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API 2.0: Potential to Radically Reshape Value Chains for Business Development in the Cloud

By June 16, 2008Article

API 2.0 management and the creation of new Internet distribution channels are at the heart of today’s rapidly exploding digital mashup economy. API 2.0 (Application Programming Interface) accelerates innovation in the cloud, on mobile apps and Web services. How? Opening and launching APIs offers rapid entry to new markets via the cloud as well as fast ubiquity for monetizing your digital assets, data and content, and provides gateways to Web services and mobile apps.
For fast-growing innovators such as PeekYou, Pingar and Mesagraph as well as enterprises such as and Skype, “opening an API” today means creating new business models that were not possible without an API. Serving as the “glue” between different software programs, APIs are gateways that allow businesses to transfer, track and monetize valuable calls to their data, (think of the potential of billions of tracked and monetized calls) while connecting with partners and expanding distribution.
While it’s fairly easy for an engineer to create an API to share data or services, building the business strategy ahead of time requires strategic insight and expertise. In order to maximize the returns to your organization from the API revolution, it is essential that business leaders learn about what is behind APIs and why their impact is increasing so dramatically. Rather than rely on poorly focused technology push, only well-informed executives can drive the right sense of urgency and priority to guide their API initiatives.
This article discusses the potential of APIs to radically reshape value chains for business development and marketing executives.
While APIs themselves are not new, we are now entering a “chapter two” inflection point, which opens a whole new spectrum of possibilities.
Among the most important trends shaping the Internet today are social networks, mobile, and location-based services. Although the core challenges of attracting and retaining users persist, today’s world is far more complicated. It is a fragmented world. Devices are proliferating, and people now access the Internet from countless smartphones, tablets and other gadgets, not to mention the hidden network of connected intelligent devices. The Web browser is no longer the exclusive gateway to view content on the Web. Today, ever more content is accessed through new media such as widgets or mobile apps. It has become imperative to ensure that digital data and services are available in the context that users choose.
The big change in mindset is to recognize that data and services – the company’s digital assets – must be unlocked from the confines of a website. Once they are free, and can be accessed from anywhere, then the potential to grow the business can be realized.
APIs chapter one
During the growth of the computer industry in the last decades – even before the World Wide Web – APIs were at the heart of market dynamics. Frequent competitive battles were won or lost on the basis of API wars. The stakes were high, and it was usually a select few big and powerful companies or organizations that dominated the directions for APIs. For the winners, controlling an open or proprietary standard API would usually add rocket fuel to a company’s growth path.
APIs can be classified in several categories depending what abstraction is being described.
These descriptions may seem very different, but they generally follow the guidelines of the definition. In the table are typical API categories, together with examples.
API 2.0 Graph
The reason that APIs were so important to growth is because of the network effect that occurs when more applications created for a platform lead to an increase in the value of the platform itself. As soon as a developer ecosystem takes root, it becomes more costly to switch to alternatives (because some applications may not be available on the new platform) and it is a prerequisite for a company to become the dominant provider in its market.
Microsoft was one of the most successful companies to exploit their APIs for business advantage. They made massive investments to attract the largest base of application developers to write apps for MS Windows and the Windows API. Once they achieved critical mass, it became a self-reinforcing cycle of customers choosing Windows because of the large selection of apps, which led to more developers to write apps on this platform in order to reach the largest possible customer base.
During this period before the Web was available as a distribution platform, it was extremely hard to grow a developer ecosystem around APIs. In order to be successful, companies had to overcome lots of distribution, competition and complexity challenges. It was only at large scale that it was feasible to solve these challenges. Therefore, it was inevitable that big companies dominated.
APIs chapter two
The Internet and, in particular, the rise of Web APIs, has had a democratizing effect compared to the dynamics of APIs chapter one. Now anyone can create an API to share data or services. Anyone can define their module or subsystem (to use the automotive analogy) as a Web service, and it will be available to be integrated in other modules or applications on the connected Web.
The commercial potential for APIs is no longer limited to a handful of big companies, like Microsoft during the APIs chapter one period. Anyone can spot an opportunity for a new service and, with APIs, slot it into a bigger framework. Thus, it makes the solution more accessible, more useful, and more powerful. For developers who build upon Web services, it is also easier than ever to take advantage of external services and data to enhance their offering. The result is more value for end customers/users and an explosion in the number of APIs, as follows:

