Customer Value Is the Business Model
	Haruo Sasahara, General Manager Patent Engineering Department, Corporate Intellectual Property Center, Mitsubishi Electric Corp

Developments regarding Noted Business-Patent Cases

1. One-click patent (Amazon.com of the United States)
In Internet sales, it is said that only about one-third of prospective customers who start the purchase process actually complete it and make a purchase. In other words, roughly 65% of visitors at Internet retail sites abandon the purchase process (engaging in so-called window-shopping). One reason for this is the hassle involved in the procedure. The system does not necessarily lead to customer satisfaction. One promising solution to this problem is the one-click system that makes it easier to make purchases via the Internet. This idea was patented by Amazon.com, a Internet retailer of books and other merchandise.
In October 1999, immediately after acquiring the patent on the one-click technology, Amazon.com sought a preliminary injunction against another Internet retailer, Barnes & Noble. On December 2 of that year, Amazon obtained the injunction. This prevented Barnes & Noble from selling by using the one-click system and resulted in that company sustaining a terrible blow in Christmas sales. Barnes & Noble later challenged the injunction. In February 2001, the injunction ruling was overturned and the case was sent back to a district court for another hearing. This decision appears to be founded on questions over the viability of the one-click patent. Although there is no way to know what the final ruling will be, the fact is that because of the injunction Barnes & Noble suffered terribly in terms of business by being unable to use the one-click Internet retailing system for two Christmas seasons. Amazon.com succeeded as planned and was thus able to capitalize on the business patent in protecting its business.

2. Reverse-auction patent (Walker Asset Management/Priceline.com)
The patent was given for a name-your-price bidding system, popularly known as a reverse auction, in which prospective buyers are able to make bids on available merchandise or service and to purchase at terms that approximate the price that they desire to pay. The system was put in service by Priceline.com under licensing from Walker Asset Management.
A reverse auction is a business model best suited to business in which earnings are affected drastically if sales timing is not good. In the airline industry, for example, profits cannot be gained if airplanes fly with a large number of empty seats. There are expenses, such as the cost of fuel for each flight, that must be covered. Sales revenue must exceed such expenses for an airline to make a profit. The same applies in the hotel industry. Hotels must attract overnight guests and other users of their facilities in order to cover, and hopefully exceed, utility costs and other necessary expenses.
This type of business differs in nature from one that involves for example, the sale of office supplies or preserved foods, which can be sold at the same price the next moment or the next day. In a business where sales must be made by the time of a flight or by the night of each day, it is necessary to secure the bottom line - a minimum amount of sales or a minimum number of users by a certain deadline - even if some discount must be given. From the standpoint of customers, the system can offer satisfaction if better merchandise or service can be purchased at lower prices. Businesses are also able to increase customer value. i.e., customer satisfaction.
A reverse auction therefore holds meaning in that it not only benefits businesses but also is able to increase what is the most important element of business - customer satisfaction (customer value for businesses).
With regard to the reverse-auction patent, in October 1999 Priceline.com initiated an injunction lawsuit against Expedia hotel reservation service, an affiliate of Microsoft. Alongside the court battle, the two companies continued to hold talks, and in January 2001 they settled their dispute, with Expedia agreeing to pay royalties. Walker Asset Management, a patent management company, was able to gain licensing revenues and hence financial resources for developing new business models.
The patent holders of the aforementioned two leading business-model patents were able to capitalize on their rights as part of their business strategies and were able to achieve their business goals. These are examples of the strategic mobilization of business-model patents, which are vitally important in business growth.

Keys to Developing Business Inventions

1. Analysis of successful business models
There are numerous companies in the world, and each one of them is engaged in business activities that are distinctively unique. Related to this, a report published by the research institute of Sanno College contains some very interesting data regarding a poll of a large number of business corporations. Each company was asked to evaluate its own business model, and the report contains the evaluations (based on a three-level rating system) and each company's views regarding the factors that contributed to the success or failure of its business model.
According to the survey, business enterprises that consider their respective business models as outstanding attribute their success to the following.
In both manufacturing and nonmanufacturing industries, the key is that business viability is determined by focusing on customers (creating customer value).
One interesting finding in the report concerns the points of attention among businesses that rated themselves low. Among such companies, low pricing of products/services and achievement of low-cost operations were rated 13.6 and 9.9, respectively - which were actually higher than the ratings for successful businesses (6.7 and 6.7, respectively). For companies that regarded themselves successful, low pricing is not necessarily recognized as highly important and is even regarded as the same as common sense. For companies that rated themselves low, however, low pricing is regarded as a major competitive edge. There is a vast difference in attitude toward customers. It seems that successful companies recognize the importance of pricing but believe it is more important to stay close to customers so as to understand their needs and to discover what can increase customer value.

2. Factors that stimulate business-model reform
The same report presents elements that are regarded as most important in modifying a company's own business model. According to the report, companies that believe their business models are successful consider the following as the top three factors in their success.
The common ground lies in specialization in the areas of the company's expertise and strengths and reinforcing the company's area of core competence, with emphasis also on active use of customer data.

3. Creating customer value
As mentioned above, an important factor in a successful business model is that it increases customer value. This means identifying customer needs and market needs and using them to create and improve customer value. The reverse-auction patent solved problems in the airline industry and other industries, and satisfied customer demand for better goods and services at lower prices and at the same time generated new customer value. The one-click patent resulted from analyzing the problem of customers' failure to complete the purchase process and solving it by creating a more convenient method of purchasing. Both patents created new customer value from problems found in the marketplace and among consumers.
These cases show the importance of assessing problems among customers and in the market, recognizing changing customer needs, and of looking for solutions by focusing on customers.

4. Recognizing and focusing on areas of core competence
However, although a foundation for creating customer value is necessary, raising customer value is not all-important. It is important not to start from scratch but to capitalize on existing core competence (a company's own strength or outstanding power). It is necessary for a company to reaffirm and to expand on its strengths and to make them even stronger. (See figure at right)

Conclusion

Although it is difficult to define the true significance of business-model patents, the keys to success are to develop a business model that focuses on customers, to capitalize on the company's strengths so as to create customer value, and to utilize IT to help achieve the company's goals. A company stands or falls on its ability to deliver value to customers, and the essence of a business model-patent lies in a business that delivers customer value, and does not lie in the patent itself. Business innovation in the true sense is knowing who the customers are and what value should be offered to them, how to strengthen the company's strengths (areas of core competence), and how to utilize information technology to achieve the company's objectives.