In our prior post in this two-part series on less commonly discussed technology commercialization options, we addressed how open-source software (OSS) providers may make money on their products. In this Part 2, we’ll look at another technology commercialization strategy, white labeling.
WHAT IS A WHITE LABEL?
The “white label” terminology originates from the music industry, more specifically from the time of vinyl records. At the promo stage, vinyl disks were produced without the commercial label bearing the usual logo and copyright details, and there was instead a blank white disk in that space. Such anonymized records were used to send to producers or test if an audience liked a new song without disclosing the artist’s identity.
White labeling later became a common term most often used in the retail sphere to describe products that were produced by one company and then sold to another company that put its own brand on the product and marketed the product as its own; for example, supermarkets that place their own branding on mass-produced generic goods and market them as “store brand” while not being involved in the manufacturing.
White labeling is also often seen in home appliances and electronics. White labels generally appeal to consumers not through the unique features of the product itself but through their visual identity, positioning of the brand, packaging, and marketing strategy, among other factors that form the customer experience.
Finally, white labeling has also become popular in informational technologies and communications businesses. In principle, it is similar to the licensing of an off-the-shelf product, but the licensee is permitted to use its own brand and logo on the product and present the software as their own to the end-users, almost the opposite of franchising. So, are we speaking of another apparently selfless way to commercialize technology here? Let’s look at the details.
WHITE LABELING IN SOFTWARE
Benefits of White Labeling
There are a few factors in favor of a business choosing to employ a white label strategy for technology, especially at its early stages when resources may be limited. These include (i) a quick rollout on the basis of an existing and running technology, (ii) avoiding unnecessary upfront costs for software development and an in-house support team, and (iii) relying on a developer’s support and expertise. This means that the business can concentrate on its product and marketing, while the developer will concentrate on the core solution and its support.
The developer of a white label solution, on the other hand, retains all of its rights in the source code and is able to generate profit by selling the same core solution to multiple businesses.
License Terms
A white label software license includes all the common features of a software licensing contract, but will specifically regulate to what extent a licensee will have a right to use the software in its own business and under its own trademark or brand vis-à-vis its customers. These arrangements will typically be reflected in the sublicensing or similar terms.
Many times, the end-customer does not know that the software was developed by a third party that owns the source code, although in other arrangements the customer-facing solution will include some indication of the ultimate source of the software (e.g., “powered by . . .”). In any event, the agreement will include the usual obligations of the licensee not to infringe the software developer’s copyright and other intellectual property rights.
In addition to branding, customization or modification of the core software may be an important issue to address in an agreement. Sometimes, the agreement will also include features of a software development service contract, if the licensee wishes to engage the software provider to help with specific additional features or modifications.
White label software is often made available on a software as a service basis, in which case the agreement will also regulate mutual obligations with respect to hosting and support, service levels, access to end-customer data, reporting, etc.
White label software licenses will sometimes be constructed closer to cooperation agreements, where both parties contribute to the creation of a white label platform, but the product is branded by one party only. Such arrangements may include exclusivity provisions to enable the branding party to capitalize on the platform rollout during some specified period before it becomes available to other market players.
Market Opportunities
White label solutions can be quite successful, especially where the competitive advantage is associated with front-end and tailored user experience rather than the core technology. By way of analogy, different brands of bottled water are differentiated not necessarily because there is a difference in the water formula, but rather because of the difference in each brand’s packaging, branding, and marketing strategy.
You can find examples of white label software licensing in the following markets:
- Adtech and everything related to digital marketing, planning marketing campaigns, and market data analytics
- Social media management
- Search engine optimization
- Event and booking management
- Referral and loyalty platforms
- Elearning platforms
- Egaming platforms
- Ecommerce platforms
- Financial services
- Online media platforms where streaming services differentiate by the content they make available, not necessarily by technology they employ