Should a start-up use its patented tech to get some money in the door while it works on its consumer launch?

May 20, 2008 12:27 PM

TechHistoryFilter: Can The Hive Mind name any instances of technology or net-based products that began life as a "white label" business service solution before being rolled out as a consumer-facing service?

This one needs a little explaining: I'm doing consulting for a small start-up. They're a cool group of people, but as in all start-ups, there are lots of questions about direction and focus. The company has a patented process that serves as the basis for what they eventually want to launch as a consumer-facing web service.

However, in the meantime, this patented process could be used by agencies and their brands for better brand engagement. Because I need to stay sketchy, let's say this start-up invented Bluetooth. And they wanted to use Bluetooth to start a social network that worked in the real world as well as the online world. But, in the meantime, they said to themselves, "Hey, there's a million uses for this Bluetooth thing. Maybe we should shop it out to get a little money in the door while we work on developing the Bluetooth-based social network."

The technology is not as groundbreaking as Bluetooth - that's just an example. But I've been wracking my brain, trying to think of a tech or web company that's followed that model. If one can't be uncovered, it's probably a bad idea to pursue that strategy. Even if there is, I know it would take a great deal of focus to sell the white label product, make money from it, while growing the consumer-facing black label product. I'm a firm believer in those who don't learn from history are doomed to repeat it, so anyone who knows of a similar product/company history, I'd be interested in hearing it.

posted by mrkinla to technology (9 comments total)

Yodlee? (not very exciting, I know, but their main market is selling services to businesses, not their consumer facing stuff)

I'm sure there are other examples, but I can't think of any off the top of my head.
posted by wierdo at 12:53 PM on May 20, 2008

The first Web crawlers and search engines were written as automated ways to collect and verify Web links, as desktop applications. Search engines were far inferior to human assembled directories in the early days of the Web, and only when relevance ranking and the explosion of the Web made directories relatively futile endeavors did automated search become King, or at least, Google.
posted by paulsc at 1:04 PM on May 20, 2008

IIRC What eventually became AOL was written for Apple (AppleWorld)
posted by Gungho at 1:35 PM on May 20, 2008

Gungho, actually Quantum Computer (AOL's predecessor) originally launched Q-Link for Commodore computers, then collaborated with Apple to launch AppleLink and then with Tandy to launch PC Link. When they finally launched AOL for DOS, it was based on the old GeoWorks system interface.

None of which helps me answer the question.

I only know this because I was a Q-Link member, and then an AOL beta tester when AOL for DOS came out. I still can't bring myself to drop my AOL account after all these years (despite it being ages since I even installed their software), so I let my mother use it.
posted by JaredSeth at 2:09 PM on May 20, 2008

So they built a backend and want to license that portion while they figure out how to make a consumer-facing app that uses the same backend? That's usually a good idea, actually, and I've seen it done several times in the world of software/systems development for the web. One example of doing this is to re-brand the business function and then license that technology to yourself while you build the consumer-facing app. Operationally, you now have one group dedicated to controlling the IP and the R&D for the backend, while another group can focus on the application of that IP and implementing it in other products.

Note that the reasons for doing this aren't usually to generate immediate profit - the benefits are more long term. You'll want to talk to legal and a good financial person to figure out if this approach will benefit your client specifically. It would be ideal if you could generate cash flow off of just the IP piece alone, but very often, people will want to see the piece working and actively creating ROI before they'll become customers.
posted by krippledkonscious at 2:34 PM on May 20, 2008

The problem with deploying as white-label first is that you need to staff corporate marketing, sales, account management, and premium support - and if you could afford that, you wouldn't need the money from the corporate clients! And, hiring and integrating those personnel is a massive distraction from building the consumer product.

Also, it's hard to sell a white-label service to the corporate market without the proven scalability and reliability that you can demonstrate with a large consumer population already using the platform.
posted by nicwolff at 2:52 PM on May 20, 2008

Travelocity is an outgrowth of Sabre.
posted by JMOZ at 3:36 PM on May 20, 2008

Yeah, same with Orbitz - all the travel sites started as green-screen terminal-based systems that were only used by trained agents but then the systems were migrated to a web front-end.

I'm not sure if I can think of any more examples, but what you're describing is basically sales channel disintermediation.

Investing in general has gone through this, though it's not one specific product - you used to have to call a broker who would handle the trade for you. Now you just log into etrade and buy and sell stuff yourself.

A number of consumer packaged goods walk both sides of the while label/braded line at the same time. A potato chip factory or a bread bakery will often switch from brand-name bags to white-label (store-brand) bags without even stopping production. Same loaf, different bag, different price.

Some hardware companies have made this change - companies like ASUS went from being component suppliers to selling branded systems, or at least building a brand for their components.

But you're asking about services, sorry. I'm having a hard time coming up with a list of white-labeled services in the first place.
posted by GuyZero at 4:04 PM on May 20, 2008

Arguably, Postini fits this model; since they've been bought by Google, their service is available to anyone with GAFYD Premium accounts. Facebook could fit this description too, perhaps.

This model was also common in the real estate industry, although if the realtors had their way you still wouldn't be able to get any info without being a realtor.

I suspect there are lots of niche services that fit this pattern, too, although they seem to be motivated differently - they build an application for a corporate client, then realize the applicability of that application for the general public. I've worked as a consultant with some companies offering these types of services. None of them are very well-known products outside their niche, though.
posted by me & my monkey at 5:34 PM on May 20, 2008