← Business Models: Core (all topics)
Licensing & royalty model
What it is
Monetising intellectual property by granting others the right to use it for a fee or a share of sales, rather than by making and selling the product. A seed trait, a process design, a brand, a film library or a piece of software can all be licensed
The licensor keeps the IP and earns repeatedly from work done once; the licensee gets a proven asset without developing it
Impact on industries
- The highest-margin revenue available, since the intellectual property is created once and licensed many times with almost no incremental cost
- Scales without capital, capacity or distribution, so a small owner of valuable IP can earn from markets it could never serve directly
- Royalty is charged on sales regardless of the licensee's profitability, so it is a fixed claim that bites hardest in a downturn
- Enforcement depends on the legal regime - price control, patent expiry or weak protection can collapse the expected income