APIs and Business Strategy

In the world where digital transformation is at the forefront of organizational strategies, whether a company has a core technology focus or is in its early stages of leveraging technology, APIs are increasingly at the heart of their digital strategies. What is an API then and why are they turning out to be so valuable to modern businesses? And how can organizations best use APIs to increase their value offering to their customer base and create additional revenue streams for themselves? 

What is an API?

An API is ‘Application Programming Interface’. Even though APIs have been around since the first computer applications, they have really started to reach their potential with the arrival of mainstream cloud computing. APIs have been instrumental in solving problems of both scalability and mobile computing and they have considerably improved the reach and functionality of software programs. 

Let us take a look at what APIs really are before we understand their impact and influence on our day to day lives. APIs, simply put, are computer programs that can “talk to” other computer programs. They are basically the part of the server that receives requests and sends back responses creating a communication channel between different software components. 

APIs thus can allow various programs to work in harmony enabling one platform to use data or functionality from a different service. Think of how various browsers programs can ask for search results from the search engine server APIs. Irrespective of the browser you use, you get the desired result for your search. Going a step further, you can use the functionality of the search engine in your website without having to know the entire code of the search engines. Think of APIs as a take-out counter in a software application. Irrespective of who comes and stands at the counter, the software can share the data requested. This data can then be used to extend, enhance and integrate with other services and workflows. 

Google Maps and Places Search APIs

As an example if you take Google Maps APIs, they link to Google Maps which is the core application. The Google Map Android API is regularly used in other apps like Uber, Ola and Zomato. Searching for destinations by name is allowed by the Google Places Search API.

Lego Block Programming

You can think of APIs like a Lego block structure. So it is a part of an application from which data is requested. It is built with an available end point that allows others to program on top of it and it acts as an interface between the software application and the third party programs that interact with it. 

Why develop an API?

Twilio, Twitter, Zillow, and Slack have APIs as a core part of their business strategy and are reaping the rewards of this decision. APIs are making data not only more accessible but more consumable allowing organizations to take the most value from their data. 

APIs allow data to be consumed both internally and externally. Internally APIs can link separate systems and provide business insights, whereas externally it can open up revenue streams, whether on a fermium, per call or subscription basis. They can also of course be offered for free to expand the reach of a product or service.

The value of data

Imagine a business that generates huge amounts of data across various business units through many internal and external facing applications. The organization can link these applications to each other through APIs and also collect and store relevant data from each application in a central database. Analysts can then find salient trends within the businesses and could also find bottlenecks and inefficiencies in the systems and processes. 

Such insights enable better and more informed decision making based on concrete data rather than “guesses”. Thus APIs are both effective in breaking down silos of data and creating more efficient decision making processes with the help of actual data.

Extend and enhance your product offerings

APIs provide endpoints to any program or device connected to the internet. Thus the usefulness of the core application gets extended to any such program or device. This allows enterprises to allow developer to build within its ecosystem to enhance its value or monetize its use by developers. 

Moz API monetization strategy

Moz’s main offering is an SEO product, Moz Pro. Additionally Moz sells access to the Mozscape API that allows developers to build their own applications using data from Moz. It is priced on a freemium basis where fees are only charged after a certain volume is reached.

Opening up the endpoints to the data of Moz Pro allows developers to build their own applications using data from the Mozscape API. This opens up an added revenue stream for Moz while allowing while allowing both billion dollar players like Hubspot and smaller developers to build applications based on Mozscape API.

Slack’s Open API strategy

Slack’s free API promotes the development of third-party bots, the creation of custom workflows and internal tools to boost productivity. This encourages a mutually beneficial relationship with third parties that in turn lead to many companies building Slack apps that leverage their own APIs within the Slack app itself. This product ecosystem is centralized in the Slack App Directory and makes Slack even more useful and functional, and spurs product innovation.

Example: Zillow open API strategy

Zillow is a real estate marketplace with an open API network that ‘turns member sites into mini real estate portals’. Zillow allows other services to leverage its data. The company itself also relies on open governments API for data, and is a major believer in public APIs and the sharing of data. 

Zillow allows the API and data to remain free despite the monetization opportunity it presents. This allows the company to remain a primary source of real estate information in the market, and to drive traffic and ad sales instead.

Pursue an API-first product strategy

Twilio sells a suite of APIs specifically aimed at and marketed to developers instead of selling a product. This is a developer centric approach and it has led to Twilio being adopted as a communication tool in many software products. Developers are effectively borrowing parts of Twilio’s functionality to enhance the core functionality of their own products. 

Twilio has a pay per call pricing model that allows them to easily scale the use of their service. Airbnb and Whatsapp uses the Twilio API to send authentication SMS s. Morgan Stanley has recently taken up the service to engage with their Wealth Management clients via text message.

How can APIs be monetized?

Value of an API

In a recent survey of IT decision makers by Mulesoft, an integration software vendor, it was found that 50% of large enterprises (10,000+ employees) surveyed were making more than $5 million a year from API initiatives. Trends show that with increase in functionality and reach of APIs this figure is set to increase as time goes on.

API monetization models

Depending on the goal of the organization, there are various revenue models to choose from as far as monetizing APIs are concerned. If the goal is brand and reach, it might be better to have an open API or freemium model. Whereas if the goal is to have an effect on revenue directly then a simple pay per call model may be better suited. Of course the specific industry, product or vertical will have to be considered to decide on the best choice possible.

A few to consider:

Per call basis

A pay per call – Users of the API are charged for each request that they make to an API, or can make limited amount of calls on a tiered basis. Twilio, uses this as one of their pricing models, giving discounts for greater volumes.

Open APIs 

Open APIs – This strategy offers indirect revenue generation, either by driving traffic or driving product adoption by allowing extensions of functionality. For sites that rely on advertising, more impressions means more clicks which means more ad sales. Otherwise, open API ecosystems mean more integrations and extensibility leading to better user experiences and more happy users.

Freemium

Freemium services means allowing a certain number free of calls to the API, beyond which payment is required. Alternatively freemium models can offer data which is available only for a limited duration or available in delayed time (vs. in real-time) free of cost. 

Subscription upgrade

SaaS companies such as SalesForce offers access to their Web Services API once users subscribe to a certain level of their product. This is an upsell strategy that allows users to get a feel for the core product while allowing potential upgrade from day one. 

Revenue share

In a revenue share agreement, an API provider allows a strategic partner to use their APIs in their product like website or mobile app. In this arrangement the API provider can earn more sales through referrals and drive greater traffic and awareness to their offerings, while the business leveraging the API benefits from the functionality and a part of the revenue they drive through their product. The Expedia Affiliate Network uses such a model. The company offers a suite of APIs to B2B partners and a percentage on sales made through referrals.

Conclusion

APIs offer a host of opportunities from simple revenue increases to creating commercial partnerships or even extending functionality and encouraging product innovation for both businesses and governments. Right from building smart cities to creating digital bridges across organizations APIs are paving the way in today’s digital innovation culture. While the API economy is flourishing, it is yet to reach its full potential with media, finance and real estate companies adopting API focused strategies and business models to drive innovation in their organizations.

Are you looking for an API driven strategy for advancing your business goals? Connect with Incepta for ways to transform your business via an API driven business model.
Visit our website: www.inceptasolutions.com or email us at hello@inceptasolutions.com

Written by Incepta

February 26, 2020

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