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September 12, 2017, marked the end of an era as the patent expired for Amazon’s “1-Click” button for ordering. The idea that consumers could enter in their billing, shipping and payment information just once and then simply click a button to buy something going forward was unheard of when Amazon secured the patent in 1999, and it represented a breakthrough for the idea of hassle-free online shopping.
Though other retailers can now adopt one-click ordering without facing the threat of lawsuits or having to pay to license it from Amazon, the future of e-commerce lies elsewhere – including the Internet of Things and optimizing mobile shopping, observers say.
When Amazon first patented 1-Click, e-commerce was in its formative years and Amazon was primarily an online bookseller. In late 1999, it sued rival Barnes & Noble alleging patent infringement of the 1-Click method. The lawsuit was settled in 2002, but Apple began licensing the technology in 2000 for use on its website and the iTunes platform.
“When we write the history of electronic commerce, the 1-Click patent … allowed Amazon to create a very strong position in the market,” said R. Polk Wagner, a professor at the University of Pennsylvania Law School and an expert on patent law. “Most importantly, it allowed Amazon to show customers that there was a good reason to give them their data and the permission to charge them on an incremental basis. It opened up other avenues for Amazon in e-commerce. That is the real legacy of the 1-Click patent.”
A year after it secured the 1-Click patent, Amazon expanded its business to include Amazon Marketplace, a platform for third-party buyers and sellers to sell new or used products. The database of consumer information that 1-Click provided was critical for Amazon at that stage, according to Thomas Jeitschko, professor and associate dean for graduate studies at Michigan State University, whose areas of expertise include intellectual property.
“Once they opened up and became a platform and a marketplace instead of being a reseller of books, it became important for people doing business at either end of Amazon to know that they had this large database that they would be able to give access to a large number of customers literally with one click,” said Jeitschko. “That helped Amazon’s growth in the broader retailing sphere where others had trouble catching up or gaining a foothold.”
“When we write the history of electronic commerce, the 1-Click patent … allowed Amazon to create a very strong position in the market.”–R. Polk Wagner
Wagner and Jeitschko discussed both the hype and the value surrounding Amazon’s 1-Click system on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
Wagner agreed with Jeitschko that both Amazon and Apple displayed valuable insight early on in pulling customers’ credit card, address and other information into databases that the companies could then use and leverage across their different properties. “The decision by Apple to license the technology was a major moment in electronic commerce,” he said.
According to Wharton professor of operations, information and decisions Kartik Hosanagar, while the patent itself is largely of historical significance, the data that Amazon collected as part of its 1-Click process is “a huge asset” for the company. “No other retailer has that kind of a database of customer payment and preference information,” he said.
One-click buying helps to alleviate shopping-cart abandonment – a major challenge for online retailers, according to a report in Digiday, an online publication covering digital media. “It’s an issue both on mobile and desktop and can represent major revenue losses for retailers.” The average shopping cart abandonment rate is about 70%, the report said, citing several studies.
Wagner said he wouldn’t be surprised if other retailers immediately began rolling out one-click ordering now that the patent has expired. He noted that such activity is common after patent expirations in the pharmaceutical industry “when trucks roll off the loading docks at midnight” once companies are able to sell their own versions of once-proprietary drugs.
But today’s e-commerce world is much different from that of the 1990s, and it’s not clear if Amazon would have continued to enjoy a significant advantage from the 1-Click technology, patent or no patent. These days, “lots of other e-commerce retailers have similar data,” said Wharton emeritus professor of marketing Leonard Lodish. “Amazon just has a lot more customers.”
A Turning Point?
The 1-Click method has been described as a turning point for Amazon, but it’s hard to pinpoint the site’s growing dominance to just one innovation, said Wharton marketing professor Ron Berman, who pointed to Amazon’s recommendation system and ease of shipping as other strong contenders for the “game changer” title. “Personally, I don’t believe 1-Click created such a change, but it’s hard to tell without seeing data from Amazon,” he noted. Lodish agreed, and pointed out that while 1-Click may have made some difference, it was “not nearly as much as the quick shipping, easy return policies and low prices” that Amazon offers.
