”Can we protect our business model?”
That is probably the most common question professionals in the Intellectual Property (IP) space are being asked. And the most people with significant experience of working with IP and IP professionals in general would give probably give you the same answer. That it is not possible. This answer is to a large extent subjected to how IP professionals are trained and the inherent view that IP is defined by law. The answer no, is however not an entirely accurate answer. Though, to give an accurate answer we need to understand the concept of business models and their separate building blocks, and broaden our understanding of IP beyond the traditional IP law domain.
A business model is defined as,
“A business model describes the rational of how an organization creates, delivers and capture vale” – Osterwalder, et al.
By this definition a business model is very much the top level description of the value a company it is trying to create. The nature of anything aggregated to this level is that it becomes unprecise and to some extent confusing. And yet, right or wrong, it is by many perceived as a plausible, perhaps even required, approach to compete on the market. Numerus examples (Uber, Spotify and the App Store) of disruption are often described to be results of the introduction of a new business model. Though, it is seldom so that a single company will be alone with its disruptive business model. There are several companies offering a similar (not to say exact) offering as Spotify. There are several competing App stores within smart phone ecosystems (etc.). This list can swiftly be made long and dwindling. So, the question at hand “Can we protect our business model?” is justified, however as we suggest not correctly formulated. In order to use given tools to protect or control a business model in relation to our commercial surrounding we need the break the business down into smaller building blocks. Hence, the question should be re-formulated as following, “To what extent can parts of my business model be protected, and which parts are crucial to control for us going forward?”
The business model
Canvas Osterwalder’s (et al) business model canvas is an excellent tool to deconstruct a business model. As it structure the business model into several generic building blocks or elements,
- Customer Segments – The segments of clients/customers an organization aims to serve
- Value proposition – The value proposition it seeks to solve customer problems with and satisfy customer needs.
- Channels – Communication, distribution and sales channels that is used to engage the market
- Customer Relationship – Customer relationships within the defined segments and how these are maintained and evolved.
- Revenue streams – Revenue streams resulting from the value proposition successfully offered to the market
- Key Resources – These are the assets required to deliver the Value preposition and maintain the above defined building blocks.
- Key Partners – Relationships needed to deliver the value proposition and maintain the above defined building blocks.
- Cost structure – The costs for the organization to delivery said value proposition and the above defined building blocks.
Definition of Control Positions
The business model canvas helps us to destructure the business model in such a way that we can start reflecting over the benefit of control and applying control over critical parts and activities should we see the benefit of generating lasting competitive advantages. IP is, however, only on legal tool among others. IP, as a legal domain needs to be complemented with additional control dimensions that often do not reside on the palet of an IP-professional. We define control positions as, “Ownership and/or possession over an asset in relation to a graspable/quantifiable time horizon.”
To build control over your business model you need to fully understand it and also its underlying components/building blocks. The picture below illustrates, on a generic level what types of control we can deploy subjected to the different building blocks in the business model canvas.
The pictures illustrates what can be done in terms of building control if we expand our vision beyond traditional IP law. As the picture above depicts several completing skills may be necessary to exercise full control.
However, what is more important and vital when building control around a business models is prioritization and what building blocks are essential. In order to build a strong control position of your business model a diligent and scrutinized approach is required, i.e. we need to prioritize. A prioritization should be conducted on the basis of value contribution in terms such as revenue contribution, speed to market and cost (etc.). It also important to understand that some extent building control can be contra productive. Partly open or fully open business models typically give edge in terms of speed and agility, especially in saturated or well established market places. Additionally building control comes with transactional cost, either direct transactional costs in terms of IP investments or in-direct transactional costs in terms negotiation and regulation of relationships. The value of the aimed control must compensate for those cost – otherwise there is no point.
Building Blocks and Control
The perspective on business model protection is different from traditional IP protection for tech, design, etc. The reason is that a business model is more complex as it is composed of components, which a trained IP lawyer has been tought is excluded from the intellectual property right arena. The degree of specialization in legal fields also implies that legal consultants become deeper and more narrow in their expertise. In the business model field the need is to go into a different direction to become broad to grasp the genious in a business model. This is, according to our experience, not that much a question of training, but more of adopting a systemic approach on the present. Systemic thinking is setting and understanding a context and what role the building blocks of the context play and how they change and effect the context over time
Taking control over an asset, a position, can be achieved by applying 4 types/categories of control. Either as standalone control positions or in combination with each other – the systemic approach. A business model is a quantity of relations between structures, external and internal relations generating a context. When approaching a business model with the intent of building control, typically all 4 control dimensions come into play.
IP Based Control – Refers to control /protection of innovation rendered by Intellectual Property Law. This includes patents, trademarks, design rights and copyright
Secrecy based control – Refers to control/protection of innovation through means of secrecy. This includes trade secrets, non-discloser agreements but primarily processes and structures to maintain secrets within an organisation – culture.
Relationship based control – Refers to control/protection of innovation through means of relationships. Relationships can be formal or informal. Predictability and consistency implies control of which a contract between 2 or many can be ideal.
Capability based control – Refers to control of innovation through unique capabilities, built up over time. Typically these capabilities require deep insights that would cost substantially for others to build.
For people involved in business it is evident that greater value can exist in key partners and loyal customers more than a technology. Also the technology generating a good relationship to the customer base or key partners can be more important than the technology generating the value proposition, which is perceived as the article of purchase. As mentioned where is the value of Spotify and where does its value proposition reside?
The value to the customer paying for the streaming service is content at a good price. The content needs to fill all my cravings for sound otherwise I will start looking for a different supplier. For the content provider it is, of course, important that my platform supports the quality and serves the end consumers that I want to reach. Otherwise Spotify would not be an option. The non-systemic IP perspective on Spotify would be to patent the platform, which probably was important at some stage but to forget about the key activities, partners and segments that make up the business model. This is where relationship-based control is an excellent tool often in combination with secrecy and also potentially IP.
The systemic approach implies the perspective of many different capabilities in change. This requires that different competencies interact to not only create control, but also to prioritize right legal control activities to take place for the most impact. Resources are always scarce.
The Ostervalds business model canvas is one of many models that, as a secondary effect, help to define the structures to start to think about control and apply ownership and/or possession over an asset in relation to a graspable/quantifiable time horizon. The systemic thinking is, however, key to success.
Prinicipal, Head of Rouse Consultancy SE
Principal, Sweden Country Manager