Tom’s Franchise Information Blog

Quick, name the world’s richest man who made most of his early money by licensing one company’s software product to another company.

Yes, even Bill Gates’ software empire, Microsoft, began with a product Gates and his business partner Paul Allen licensed from another company. A brief history of Microsoft’s first venture into licensing goes something like this:

Bill Gates and Paul Allen were initially contracted by IBM to supply the programming languages for a new product IBM was developing called the IBM-PC. IBM wanted Gates and Allen’s new company, Microsoft, to provide them with the BASIC, FORTRAN and COBOL programming languages which Gates and Allen were eager to do. It was assumed by Microsoft and IBM that the operating system for the IBM-PC would be Gary Kindall’s CP/M, which had become the standard for Intel-based personal computers.

There are several versions of what happened between Gary Kindall and IBM but the bottom line was IBM decided they couldn’t work with Kindall’s company, Digital Research, and suddenly desperate, and running out of time, informed Gates and Allen that they would have to supply the Operating System for the IBM-PC as well as the programming languages.

At first Gates and Allen agonized for some time before eventually accepting the operating system contract from IBM. After all, operating systems wasn’t the business they were in and they were somewhat unsure of their desire to accept the IBM challenge.

Fortunately, Gates knew of a company called Seattle Computing that had developed their own operating system called QDOS as a competitor to Digital Research’s CP/M. QDOS, which stood for “Quick and Dirty Operating System” looked like CP/M to outside software developers and was being positioned by Seattle Computing as an alternative to CP/M.

In what has to be the world’s most profitable software licensing deal, Gates bought the rights to use QDOS for $25,000 (without disclosing Microsoft’s end customer to Seattle Computing) and later bought the exclusive rights to QDOS for only $50,000.

Microsoft renamed the operating system MS-DOS, made some slight modifications, and by the summer of 1981 had all the required software products necessary to meet their IBM contract. The rest, as they say, is history.

The Two Forms of Online Business Licensing

If you’ve been in the online business world for any amount of time you’ve no doubt seen Websites based on Private Label Rights (PLR) packages that all look the same and make little or no money for the individuals that buy them.

Website licensing using a Franchising Business Model is something quite different from PLR packages which you can see by examining the definitions of the two different licensing processes below:

Franchise: A form of business organization in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor’s brand name and usually with the franchisor’s guidance, in exchange for a fee.

Private Label Rights (PLR): A licensing agreement where the owner of a product or service (the licensor) allows another company (the licensee) to sell the product under the licensee’s brand name rather than under the licensor’s brand for a one time fee. No guidance or control is provided by the licensor.

Now on the surface these two methods of gaining access to other people’s products and Website content may seem similar, but here’s the major difference: With PLR agreements you pay the owner a one-time, fixed amount, licensing fee, and for that you receive a copy of the owner’s product and their Website’s content that you can modify to look like it’s your own business.

The downside is, there’s typically no exclusivity clause in these types of deals and you’ll soon discover that there are dozens of competitors out there with copies of the exact same Website as yours!

Alternatively, with a Website Franchising deal, in exchange for agreeing to pay an on-going royalty fee, the franchisee receives an exclusive distribution territory and access to all future product and Website content enhancements developed by the franchisor.

And because you sell the product under the same brand name as the franchisor, you also benefit from any advertising and promotional activities the franchisor undertakes. For example, do you think anyone in the UK or Australia knows who owns their local McDonalds franchise? Of course not, to them it’s just McDonalds, a global brand.

Of the two different licensing models, online business Website Franchising is the newest form and the one that I’ll show you makes the most sense in today’s current global business environment when you visit my Website at www.Online-Business-Franchises.com.

So in closing, as I hope you can see, even the mighty Microsoft wouldn’t be where it is today if Bill Gates had not recognized that the key to quickly fulfilling a market’s needs, and making a lot of money in the process, often lies not in having all the pieces of the puzzle yourself, but rather in the ability to know how to use licensing to leverage the work of other people. A fundamental business strategy all Online Business owners should always remember.

Online Business Franchising Coach, John Weisenberger, covers a variety of global business development topics ranging from long-term strategic planning, new product development, global sales and marketing, business plan development, Internet marketing and other international business topics focused on achieving immediate and sustainable bottom line results for his coaching clients. He can be reached at http://www.online-business-franchises.com