple, despite being known for its products such as iPod, iPhone, iPad, and Mac computers, expects its services to be the main driver of its revenue. In fact, Apple boasts 270
million paid subscribers, with a minimum growth of 25% in each geographical region [7].

Today to consumers, the as-a-service model became synonyms of Anywhere, Real-time, and Personalized Service with On-going Value and On-demand Fulfillment. To the service
providers, it means enhanced efficiency and profitability. With the benefits of all stakeholders, it is not surprising that the economy is shifting to services.

Why is the semiconductor industry fast in embracing technology innovation yet slow to adapt to change in the business model? Talking to industry leaders, the desire for change is there, yet
the progress has been slow for two main reasons:

1. Lack of silicon licensing scheme

To enable the as-a-service model, Digital Rights Management (DRM) technology
has to be in place to ensure the legitimate use of digital content. As consumers, we
use DRM on a daily basis: when we buy smartphone apps, music, movies, eBooks,
our access of these content are all controlled by DRM technology. In the world of
EDA, FlexLM and RLM licenses make sure the EDA software are used within the
subscribed time-frame. Silicon-as-a-service also requires a silicon licensing scheme
that can manage semiconductor digital rights.

2. The complexity of semiconductor supply chain

Unlike the other industries, the semiconductor supply chain involves many players
and is inherently complicated. There are design houses, IP vendors, EDA tool
suppliers, foundries, OEM, ODM, test and packaging companies to name a few.
Streamlining the silicon-as-a-service model requires coordination of all stakeholders
on how to enable smooth transition.

Despite the challenges, silicon-as-a-service is happening. Consider Amazon web services, or Microsoft Azure, or Alibaba Cloud, customers today are taking advantage of the shared CPU,
GPU, and FPGA acceleration resources in the as-a-service model. Few companies today opt to create their own server farm for computation and storage, most opt to leverage one of the cloud
service providers, for all the benefits shared in the software-as-a-service model. It is not hard to envision that more and more silicon will join the list of semiconductor chips to be shared as
a service platform, rather than sold as a product.

Realizing the Silicon-as-a-Service Vision

A key enabling technology for silicon-as-a-service is the licensing scheme to protect and meter usage for the silicon, much like the licensing scheme for the software. Unlike licensing for
software however, a silicon-native licensing scheme is inherently more secure because it relies on the use of finger-printing or DNA technology that uniquely distinguishes otherwise
completely identical hardware chips, combined with strong cryptographic functions for secure and tamper-proof activation. Example usages of the silicon licensing include:

  • Global activation that acts like an on-off switch for the selected functions on silicon
  • Feature activation that offers a finer grain control where selected features can be
    activated at runtime with different license keys. For example, in a video decoding
    function, it is possible to provision a free license for SD resolution, a cheap license for
    HD and an expensive license for 4K resolution, the license could be provisioned as
    needed in field.
  • Time-based licenses allow prospective customers to try-out the desired IP before
  • Location-based licenses limit device usage within a defined geographical region.
  • Floating licenses that offer metering of silicon usage and bill on a pay-per-use model.

These use cases, currently supported by Algodone’s Silicon Activation Licensing TechnologyTM (SALT), enable this new business paradigm for the semiconductor industry. In
fact, silicon-as-a-service is the exact vision of Algodone founders, Jérome Rampon, Gaël Paul and university professor Lionel Torres, widely recognized for his work on cryptographic
applications and chip architectures. SALT has been deployed by Accelize to enable off-the shelf FPGA hardware accelerator functions in public cloud or enterprise platforms. SALT
warrants IP providers and FPGAs accelerators developers that their Intellectual property is protected and they get remunerated on a “pay-per-use” basis.

The Cloud has reshaped the software industry in the last 10 years, it will also participate in the semiconductor industry evolution in its journey to adopt the silicon-as-a-service business
model. Mechanisms to secure Intellectual Property, to manage configurations, to measure usages have to be put in place to achieve this. SALT will be the necessary ingredient of this

About Algodone

Algodone was founded in 2015 with a vision of enabling a new business paradigm for the semiconductor industry, “Silicon-As-A-Service”. Through its patented Silicon Activation
Licensing Technology (SALT), developed in collaboration with the University of Montpellier, semiconductor companies can activate/de-activate functionalities, configure
features throughout silicons’ life cycle, monitor/control device usage through time, space, or special events, and most importantly, protect silicon Intellectual Property (IP) assets.
“Silicon-As-A- Service” offers enhanced flexibility, profitability and security for the semiconductor industry. For more information, visit

SALT is a trademark of Algodone