Patents and Business Models for Software Firms

We analyze the relation between patents and the different business models available to firms in the software industry. The paper builds on Cusumano's work defining the differences among firms that sell products, those that provide services, and the hybrid firms that fall between those polar categories. Combining data from five years of Software Magazine's Software 500 with data about the patenting practices of those software firms, we analyze the relation between the share of revenues derived from product sales and the firm's patenting practices. Accounting for size, Ramp;D intensity, and sector-specific effects, the paper finds a robust positive correlation between product-based business models and patenting rates. We also present in this draft preliminary results suggesting that there is no significant relation between patenting practices and the extent to which the firm's revenues are derived from software products and services, as opposed to hardware or other lines of business