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API Economy Drivers

By Alan Glickenhouse posted Tue August 12, 2014 08:39 PM

Gartner predicts that by the end of 2014 75% of the Fortune 1000 will offer public Web APIs and that by 2016 50% of B2B collaboration will take place through Web APIs. Whether or not these predictions come to pass to make such predictions shows the incredible growth rate of Web APIs (also called Business APIs), as we create an API Economy.

What is driving this rapid adoption of APIs? The answer is a need for Speed and Reach. Businesses need to respond quickly to market demands and opportunities with little impact to their existing systems. Changes required supporting the latest innovations in Mobile or other mechanisms allowing customers to interact with the business cannot require changes to the back end systems that are running the business or it would cause the support to take too long to bring to market.

Businesses also want to extend their reach partnering with others to create value added applications that can be brought to market. Any single business only has so many programmers. Why not expand your work force with others outside the company to create new and innovative applications that send more business to you? This is accomplished by creating an API Economy where you choose to expose selected assets as APIs, which can be consumed by application developers who add further value, and subsequently make their application available to new customers. If this “supply chain” of assets provides value to the business, the app developer, and the end consumer, then we will be successful in reaching new markets that would not have been possible with a limited internal work force. This is not to say that making APIs available internally is not also important. We will cover several scenarios driving the API Economy below.

[caption id="attachment_1037" align="alignnone" width="960"]Figure 1 – API Economy Supply Chain Figure 1 – API Economy Supply Chain[/caption]

Business APIs (or Web APIs) perform the dual purpose of exposing selected assets for easy consumption and shielding back end systems from direct access where they might need changes at a rate that cannot be met. Surrounding the APIs are capabilities to make the APIs available, marketed, and easily found and consumed so that we don’t need lengthy on boarding or education by our application development partners (internal or external).

Many businesses will start by using APIs internally to achieve some initial advantage but often have a goal to expand the usage to partners and/or the public. So, initially APIs are exposed only to existing developers within the enterprise. This is for their use in creating Apps that are targeted to either employees of the company or direct customers of the company. The business drivers might be channel consistency, productivity through re-use, and internal innovation.

Expanding the scope to selected Partners, their Apps could be targeted at end consumers or the partner’s business users. The business driver is often linked to the ability to automate processes, exchange data between partner companies, and accelerate partner on-boarding.

Public APIs are open to any developer who wants to sign up. Apps are typically targeted towards end consumers. The business driver is to foster external innovation, and quickly enter new customer facing ecosystems.

Business models to bring APIs to market are varied, but largely fit into 4 categories:

  • Free – used to drives Adoptions of APIs, for low valued assets, to help drive brand loyalty or to enter new channels

  • Developer Pays – used when business asset is of high value to the developer. For example, marketing analytics, news, or for capabilities such as credit checks

  • Developer Gets Paid – this provides incentive for developer to leverage the web API. It could be for Ad placements or the developer might receive a percentage of revenue sold

  • Indirect - use of API achieves some goal that drives another business model.       For example, increase awareness of specific content, or offerings

Typically there is some mechanism for a developer to try an API at no cost.

Let’s take a look at some common and emerging use cases.

Internal Mobile Application Development

Almost every business is creating its own mobile applications using their own developers. In fact it is often the case that several organizations within businesses are creating mobile applications. Mobile apps that provide business related information need to access existing back end systems to obtain this data. Using banking as an example this could be simple non-secured information such as where ATMs are located, the current loan rates being offered, or the hours that the bank branches are open. It could also require secured access such as checking account balances, paying bills or depositing a check by taking a picture.

Partner On boarding – Geographic Expansion

Traditional partner on boarding has been a long arduous task including significant communication, negotiation, customizing interfaces and communication of data and formats between the companies. No doubt this complicated interaction is sometimes necessary. However, in some cases it may be possible to offer a partner on boarding process where the partner company can register themselves, read the legal agreement you choose to offer, obtain the interfaces you make available (i.e. Business APIs), sign up for a certain usage rate, and become a partner without any complex communication or interaction. Many companies are already doing this. For example, Amazon’s marketplace allows anyone to use their APIs to build and open a store on their web site. Credit check agencies do not do complex on boarding with every company that needs to invoke their ability to provide this service. By offering a self on boarding process the business can benefit by reaching and selling to more customers and geographies, using the appropriate business model option described earlier.

Public APIs in Composite Apps

Creativity is not contained in any single company. By exposing selected assets from your business for use by others, new solutions can be offered that drive more business to your company. For example, let’s look at Cars.com – an online web site or app that assists with the car buying process. To accomplish this Cars.com uses APIs from many businesses. They may use:

  • An automobile company API to search for cars with certain characteristics (style, gas mileage, price, etc.)

  • A social API to obtain reviews

  • A banking API to obtain loan rate information

  • An insurance API to suggest automobile insurance options

  • A GPS service from the mobile device to know your location

  • Several auto dealer APIs to check availability of the car selected in your geographic region and complete the purchase

  • and a map API to tell you where to go

Individually, the bank, automobile company, insurance company dealership, etc. would not create an app that goes across all these industries. However, if Cars.com creates this value added app, then all parties benefit.

Looking at this from the individual business’ perspective, their API is not just available to Cars.com, but to other creative companies that would also like to take advantage of the API. So, the loan rate API could be offered for real estate search apps, finance tools, or other creative entrepreneurs to also consume.

New Interfaces – Wearables, Connected TV, Google Glass

What’s next? Mobile phones (various models), Tablets (various models), Connected TV, Google Glass, wearable devices such as Fitbit, this is what we know now. The answer is we don’t know what’s next or how quickly any new interface technology will take hold and become dominant. The best way to support this is to not care. By providing an API to access the assets existing in the company we leave the user interface design outside these systems which is where it should be. Business APIs create a boundary that lets App developers move with necessary speed to handle the rapid changing systems of engagement with customers while allowing businesses to keep tight governance and management over the systems of record that run their enterprise.

Internet of Things – Appliances, Sensors, etc.

The internet of things (IoT) need to send data into the enterprise (e.g. appliance needs service, healthcare monitor alert, etc.) or obtain data from within the enterprise (e.g. Refrigerator shopping list app sees you are low on butter and knows the brand you like is on sale at the local grocery store). Whether we are sending data into the enterprise or retrieving data from the enterprise, Business APIs are used. The number of “things” that can be connected via APIs, dwarfs the number of mobile phones and tablets. There can be significant advantages to businesses that embrace this new channel early.

Connected Car

By 2020, 90% of cars are expected to feature built-in connectivity, up from just 10% today with an estimated 210 million connected cars hitting the road over the next few years. This is transforming the relationship between car owners and manufacturers beyond the driving experience. Examples of APIs for a Connected Car include roadside assistance, concierge services, crash notification, vehicle remote services, pay-per-drive rental, road condition awareness, parking space availability, data for insurance providers, and improved fleet management.

Connect with me @arglick to continue the conversation.




Thu April 30, 2015 07:01 AM

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[…] adhesion, certainly the business world is taking notice. In fact, Gartner says that last year about three-quarters of Fortune–1000 companies were using public APIs to grow their […]

Mon September 15, 2014 10:59 PM

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[…] of these is around Speed for consumers and Reach for the business (see my earlier blog post – here). The existing behavior of the intended consumers of APIs is a desire to consume the APIs, and very […]