More on Microsoft's IP licensing strategy

As we commented here last week, Microsoft has been making a series of important announcements recently concerning the licensing of its patent portfolio and asserted its ambitions on the smartphone market. But since all the eyes are presently turned toward Steve Jobs' soon to come biography and its now famous "I'm willing to go thermonuclear war on this" quote, Microsoft recent actions and statements went a little unnoticed. But Microsoft has its anti-android strategy all planned out and technology website dailytech revealed it all yesterday in a very detailed article entitled "Of Lawsuits and Licensing: The Full Microsoft v. Android Story". Contending that "Microsoft is essentially a failure in today's market from a pure unit sales perspective", Jason Mick explains that "Microsoft has turned from primarily being a producer of smartphones to primarily being an R&D-based litigator on the smartphone market", since it makes more money through licensing agreements than from selling devices running his own Windows Phone OS.

This article gives us the list of all the companies that Microsoft is licensing to and suing and highlights the interesting fact the company led by CEO Steve Ballmer is "double dipping" - that is "seeking licensing fees both from the "original equipment manufacturer" (OEM) who mostly designs the device (e.g. Samsung) and from the "original device manufacturer" (ODM) who primarily handles manufacturing the device (e.g. Foxconn)" - with a certain success since 55 percent of the Android ODMs and 53 percent of Android OEMs entered into licensing agreements. The following paragraph, which a quick outline of the 9 main patents that Android is said to infringe, is also definitely worth a read.

Finally Jason Mick argues that the validity of Microsoft patents will be much harder to call into question, since they appear to reach a high threshold of novelty and non-obviousness (contrary to Apple) and finishes with an interesting comment "(...)one crucial thing to remember is that these patents will expire. Many are expiring within two years, and almost all will be expired within a decade. As a result, within a decade Microsoft's license agreements with Android OEMs and ODMs will almost certainly be drastically restructured. (...) Microsoft can revel in its licensing successes for now, but if it doesn't continue to push ahead in the mobile realm, its gains will be short-lived." It seems that Microsoft understood that fact very well, since the company received more than 3000 patents in 2010...

Astute Ethiopia

Ethiopia has opted for increasing brand recognition and demand through licensing rather than immediate royalty income streams in an effort to generate longer term wealth. Ethiopa's strategy reported on Afro-IP here and on News Blaze here has been hailed as the first time an that an African nation has undertaken such an innovative approach to protecting its economy. Ethiopia selects the global distributors for its coffee and sets the conditions for sale. Ethiopia charges no royalty fees for coffee distribution licenses, but, in return, asks the distributors to market each coffee under its separate brand name.

It is sometimes easy to overlook that brand licensing is motivated by numerous factors, apart from money. For example, Allied Domecq succesfully used brand licensing to reposition its Courvoisier brand to a younger market by introducing a trendy clothing line under the brand. Dunlop Slazenger used sub-licensing as a means of keeping it afloat long enough to attract a suitor in the form of Mike Ashley's Sports Direct, whilst the legal proprietor of the Dunlop brand (at the same time) used licensing simply as means of preserving the trade mark right across sports, tyre and other categories. Al Gosling's Extreme Group (ala Richard Branson) use licensing as means of building brand recognition and developing a complete lifestyle brand. Other companies use licensing to reduce their tax liability through complex transfer pricing schemes and others, to settle disputes or co-brand products.

There are not many other assets that can be used in such a flexible way and it is also easy to forget that not all that long ago, legal systems were reluctant to recognise trade mark licensing at all. Ethiopa's decision is progressive because it entails determining and creating a brand and then marketing that brand through worldwide strategic partnerships (not least with Starbucks) and licensing. The efforts are aimed at increasing longer term demand whilst ignoring a politically tempting income stream.

Is the buzz light years away?

Writing on BrandChannel today, Beanstalk Group CEO and President Michael Stone raises an interesting issue: should brand licensing be conducted with a short-term view to securing accessible income streams, or should it be done with an eye to a strategic policy of enhancing brand value? In "Licensing Is the Purest Form of Buzz Marketing" he says:

"... Let’s start with the worst kind of example, licensing as a non-strategic, opportunistic tactic whose primary purpose is (perhaps) protecting against trademark infringement while generating royalties. While many would hope that such an approach was outdated, a quick wander down these aisles will prove that in too many cases it is still alive and well. Completely transactional in focus, this approach to licensing is the purview of lawyers and agents (as well as the intellectual property owners themselves) of the “Let’s Make A Deal… Any Deal” variety. Furthermore, this approach is scattershot and does little for a brand, except for slapping its most valuable asset—its trademarks—on products that will be short-lived (if they live at all), with little connection to the brand’s equity and which do not resonate with the consumer as anything more than decoration.

