If you are old enough, you have heard the saying, “Information is power.” Many people did not understand this statement until the digital era arrived where data is becoming everything. The power of the internet is enabling people to collect and store data of various aspects. In the business world, data is the powering gear. The more information you have about your customers, the higher the chances of driving sales. However, building and maintaining a database is not a simple task. It requires a considerable investment.
But with big data becoming the secret to competitiveness in the online space, finding a way to access it is inevitable. Here is where data licensing came into existence.
In this article, we help you understand what this business model entails. We also explain how it works, examples of business using, and its benefits and shortfalls. Keep on reading to learn more.
What is Data Licensing Business Model?
The data licensing business model involves offering rights to third parties to use information you possess in your database. It is giving a business or individual license to use your data to achieve a given objective. The model helps companies to save on the cost of acquiring data.
Instead of collecting and creating the database from scratch, you approach a company that already has the data you need for a license to use the information. The business pays a license fee to access and analyze the data and use it to realize a given purpose. This purpose can be targeted marketing, advertising, or pricing.
How Does Data Licensing Business Model work?
With the invention of the internet, data is the modern gold. The internet enables companies to collect a lot of information through the user’s online activities. These companies generate, store, and monetize the data through selling or licensing it. The data licensing model involves two significant parties the licensor and the licensee.
Licensee is the company or individual possessing the data. This company generates the data from user activities both online and offline. They then store this information and cluster it into different categories.
For instance, the company can collect and generate data about customer spending habits. They can categorize the data into gender, age group, and professional. The licensee stores this information and offers licenses to parties in need of the data. The license comes with terms of use describing the intent and limitations.
Licensor is the next party in this model. This party can be individuals or businesses in need of particular information. Instead of embarking on collecting primary data, they approach companies possessing such information and pay a fee to use the data. The licensor gets the right to use the data to accomplish their desired purposes, such as analyzing it for decision making, advertising, or market research. The license can be long-term or short-term depending on the agreement. The licensee can also pay a one-time license fee or recurring charges based on the revenue generated from the use of the licensed data.
Examples of Data Licensing Business Model
With data becoming the online currency, many businesses are investing in data licensing. The concept is common in the leading online platforms where user activities lead to data generation.
Twitter is one of the companies that employ the data licensing business model in its operations. As a social media platform, the company generates thousands if not millions of user data. It then licenses or sells it to companies seeking to use the data in various marketing and analytical activities.
Also, Google uses this approach through its Google Maps. The company has reliable information on different GPS and locations. Companies investing in transport businesses such as Uber, Bolt, and Lift require this data to accomplish their goals. For this reason, they approach Google for a license to utilize their Google Maps in their operations.
Pros and Cons of the Data Licensing Business Model
Investing in data licensing can be a perfect idea. However, you need to understand the benefits and drawbacks of adopting this business model. Here they are:
Pros
Opportunity for passive income generation
Data licensing transforms information into an asset. By licensing other parties to use data in your possession, you start a new income stream. The parties will continue paying you a license fee as long as they are using your data. This aspect enhances revenue generation in your business.
Win-win situation
This model creates a win-win situation for the licensor and licensee. As the data owner, you earn cash from user-generated information. You convert the data in your possession into a resource that creates value in your business. On the other hand, the licensee spends less cash accessing much-needed information for making crucial business decisions. Hence, the model offers a win-win situation for both parties taking part in it.
Enhance valuable relationship
When licensing data, you engage with different parties. This engagement leads to the establishment of valuable relationships. The relationship guarantees continuous business or even leads to data exchange. You can benefit from finding business partners that will support your venture growth and sustainability in the long run.
Cons
Security concerns
As data continue to become the steering wheel in the modern world, cybercrime is rising. Data theft is becoming a common security concern. As you invest in the data licensing business, you need to be aware of such a threat. A small tamper on your database can be a costly affair to you, your users, and the licensee. So, you need to invest in data security to become successful when using this model.
Increased competition
Many businesses are turning to data licensing as it is becoming a profitable venture. Most of these businesses are previous licensees. So, your customers can become your competitors in the future. It is hard to determine whether they used your data or generated their own to realize this goal.
Conclusion
In a word, the data licensing business model is a new way of enhancing revenue in your business. If you possess or generate some useful and relevant data, you can consider turning it into a valuable resource. This approach can enhance your income and bring in business partners that will support your business growth. However, you need to be aware of the possible threats before considering this model as your operational norm.