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The concept of franchising as a distribution model has been around since the nineteenth century, and the first company to pioneer the model in 1940 was — you guessed it — McDonald’s.
Fast forward 70 years, and the trend set forth by the Big Mac has transformed the business landscape, successfully extending beyond quick-serve restaurants into thousands of industries; from hotel chains to auto maintenance and repair to hair salons and spas. Today, with the advent of the cloud and cloud-based applications, the internet is now able to support a new frontier of franchising that will revolutionize the way many industries operate their business.
Introducing, the digital franchise model: a type of license or right sold to a franchisee that grants ownership of a local market and access to a digital technology that will enable them to build a local business, under the parent name.
For businesses that need local representation, digital franchising is an ideal method of distribution. Local representatives need to have a vested ownership in the success of connecting local businesses with local consumers — particularly in hyper-local markets. In this model, franchisees buy the rights to certain geographic areas and earn a profit from mobile and web eCommerce in their marked territory. As the owner of a digital franchise, franchisees own the rights to the market, and the rights to leverage the parent company’s brand name, back-end systems, training, and customer support.
When is Digital Franchising Appropriate?
Thousands of industries could benefit from adopting the digital franchise approach. It is an ideal model for:
- Low-tech verticals, where local businesses are trying to connect with local consumers. Industries like restaurants, mechanics, dry-cleaners and spas don’t have the time or the know-how to focus on connecting with their consumers online or maintaining an online presence with updated content.
- Secondary and tertiary markets that lack a digital connection to their local consumers. From West Chester, PA to Fargo, ND, these markets are not usually a primary focus for large, national competitors who use a traditional business model and hire remote sales teams in remote offices.
- On-the-ground entrepreneurs who understand their local market, where local content management and oversight is crucial to user acquisition and retention. Too often searches yield inaccurate or incomplete results. A local franchisee has a vested interest in the accuracy and completeness of the web and mobile content in order to bring relevant and up-to-date information to the end users.
What are the benefits to the digital franchisee?
Digital franchising offers prospective business owners a wealth of opportunity to quickly and easily grow a profitable business. And the benefits over brick-and-mortar franchising abound:
- Lower start-up costs and lower overhead: the franchisee usually pays an initial start-up and annual royalty fees that are far less than the cost to start a traditional, brick-and-mortar operation.
- Minimal team management and hiring: the franchisor provides full-time web and design engineers, customer service and support staff, while the franchisee focuses on local sales and marketing.
- Ownership of an Internet-based company, with low-tech knowledge: the potential franchisee only needs to have a minimal understanding of technology development, hosting, digital marketing, and design.
After nearly a century of traditional franchising, vertical industries are positioned for change by adopting the digital franchise model. Combining technology and locally-vested execution can allow franchisees and franchisors to scale at an incredible pace. It will be exciting to see what concepts and brands lead the way in digital franchising in the coming years.
Chris Jeffery is CEO and cofounder of online food ordering service OrderUp, which offers digital franchises. Prior to founding OrderUp, Chris attended Pennsylvania State University, where he handled sales and marketing for LionMenus, his first foray into the online ordering business.