How Valuable is Amazon’s 1-Click Patent? It’s Worth Billions.

Since 1999, the 1-Click patent has generated billions of dollars in revenue for Amazon.com.

1-Click shopping removes the single biggest friction point for completing an online purchase: the checkout process.  Amazon filed the 1-Click patent in 1997 and it was granted by the USPTO in 1999. In fairly broad terms, it protects any E-commerce transaction executed with one-click using stored customer credentials to validate.

The result of this “innovation” is that Amazon achieves extremely high conversion from its existing customers. Since the customer’s payment and shipping information is already stored on Amazon’s servers, it creates a checkout process that is virtually frictionless.

But, wait a minute.

Is Amazon doing the rest of the world a disservice by enforcing a patent that makes the experience of shopping online so much more enjoyable?  No more fumbling through my wallet for a credit card, payment errors, multi-page checkout or silly upsells. Isn’t this the way the world should be? And doesn’t the idea of 1-Click checkout seem to be pretty obvious?

As is the problem with most software patents, Amazon was able to protect a fairly broad concept. The patent protects a “business method” vs. a specific invention. Not to mention, 1-Click technology could be helpful to every other U.S. online retailer in existence.

The Europeans agree. Amazon was never able to get the patent granted in the Europe in the first place. They’ve been appealing the decision since 2001 and were rejected again in 2011.

Despite the controversy, you can’t argue with that fact that this patent allows Amazon to provide a customer experience that is vastly superior to any other retailer in the U.S.  Why wouldn’t they protect that? Despite Amazon’s unwillingness to share, they are willing to “partner” with other retailers for a price.

Apple licensed Amazon’s 1-Click technology in 2000.  Apple felt that frictionless checkout was so important; it incorporated the tech into iTunes, iPhoto and the Apple App Store.  How many times have you impulsively bought a song on iTunes or downloaded a new iPhone app without even a second thought? You can thank US 5960411 for that Holiday Angry Birds download. Instant purchase drives orders. There’s no question.

But, our original question was how much?

In 2011, Amazon did $48.1 Billion in revenue. Let’s assume that 1-Click increases Amazon’s sales by 5% each year.  That’s an additional $2.4 Billion in annual revenue due to 1-Click. For the 12 months ending March 31, 2012 Amazon’s operating margin was 1.7%. That’s an additional $40.8 Million in operating income. And that number doesn’t include the licensing fees collected from Apple.

Together with Amazon Prime, Amazon has put forth what are probably the two biggest game changing products in online retail over the past two decades. The 1-Click patent is scheduled to expire in 2017, but my guess is that Amazon doesn’t really care.

They’ve already got their next innovation on the horizon: Same-day delivery. With that dagger, one has to ask if Amazon will put an end to local brick & mortar retail for good.

After all, how much more convenient could shopping get?

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  • http://twitter.com/etailalliance Greg Black

    It’s available for all of us too, using Amazon’s web store platform.