“The great value in the patent for Amazon is first in hamstringing rivals.”–Thomas Jeitschko
According to Berman, 1-Click has become more important as online shopping on mobile devices becomes more common. “Because [mobile] screens are small, the larger the hassle [or number of clicks] it is to purchase, the lower the purchase propensity on mobile phones,” he said. “Amazon does have an advantage from using 1-Click that other firms can now try to use to their advantage as well.” He added that one advantage for Amazon going forward is that the company knows better than competitors for what products and people 1-Click works best. “They can actually change how 1-Click is presented and promoted to make it better for customers who prefer to use it, but also for those who don’t.”
The 1-Click technology will be remembered as “a very important event in the history of e-commerce,” said Hosanagar. “First, it was a very simple and intuitive system and generated a lot of controversy — could something so simple and obvious be patented? Second, it became an important part of the experience that Amazon offered and became a flag bearer for the convenient shopping experience that Amazon came to be known for. And finally, it showed how e-commerce was as much about technology and data as it was about retail.”
Patentable or Not?
As single-click shopping has become more and more commonplace over the years, legal experts have questioned the patentability of Amazon’s 1-Click system. Wagner said it is “one of the best-known examples of what might be generally described as a ‘business method’ patent, rather than for a piece of equipment or a chemical,” he said. “Business method patents have been controversial and there have been many calls for them to be disallowed, [while] others think they are the subject of a lot of research and innovation.”
“Lots of other e-commerce retailers have similar data. Amazon just has a lot more customers.”–Leonard Lodish
Jeitschko said he would put himself “in the camp of people who are doubtful about business methods patents, but also specifically in this case.” He noted that one of the “thresholds” that has to be met in such cases is that the innovation is “non-obvious.” The 1-Click system may have been non-obvious back when it was patented, but today, “everybody knows about Amazon and iTunes, where the 1-Click patent is in effect, and people take it for granted and find it an obvious way to do business,” he said. How defensible it might be in a legal challenge today is not clear, especially because the terms of the settlement with Barnes & Noble weren’t disclosed, he added.
Similarly, not many are sure about the size of the economic value of the 1-Click technology. “It was a tremendous boost for Amazon and for Apple to recognize the patent, but the terms of the deal are secret, and so we don’t know the economic value of the patent in terms of licensing,” said Jeitschko. “The great value in the patent for Amazon is first in hamstringing rivals.”
Was 1-Click truly all that innovative? “The idea that you can check out simply by identifying yourself is not a new idea, particularly if you belong to a private club,” said Wagner. “They have your payment information on file; you walk up to a checkout counter and you give a member number and you check out. So many people say this class of business method patents in the late 1990s turns out to be old stuff applied to the internet. Yes, it was forward thinking and creative, but whether it meets the bar to be patented is open to question and debate.”
Wagner pointed out that while the patent has expired, Amazon’s trademark on 1-Click continues and will go on forever – meaning that whatever form of single-click ordering competitors may choose to adopt, they’ll have to come up with a different name. “[The name] has real important benefits that are difficult to measure, and that trademark in the long run would be far more valuable than the 1-Click patent,” he said.
“Because screens are small, the larger the hassle [or number of clicks] it is to purchase, the lower the purchase propensity on mobile phones.”–Ron Berman
What’s Next for E-commerce Innovation?
Offline retail continues to be relevant because of the ability to “touch, feel and try products, despite its inconvenience and costs to both retailers and consumers,” said Hosanagar. “E-commerce technology still has a long way to go before it can appeal to all our senses the way physical retail can. Virtual reality and augmented reality are starting to bridge that gap but these technologies have still some ways to go.”
According to Jeitschko, “the next generation of 1-Click” will be automated ordering with Internet of Things (IoT) technology or voice-activated systems such as Amazon’s Alexa or Apple’s Siri. “Amazon is innovative with its Dash [cryptocurrency] button, where you can click a button and reorder some consumable that you have run out of,” he said. “And when you have your refrigerator talking to your smartphone to tell you what to buy when you happen to be at the grocery store, in those instances you can see a lot of things getting automated.”
Over time, e-commerce innovation will doubtless focus on some persisting customer pain points. “Figuring out what will fit for apparel” is one of the pain points, according to Lodish. Berman saw scope for innovation in mobile shopping, which he said is still nascent. “If you even compare buying on Amazon using their mobile app vs. the desktop website, the mobile app is still limited in how easy it is to navigate, see product features, compare products, etc.,” he said. “In addition, on mobile it is much harder to experience a full brand experience because of the limited screen size.”
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