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Why Nvidia sees a future in software and services: Recurring revenue
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Nvidia is repositioning itself as a software and services company, allowing it to regularly extract revenue from those using its graphics processors.
"Now we're entering into a new phase, a new phase that we are thinking about software, and a business model for software to sell separately," Colette Kress, chief financial officer of Nvidia, told the Morgan Stanley Technology, Media and Telecom conference this week.
Things haven't been easy on the hardware side of Nvidia, with semiconductor supply shortages, unhappy gamers, and the failed Arm acquisition. Well, never mind that. The software side will offer a more predictable revenue stream, Kress said.
Not only does the hardware at the very beginning produce revenue, but software over the life of owning the car will
The CFO gave the example of how autonomous cars will drive a recurring software revenue. Mercedes-Benz, starting in 2024, and Jaguar Land Rover, starting in 2025, will ship self-driving vehicles with Nvidia's computers and DRIVE operating system.
"Their entire fleets will be operated with Nvidia software, and we will have the ability to share that software with those OEMs and monetize it over the life of the cars being on the road," Kress said, adding that she expected the number of such cars to reach about 10 million.
Nvidia is working with Mercedes-Benz and Jaguar Land Rover to customize software for their vehicles. The GPU giant has been preaching the car-as-a-service model, in which automakers can remotely turn on car features, such as driver assistance, through subscription services. Nvidia could get a cut from such services delivered through its in-vehicle hardware.
"We have the ability for the hardware to exist for the lifetime inside of the car [and] the software to be addressed each time with over-air updates. Not only does the hardware at the very beginning produce revenue, but software over the life of owning the car will," Kress said.
This is just the start of these kinds of opportunities, Kress said, adding: "The pipelines are growing for this and we'll look to provide metrics when the software is relevant."
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Nvidia is also expecting software revenue from the emerging opportunity of metaverse, for which it is providing the plumbing in the form of its graphics cards. The biz ultimately wants to tap into a market of millions of makers who will need tools to create avatars as well as the 3D worlds in which they'll collaborate and communicate, Kress said. The chip titan already offers Omniverse, which is a metaverse creation suite in which folks can build interactive virtual universes to work and play in. Kress didn't hesitate to put a potential dollar value on this opportunity.
"So for the 40 million different creatives that are out there, we can add about $1,000 a person per year ... That's one important piece," she said.
Omniverse can also be used by engineers and manufacturers to create and simulate products and machinery in collaborative virtual spaces. "We've been able to do this by bringing both ray tracing to market, that is procuring real-time visual effects, but also bringing AI together and now simulating all of this together with just physics of those environments that they create," Kress said.
To that end, Nvidia is working on the necessary materials to design and simulate robots and cars in virtual-reality workshops. It's also making it possible to create interactive bots to answer people's queries in immersive 3D environments.
Creating that bot, creating that digital twin, could be approximately about $1,000 a year for each one of these
"This could be used for service centers, call centers, as they are using these bots to have more of an interactive discussion with our customers. Creating that bot, creating that digital twin, could be approximately about $1,000 a year for each one of these," Kress spitballed.
Nvidia CEO Jensen Huang is expected to make more announcements about Omniverse and related software offerings at the company's upcoming GPU Technology Conference on March 22.
Nv is a full-stack company with tightly integrated hardware and software. The US giant's parallel computing suite CUDA is not exactly open to competitors, and Huang has reiterated he will not open source it, calling it the centerpiece of his software strategy. He is, however, theoretically open to third parties designing chips tuned for CUDA.
Nvidia is known for its software: from AI framework code to applications to development kits. You buy its hardware, the software comes with it. "Now we have an ability to monetize that separately," Kress said. ®