Craig Burton

Logs, Links, Life and Lexicon

This is a joint post with 3scale’s Steven Willmott (njyx on twitter). I dreamt up the original idea of the five axioms and we have been iterating since.

The Five Axioms of the API Economy

This blog post is the fourth in a series of five blog posts outlining the axioms of the API economy. The post follows on from the first three Axiom posted (also see an intro to the series in the first Axiom). The five axioms we’re covering are as follows, in order:

  1. Everything and everyone will be API enabled.
  2. APIs are core to every cloud, social and mobile computing strategy.
  3. APIs are an economic imperative.
  4. Organizations must provide their core competence through APIs.
  5. Organizations must consume core competences of others through APIs.

Axiom #4 addresses the issue of what should an organization choose to API-enable first and why.

Axiom #4: Organizations Must Provide Core Competence through APIs

The fourth axiom contains two core elements. When an Organization chooses to provide APIs:

  • Those APIs should provide substantial value to their target audience.
  • Those APIs should cover the Organization’s core competency.

In other words, an organization should provide APIs that some other individuals or organizations (customers, partners or the world at large) can consume and find useful. These APIs should generally be related to the organizations core business – and not a small side detail.

While these are separate, it’s easiest to understand them together. As already stated in the previous axiom, APIs have the power to generate significant economic value but:

  • This value is only unlocked if a particular API set has a user-base. These users may be customers, employees, third party partners or the world at large – but without a user base an API is a wasted investment.
  • An API is only as valuable as the data or functionality to which it provides access. So if an organization delivers a particular core competence (e.g. shipping, book retail, flight reservations, car hire), it stands to reason that the most valuable APIs this organization could provide link to and drive volume to exactly these core competencies.

Axiom 4 Graphic

Figure 1 illustrates the relationship between providing value to the target audience and using the provider’s core competence when designing and delivering an API suite. Obviously the provider should go for the “Sweet Spot” and develop APIs that focus on the provider’s core competence and deliver high value to the target audience. Anything less will meet with undesirable results.

In a theoretical example, a car hire firm may consider two APIs: 1) a data API providing historical trend analysis on US driving patterns, 2) transaction capability to book hire cars from the company’s fleet.
Both of these APIs are interesting and potentially valuable to someone (and both are worth considering). However, if the organization needs to choose between the two projects the second is clearly more valuable both to itself and its customers, partners. This is because:

  • Transactions on the API drive the hire company’s core business.
  • Transactions on the API help partners/customer carry out the key business with the organization in a new way.
  • The company can safely say it is likely to continue support for the API if it succeeds since it will be contributing to core business metrics.

For the second API however, while this could certainly be valuable, it represents a deviation from core business. The car hire company would likely not be able to back the API with as much resource. Further, the API would need a new, separate business model. Though this could certainly be welcome if revenues were significant, they would likely need to be very significant compared to the company’s core business. Worse, if the API gets significant traction, costs could rise – potentially forcing a shut down. In other words, this second API is a much more fragile proposition both for the provider and potential users of the API.

In order to reinforce this point consider some examples of companies who operate APIs that directly drive their core business:

  • The Walgreens API: subscription filling and photo printing
  • Nike+: social network enabled sports clothing
  • Twitter: read and write tweets
  • Getty Images API: stock photo search in real time

In each of these cases, APIs form a channel directly onto the company’s core business and if successful will drive more business (which would likely grow over time). This channel delivers a very clear advantage over their competitors since potential partners and customers now have increasing reasons to partner with Walgreen’s, Nike, Twitter and Getty Images specifically.

It could even be argued that over time, an API could become the single most important business channel for many companies, since mobile, partners, and product integrations could all tie into a single channel.

Interestingly, it has taken a while to learn this lesson. Many of the early APIs that were created by large organizations were offshoots or experiments that were deliberately not related to the organization’s core business. In other words, organizations wanted to explore the impact of APIs but not affect their core businesses – this approach often leads to failure of the API program since:

Summary

Becoming an API provider is driven by one key realization: ensuring an organization’s core competence is available in the simplest form possible for others to integrate into their own systems such that they can become valuable suppliers, customers and partners.

Also providers should enable API access to core competence and preserve value to the target audience. Focus on the “Sweet Spot.”

Note: This is not intended to be an argument that every organization should have a fully public open developer program. In many cases that goal wouldn’t meet business objectives nor would it provide value. Instead the axiom states that becoming a provider to some kind of audience – typically a subset or superset of an organization’s existing customer base, or a new one they wish to address – is the important focus. A fully public open API is simply the mechanism to reach a particular type of customer base.

Up next is Axiom #5: Organizations must consume core competencies of others through APIs.

This is a joint post with 3scale’s Steven Willmott (njyx on twitter). I dreamt up the original idea of the five axioms and we have been iterating since.

