Vic McGlaughlin
Vic McGlaughlin
August 18, 2016

What You Need to Know About the API Economy

Over the past few years, APIs (Application Programming Interfaces) have extended from the domain of developers to a become a topic in board rooms. At a basic level, APIs define how one piece of code can interact with another piece of code. Although APIs have existed for decades (think of how an application talks to your operating system to save a file), the potential reach of web APIs is a brave new world for many on the business side.

A solid API can transform a product into a platform. It can drive new users and integrations to the services in which you’ve already invested, differentiate you from your competitors and provide new revenue streams. However, a successful API is not a simple technical layer on top of your existing services. It requires a business model and intentionality to reach its potential.

APIs Are Products

With all of the hype around the API economy, the idea of creating and monetizing an API for your services is enticing. However, it is important to consider your API as a product in itself. Like any other product, it requires a product plan and a roadmap, as well as a support and maintenance plan once it is made available.

Crucially, user research will help you discover and understand who your APIs are built for and why those users need an API. In the beginning stages of implementing an API strategy, the “who” may be your own internal developers, and the “why” is a means to standardize access to an internal system. You may discover that exposing these APIs to partners or the public at large is mutually beneficial, but even private APIs result in a cleaner, more maintainable architecture. Many products begin as a minimal viable product (MVP). Likewise, APIs can initially expose a small amount of functionality, to begin with, and grow over time as needed.

It’s important to define the value that your API will create. At a minimum, private, well-documented APIs will provide value within a business by allowing new coordination between systems. However, a partner/public API is an ongoing investment that should not be considered as a simple checklist item.

APIs Are Extensions of Existing Investments

Although an API should be considered as its own product, remember that it is an extension of a system in which you’re already invested. Data is being generated at incredible rates. By one estimate, the amount of data stored doubles every two years and is predicted to reach 44 trillion gigabytes by 2020. Providing a structured means to access this data, allows businesses to make crucial connections between their own data and the world of data collected by others.

Extending existing systems with well-documented APIs allows all parties to understand the contracts that are provided. This allows API consumers to have faith in the stability of the platform. At the same time, the underlying systems can be updated with confidence that as long as the API contract is maintained, API consumers should not be negatively affected.

APIs can create new revenue streams to these systems in several ways. Well-designed APIs act as a differentiator in the marketplace. Given the choice, developers will prefer systems that they can interact with and automate using an API over those that limit them to a graphical interface. Free/public APIs can be monetized by allowing third-party developers to drive users to your platform (Twitter’s original model). The potential value of these users has led companies like Uber to pay third-party developers to use their API. Finally, your business’ data and services may be novel enough for you to charge directly for their use. Early-and-often user research will help you develop your business model here.

It’s Not Enough to Just Release An API

Building an API and exposing it to partners or the public is not a guarantee that developers will use it. Developers have gotten burned by relying on public APIs that are later made private. Twitter made such a decision in 2015 and is still working to rebuild developer trust. Events such as the Parse shutdown and the sudden disappearance of the npm left-pad module have forced many developers to take a more conscientious approach to deciding upon which third parties they should rely.

To help drive adoption once your API is available, you need to be committed to an ongoing investment. Like any other product, it will take time and energy to attract users to your API. Before developers will commit to your API, they will want to know that you are committed to it.

Participating in the supply-side of the API economy requires a holistic API strategy. Businesses need to know who their users are and how APIs can help businesses collaborate with these users to create more value together.

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