  • Google – 5 billion API calls / day (April 2010)
  • Facebook – 5 billion API calls / day (October 2009)
  • Twitter – 3 Billion API calls / day, 75% of all traffic (April 2010)
  • ebay – 8 billion API calls / month (March 2009)
  • Bing – 3 billion API calls / month (March 2009)
  • – Over 60% of all traffic via API (March 2008)Source: John Musser, Programmable Web

The API explosion means that it is feasible to create products that meet customers’ expectations and desires more accurately. It may be to meet their use case in a small market niche, or to have access to data in a unique context or to meet their preference to interact from a smartphone device. Ultimately it provides companies with the flexibility to design completely new business models.
This is nothing less than a revolution in the way in which solutions will evolve. It is an evolution in the role of APIs, but it is a revolution in how business can benefit from APIs – the API (R)evolution.
The next chapter for APIs
Where to next for APIs? The journey has just begun, and the potential will continue to grow.
Some of the key trends to watch out for:

  • Standardization – The effort and friction necessary to integrate Web services will continue to be reduced to approaching zero. Once an accounting Web service has been integrated via its API, it should not be necessary to rewrite the integration if another accounting service will be integrated as a replacement.
  • Service level agreements – SLAs were often treated as “best effort” during the first wave of cloud-based APIs. Increasingly, services are being meshed together in more mission-critical solutions. This is driving a requirement for service providers to commit to service level guarantees for their APIs and the need to monitor performance and keep track of the usage.
  • Automated service brokering – In parallel with progress to improve standardization, brokering will help to make it seamless to dynamically switch service providers (for example, from one accounting Web service to another).
  • Programmer-less stitching of Web services– Most of the benefits of APIs are limited to companies and individuals with the programming skills necessary to write the required code. Yet, for as long as programming languages have existed, people have envisioned solutions to instruct computers without the need for programming skills. APIs provide higher levels of abstraction and will help get us closer to this vision.
  • Exploitation of rich APIsfrom services or devices that will create entirely new categories. Examples: devices beyond PCs and cell phones such as augmented reality glasses, 3D projectors, sensor networks, grids of information produced by nanotechnology-based devices and environment-aware technology.

Action plan steps for APIs and online strategy
APIs are opening up a new chapter for the Internet. Content and services are the digital assets that are the core of any business. An API can open up new distribution and solution options and therefore capture more value from these assets. An API unlocks the value of a firm’s digital assets and explodes reach well beyond the website to mobile apps, partners, developers and more.
This greater reach allows partnerships to be leveraged and creates a multiplier effect for key assets, thus bringing the opportunity to innovate with completely new business models.
Competitors are left standing still, while customers can access content and services exactly the way they want.
To get started on your action plan to boost your business with APIs today:

  • Identify your core digital assets
  • Brainstorm what solutions could be invented with the help of your digital assets
  • Define a few scenarios for an API-based business strategy and business model
  • Scope out requirements to implement your API initiative
  • Start with one strategy and business model, and be ready to adapt and change

The API (R)evolution is here … now!
As COO at 3scale, Mark Cheshire oversees the enterprise solution and customer operations, ultimately helping firms to expand Internet distribution channels with the on-ramp to Open, Secure, Control and Monetize their APIs. Mark was previously VP products at SaaS group NTRGlobal, and global head of product management at HP.  3scale provides a SaaS Management infrastructure for APIs enabling companies to open, control, manage and monetize the distribution and usage of their data, content or services to multiple devices or mobile/Web applications. We help companies manage their APIs in a manner that increases the visibility and grows revenues.

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