Such thoughtless executions are among the reasons that trademark licensing is below the radar of many (but not all) chief marketing officers and brand managers. Of course, this is not surprising given the lack of inspiration that characterizes these kinds of licensing programs. After all, today’s chief marketing officers have a lot on their plates. ... they have to successfully reach consumers who are increasingly adept at declining brands’ offers to participate in their lives.

... if you are lucky, you will run and take refuge in one of the aisles that showcases products with more exemplary approaches to brand licensing today. That’s where you’ll find sophisticated and savvy marketers who have already learned that in today’s fragmented media marketplace, strategic brand extension licensing is among the most authentic and credible forms of buzz marketing and, therefore, an integral part of the marketing mix for today’s most innovative brands.

Licensing as buzz? Yes, when the licensing program matches or extends a brand to products so authentically that the brand enters consumers’ lives in ways that are unpredictable, but completely natural. If done properly, a consumer will have such a meaningful experience with the brand that they can’t resist sharing it with others. It’s the retail form of human media or user-generated content—authentic, relevant, and person-to-person. But unlike the more common notions of buzz, which are often fleeting, risky and not targeted, licensing-generated buzz can be long-term, controlled and highly-targeted.

In addition to driving increased buzz or word of mouth, a smart brand extension strategy also increases awareness among a brand’s core audience and attracts new audiences, inspires loyalty and even generates revenue for the brand. In fact, according to The Licensing Letter, licensed products account for more than $12 million in retail sales per hour.

Take, for example, the Jaguar pen brand extension. Designed by Jaguar’s own auto designers, but manufactured and sold under a license, the pens are sleek, high-end writing instruments that are reminiscent—in design at least—of the Jaguar automobile. Available at luxury retailers in Europe, the pens allow consumers to experience the Jaguar brand in an entirely new but credible way—shifting from the highway or the showroom to the high street and the boardroom. Every time a consumer uses it in front of friends or colleagues, he or she generates a “human media impression” and more importantly offers an implicit endorsement of the Jaguar brand. Is there anything more authentic? The program has been so successful that Jaguar is moving into luxuriously designed home furnishings, another logical, authentic, and on-brand extension.

Are there risks associated with licensing-generated buzz? Yes, but the risks are completely different than those normally associated with buzz programs. The risk inherent in any licensing or brand extension is in not doing it right. At the end of the day any brand’s most important asset is the brand itself, and executing a shoddy or unsuccessful program can have negative repercussions that go beyond simply having an unsuccessful licensed product pulled from retailers’ shelves. But those risks can be navigated and mitigated if licensing is approached correctly.

Before executing any licensing program it is important to not only identify your brand’s leverageable equities (tangible and intangible), but to conduct the proper due diligence you would perform before entering into any new marketplace or launching any new product. This includes evaluating the competitive landscape for each potential licensed product category, understanding the market dynamics and retail needs in the targeted categories, and gauging the ease of entry and the financial attractiveness of the potential licensed product categories.

As many people lament the alleged end of brand marketing as we currently know it, I prefer to think we are at the beginning of a new chapter, a golden age if you will, where licensing-generated buzz will prove to be the most creative and effective form of marketing in a marketing-saturated society".

Buzz marketing (a.k.a. viral or word-of-mouth marketing) is a valuable tool, to be sure. But it's not clear whether it's a means of establishing leverageable goodwill or a product of having done so. A problem also exists in that, while the equity in a brand -- hence its utility for securitisation or its subsequent value if sold -- is something that accrues to the brand owner, the brand manager's ability to keep his job depends upon his being able to point to a direct flow of here-and-now licensing income. It is clear that a balance between these competing interests is desirable in theory -- but how can it be struck in practice? Suggestions, anyone?

Footnote: the Jaguar pens mentioned here are not presumably connected to the Jaguar pens here