The API Economy

“When the snows fall and the white winds blow, the lone wolf dies but the pack survives.”

― George R.R. Martin, A Game of Thrones

The days of organizations operating as lone entities are quickly becoming a thing of the past. Given today’s interconnected world, it is becoming increasingly beneficial for companies to collaborate with others to create new business opportunities. This is helping them gain competitive advantage and pull ahead of competition.

The platforms are what are driving businesses, and the APIs or Application Programming Interfaces are holding the platform economy together and enabling business everywhere to embed
the software capabilities of other platforms within their own apps or websites.

It is the API that has made possible entirely new business models across nearly every industry, allowing companies to create new services by customizing existing platforms, algorithms and utilize external resources for external innovation.

It is the API that has helped redefine the nature of partnerships, allowing companies to participate
in ecosystems and to tap into services such as cognitive computing and the Internet of Things (IoT) that would be too difficult, expensive or time-consuming to reproduce in-house. The API economy, which is the commercial exchange of business functions and capabilities using APIs, has allowed software developers, strategists, marketing leaders to innovate and differentiate themselves in their businesses.

Today, there are upwards of 18000 APIs available worldwide. The graph below shows the growth in the numbers in the last 10 years.

Looking at a brief history of APIs,

In 2000 Salesforce was launched and APIs were part of its solution from day one, as customers needed to share data across their different business applications.

2000 also saw eBay rolling out its API to selected eBay partners and developers in an attempt to revolutionise the way people did business on eBay.

In 2002 Amazon launched its Amazon.com Web Services, which allowed third parties to
incorporate Amazon.com products and features into their own websites.

Flickr in 2004 created its API, which enabled it to become the image platform of choice for early blogging and
social media users.

2006 was an important year as it saw Amazon Web Services (AWS) being formed as the cloud computing platform launched an API to give developers access to inexpensive computing infrastructure.

In 2006, Facebook also launched its API, allowing developers access to Facebook friends, photos, events
and profile information.

2006 also saw Twitter launching its API in response.

In 2007 Google Maps created its API ahead of the launch of the Google Maps app, enabling businesses to embed maps of their locations on their own websites.

Apple launched the App Store in 2009 opening up a new world of mobile apps.

In 2011 Instagram released the official API for its photo-sharing app.

Companies are beginning to understand the power of leveraging the API economy.

It is important that the companies who wish to participate in the API economy understand the forces driving API usage.

They have to understand the potential business models and monetization strategies that APIs can help create.

Key Drivers

Customer experience is the key to digital transformation and is one of the top key drivers for API adoption.

Companies are becoming increasingly focused on creating differentiating customer experiences. They are doing this by building more responsive websites, custom mobile apps and other user-friendly digital interfaces to enhance their interactions with customers. It is here that the capabilities of the API allows highly creative ideas that come up from design thinking workshops to be translated into user experiences. Another key customer segment for the APIs is the developer community. Easy-to-use API development and deployment platforms with API-enabled features help companies engage developers.

Having a frictionless access to ecosystems is another driver. The ecosystem is made up of a number of other companies and vendors and partners whose services and data are accessible through APIs and the APIs enable companies to leverage the data and services of other organizations thus allowing organizations to increase revenue generation via participation in external markets.

Everyone has a need for faster speed to market. Organizations just cannot afford to react slowly to changing market trends. Using APIs, companies can take advantage of sophisticated technologies without having to commit internal efforts and resources to develop them thereby being able to go to market sooner.

Enablers

Organizations have facilitated API adoption by providing API management platforms. The purpose of an API management platform is to allow developer communities and developers in organization to expose their business services securely as APIs. The platform provides for a self-service portal that will allow the developers to develop, publish, and manage their APIs. The organizations can also manage & monitor the entire API platform using the API management platform.

This makes it very simple for an organization to create and manage the APIs that they wish to expose, as now their developers can compose new APIs, import APIs, or discover APIs. Developers can focus their time and energy on creating innovative applications.

Another big enabling factor has been a mindset shift among developers and business strategists. New businesses are now creatively combining APIs rather than rebuilding from scratch. Rapid innovation is becoming increasingly the order of the day. These changes are coming about due to the ease of access to a wider variety of services via APIs, configurable API marketplaces and agile platform-as-a-service options that are being creatively used by the developer community in their innovation efforts.

Business Models

New ways of doing business, new ways of generating revenue

There are three API business models. The first is where the API
Is the product. This is the model when an API is your product and not an extension of your product, and is the primary source of revenue. In this direct consumption model, an organization develops and offers APIs directly to consumers. Through the APIs, consumers gain access to services that would be prohibitively expensive or time-consuming to develop in-house. These services range from commodities – such as data storage – to application development platforms, to highly advanced cognitive- computing capabilities.
APIs also provide access to specific data sources, such as those related to social media, weather and geolocation services. This is the primary model organizations use when they are applying APIs internally.

The second is the Market making model where Organizations that use this model add value to API producers’ services and bring together a critical mass of consumers to create a marketplace, like a brokerage firm that generates revenue through commissions or fees for business services. These APIs help locate API consumers and producers and match them allowing business transactions between them.

Ecosystem enablement: This is a reseller model where a company uses APIs to generate sales through partners or third parties. The company consumes APIs from multiple organizations to create a service that can then be resold by others. Ecosystem partners can then repackage the service, or provide value-added services for sales to a different set of users.

API monetization strategies

There are three primary ways to monetize APIs.

Indirect: A company like Google, Facebook or Twitter provide APIs
free of charge to gain analytical insights or enhance market presence. The analytical insights they gain is then in turn used in different ways to increase their revenues and user base.

Direct Transactional monetization: In this model, the API producers charge API consumers for the number of times an API is accessed. There are many variations of this model that include Tiers, “premium-quality-of-service” pricing, “Freemium”, in which consumers can use APIs as per their needs and pay accordingly as per their usage.

Product-based monetization: In this model, APIs are monetized through delivery of products or bundles of services and is based on fixed fees, revenue share or value added to a business transaction. In this model the user pays for the usage of the service itself rather than for the number of APIs invoked.

Use Case

Smart carts can be deployed by combining the shopping cart with in-store location services and shoppers’ purchase history based on the analytics using the data gathered on the shoppers behaviour through various sources, which can help promote relevant products of interest to the shopper. The shopping cart can display on a screen product demonstrations or advertise products in other departments which may be close to where the shopper is at present. When shoppers select an item on the screen and place it in their cart, sensors and the screen can total up the prices, giving the shopper the advantages of self-checkout without having to stand in lines. The organization makes the data and analytics more easily available to other internal audiences through APIs, thus providing added value based on the data that has already been collected. Here a combination of sensor devices, location services, beacons, analytics, user profiles all come together using the APIs in the ecosystem to create this experience for the shopper.

The API economy is here to stay. Platforms are here to stay. Ecosystems are here to stay. The days of lone entities doing business are quickly disappearing. Collaborating with others is the only way to create new business opportunities and gain competitive advantage and stay in business. In this context, the quote from Game of Thrones can find a parallel in the world of Digital Disruption – When the digital snows fall and the winds of disruption blow, the lone wolf will die, but the ecosystem will survive.