Pattern description

Efforts are focused on developing intellectual property that can be licensed to other manufacturers. This model, therefore, relies not on the realization and utilization of knowledge in the form of products, but attempts to transform these intangible goods into money. This allows a company to focus on research and development. It also allows the provision of knowledge, which would otherwise be left unused and potentially be valuable to third parties.

Inventive problems

Application examples

The cartoon character Mickey Mouse, created by Walt Disney in 1928, is one of the most famous examples of Licensing. Disney licensed the rights to a company in 1930, which proceeded to produce Mickey Mouse schoolbags. Films, video games and a plethora of other merchandise followed. Using this model, Walt Disney built an exceptionally strong brand and earned immense profits from his creation.

IBM started to license its intellectual property at an early stage, before most of its competitors in the information and media technology industry had caught on. IBM’s research and development department sometimes creates technologies that cannot be directly applied to new products in-house, so at least a portion of its output is licensed to other companies. IBM generates around US $1.1 billion in revenues from Licensing. Indeed, IBM Research has the specific mission to create innovations for Licensing to other companies. A key prerequisite for Licensing to work is strong and rigorous patenting, which is why IBM attributes great importance to patenting strategies.

BASF, the world’s leading chemical company offering a vast product portfolio ranging from chemicals, plastics, performance products and crop protection products to oil and gas, has also applied the Licensing business model lucratively. Like IBM, BASF licenses out ideas generated by its R&D department which, while comparatively uninteresting to itself, nevertheless have a considerable production potential.

References

The Business Model Navigator: 55 Models That Will Revolutionise Your Business