The Five Axioms of the API Economy

This blog post is the third in a series of five blog posts outlining the axioms of the API economy. The post follows on from the first and second Axiom posted (also see an intro to the series in the first Axiom). The five axioms we’re covering are as follows, in order:

  1. Everything and everyone will be API enabled.
  2. APIs are core to every cloud, social and mobile computing strategy.
  3. APIs are an economic imperative.
  4. Organizations must provide their core competence through APIs.
  5. Organizations must consume core competences of others through APIs.

Axiom #3 addresses what kind of impact APIs are likely to have. Seen from the outside, APIs may often look like un-important add-ons, but there is a strong and clear argument that economic value is at the core of APIs.

Axiom #3: API’s are an Economic Imperative

As is clear from the first two Axioms, APIs provide significant value in a wide range of scenarios: making new types of products and services possible, reducing integration costs or speeding up existing processes. However, It may still appear that the majority of the beneficiaries of APIs are likely to be primarily digital or technology companies like large social media companies or media organizations. It is also difficult to see past the technical nature of APIs to their business value since much of the current debate around APIs is inherently about implementation details, technical architecture and so on.

However, APIs are, at their core, not a technical device. Instead, they are a means of delivering or providing access to a service or a product. In other words, the precise technology involved may vary but the essential nature of an API is to provide access to something of value. This in turn means that APIs intrinsically provide economic value. For example:

  • Twitter’s API provides the availability to send a tweet and have this visible to the whole of Twitter’s user base: clear value.
  • Salesforce’s API provides the ability to synchronize customer data with third party tools – making those tools and Salesforce itself more useful: clear value.
  • The City of New York’s 311 API provides the means to report problems to the city managers so they can be addressed: clear value.
  • Twilio’s Telephony API allows the sending of an SMS to any phone number in the world in one line of code: clear value.
  • United States Postal Service (USPS) API. The U.S. Postal Service provides a suite of USPS Web Tools that customers may integrate into their own websites to validate or find mailing addresses, track and confirm mail delivery, calculate shipping rates, and create domestic or international shipping labels: clear value.

Interestingly, only in the case of one of these APIs is the actual API invocation charged for (Twilio charges per SMS sent), yet they all still provide value – often to the provider of the API as well as the user.

For digital native companies such as Netflix, this value is already very clear: Netflix API has evolved tremendously since it’s launch and provides the key meta-data and navigation flow that underpins Netflix players deployed on over 1000 different types of devices. Without the API Netflix players would not be able to nimbly navigate the Video content Netflix delivers or deliver a custom experience on each device. But beyond inherently digital businesses, many more large organizations are deriving clear value from APIs:

  • General Motors: GM via onStar provides a rich set of APIs to control the systems in some of its vehicles. The APIs provide both in-vehicle and remote information and control – enabling third parties to provide new applications and experiences to GM customers.
  • Walgreens: The Walgreens API Program enables partners large and small to integrate and both print photos and file prescriptions – important and valuable services for both the developers writing the apps and for Walgreens itself.
  • Johnson Controls: JCIs Panoptix division amongst others employs APIs to provide access to data and control systems from its in-building installations. This in turn creates a marketplace for new applications compatible with their systems.

To complete the Axiom however, we also need to discuss whether or not APIs are an economic imperative. This is equivalent to asking –

“Yes, but how important is this additional value? Can I live without it? How do I compare it to other valuable initiatives I have going (opportunity cost)?”

While not every industry sector and every player in every sector is in the same situation and hence, the answer to this question may vary. However, there are several reasons to believe that for most organizations there is a clear imperative to deploy APIs:

  • The value created is likely to have direct impact (being able to do new things) and indirect structural impact (making the organization more agile in the future).
  • The value of APIs is often on the top and bottom line: on the revenue side – APIs enable new products and services or drive more volume for existing products/services, on the cost side – integration costs often drop dramatically when API-driven.
  • Many API strategies enable creation of a partner or customer ecosystem – reinforcing the value of products/services with third party additions. This type of effect is often strongly biased to the first few movers in a space – enabling them to grow proportionally faster than their competitors.

There are industry sectors where no significant players make significant use of APIs, the economic case is clear – once one or more players come out with offerings, they will force transformation amongst all the remaining players.

What is without doubt is that APIs are already starting to have a significant top and bottom line effect on a business. It has already become an imperative to leverage their power– just as cloud, social and mobile have become imperatives in almost every sector.

Summary

Proper use of APIs provide clear value. It is economically imperative that organizations integrate well-designed API strategies into their planning and development processes. These actions will provide value to any organizations top and bottom line economic values.

Axiom #4 will be coming next.

Still Not Dead

Calendar

November 2017
M T W T F S S
« Nov    
 12345
6789101112
13141516171819
20212223242526
27282930