Many IP owners often think of licensing to one partner for all markets as the licensing strategy. But that usually leaves money on the table, especially if your IP is adaptable to different types of industries and markets.
In the business world, the vertical business model means focusing or going deep into a single market and dominating it through consistent product sales—the vertical licensing strategy allows others to use your IP in specific markets. Unlike a broad horizontal approach that focuses on licensing partners who sell into as many markets as possible, the vertical strategy focuses on licensing partners selling into specific markets. Each vertical potentially has one or more licensing partners.
A good example is a Canadian company using a vertical licensing strategy for their proprietary precise dehydration method and equipment for organic materials. Their IP is faster and cheaper than freeze-drying and provides a more consistent finished product. The company's licensing goal is to position its dehydration technology as a standard for different industries. It licenses both the equipment and method technology, and royalties are paid based on the IP usage by its licensing partners.
The company successfully signed over 20 licensing agreements for its technology in several vertical markets, including food, pharmaceuticals, and most recently, cannabis. It adapted its technology for the cannabis industry, enabling it to dry and decontaminate cannabis and shorten the time from harvest to marketable cannabis products.
Since its cannabis licensing partner is one of the most prominent players in the industry, it also included sublicensing rights. This strategy enables them to build their licensing program in the cannabis market without needing the expertise or knowledge of the fast-growing and highly regulated US cannabis market. Their licensing partner knows the production side of the cannabis business and can find the right type of licensing partners for the dehydration technology. In return, the Canadian company receives a portion of the royalty generated from those sublicensing agreements.
In this case, the Canadian company is leveraging its technology as a vertical solution for dehydration purposes. Applying their technology to specific industries gives them more licensing options for one or more companies within each vertical.
One of my consulting clients developed a branded online portal for cheerleading and used a vertical strategy to create partnerships at all levels of the industry. It included entertainment, live events, branded gear, local event sponsorships, training camps, print media, and even a branded travel agency. The focus was on generating revenue from all levels of this specialized industry instead of only one part.
If your IP is adaptable for new uses or applications, looking for vertical market opportunities is one of the best ways to license it. Instead of licensing to one partner for all markets, licensing several partners in different vertical markets increases your royalty income by simultaneously generating revenue from two, three, or more markets.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He's licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid's action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. His first book, Hidden Wealth: The Money Making Power of Licensing was released in 2019 and is available on Amazon.com. He's also a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.