In the Summer 2001 issue of the Vertex Angle, we asked the following question.
What do the following products and businesses have in common?
- DolbyTM Laboratories
- Tim Hortons®
- VHS Video recorders.
The common aspect of these products and businesses is that they have all enjoyed commercial success through the licensing process.
The business plan of DolbyTM Laboratories is one that is predicated on licensing the technology that it develops. Dolby develops audio signal processing systems and manufactures professional equipment to implement these technologies in the motion picture, broadcasting and music recording industries. Dolby then licenses these technologies for use in the consumer electronics industry. According to the Dolby website, as of May 2001, 883,521,860 licensed products have been sold since Dolby's beginning in the late 1960s. Whether it's from a car radio or a television, or in a movie theatre, most people in North America will have listened to Dolby enhanced audio at one time or another.
Franchising is a form of licensing. Through this form of licensing, Tim Hortons® became the largest Canadian chain in its category of coffee and fresh baked goods. This nationally know chain provides knowledgeable advice and direction to its committed and dedicated franchisees. The licensing business model has enabled the organization to grow from a single store in Hamilton, Ontario in 1964 to 2000 stores nation wide by December 2000.
In 1968, Ron Hickman was convinced that his collapsible portable workbench was patentable and had great practical utility. After an initial attempt to license the patent was unsuccessful, Hickman produced workbenches himself. Within four years, sales grew to 14,000 units per year. It was this success that prompted potential licensees to reconsider and in 1972 Black and Decker licensed the rights to manufacture and sell the WorkmateTM product. The WorkmateTM went on to be one of Black & Decker's most successful products. When we hold licensing seminars, we often find that over 50% of the participants have a WorkmateTM, but generally only one or two of the group are aware that Black and Decker acquired the rights to this product through licensing and turned the WorkmateTM into a most lucrative product line.
In the early 1980s, video recorders were becoming affordable for the home use market and the demand for product was growing at breakneck speed. There were two different formats available; namely Sony's Beta product and JVC's VHS product. While the Beta format was recognized to be the higher quality technology, the VHS format was considered adequate for the home consumer. Sony guarded their patents and refused to license, while JVC licensed their technology widely. This licensing approach resulted in a downward pricing of products using the VHS technology and increased availability in the consumer market. As a result of JVC's effective licensing strategy, Sony lost out on the home market opportunity for their technology and VHS was established as the standard for home use.
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