Profiting from business model innovation: Evidence from Pay-As-You-Drive auto insurance

The emergent business model literature, revolving mainly around the mechanisms through which new business models create and deliver value, has left the value capture challenge under-explored. This paper examines how an incumbent firm profits from business model innovation through the study of Pay-As-You-Drive auto insurance. Although business models do not warrant formal intellectual property (IP) protection, their constituent components (e.g. business methods and brands) often do. Drawing on the profiting-from-innovation framework, we find that formal and strategic IP protection methods play complementary roles. Initially, formal IP rights are used primarily as a defensive strategy, as vehicles for packaging and trading know-how, and most importantly as a means of “buying time” to build specialised complementary assets. Long-term competitiveness, however, depends on whether the innovator builds a strong position in specialised complementary assets and is capable of reconfiguring them over time in line with changes in the market environment. Thus, we explicate the complex mechanism and dynamic capability for capturing value from business model innovation.

► We examine how firms profit from business model innovation drawing on the PAYD case.
► Formal and strategic IP protection methods play distinctive but complementary roles.
► Business method patents & trademarks are important in the early exploratory period.
► Long-term competitiveness depends on specialised complementary asset.
► These assets are endogenous to first-mover advantages and need constant updating.