Why APIs? Doing Business in the Full Context of Customers

With the current explosion in social, mobile, and cloud computing, companies are seeking ways to distribute and convey data in an efficient and consumable manner. Savvy companies realize that APIs are the key to successfully taking advantage of this rapid transformation. Pioneers such as Google, Facebook, and Twitter have demonstrated the prowess and applicability of APIs in the current market; and many other companies have followed suit by creating their own API strategy. This article will explore the reasons why APIs are making a powerful impact in the world of business.

We first examine the landscape of the current computing environment and how APIs are shaping the future of computing. Next we consider the implications that APIs can have on your company and how to think about an API initiative. Finally, we introduce the four different types of API initiatives we have seen companies adopt and the top use cases for them.

On Doing Business in the Full Context of Customers

The three major trends of social, mobile, and cloud in the market today are creating huge changes in how business and individuals connect, how businesses engage with their customers and employees, and therefore how information technology works.

What challenges are businesses facing in 2012?

A major driver of the change in how business is done is the proliferation of mobile devices and applications. According to analysts at Canalys, at the end of 2011, smartphone shipments outpaced PCs (including iPads) for the first timethe number of smart phone units shipped was up 63% from 2010.  Gartner estimated that 18 billion apps were downloaded in 2011, up 114.5% from 2010, and that this will rise to 31 billion in 2012.

According to an IDC study in 2011, the use of consumer-inspired social media such as Facebook and Twitter is also growing rapidly: almost twice as many information workers said they were using these technologies in the workplace in 2011 as compared to the previous year. IDC also predicts that the market for Big Data technology and services will reach $16.9 billion by 2015, up from $3.2 billion in 2010. That is a 40% growth rate year-over-year.

The “consumerization” of IT is happening at a breakneck pace, thanks to each of these trends individually, but even more due to their collective effects playing in concert in the marketplace. These effects multiply to drive ubiquity and create an explosion in consumption.

 

A strategy for the explosion of consumption

Consider someone sitting on the couch streaming Netflix on his smart TV, using an iPad to keep up with friends on Facebook, all while browsing Groupon through his email alias. Or consider the businesswoman waiting for a flight using her Android tablet to check her social network on LinkedIn while accessing salesforce.com to forecast her sales pipeline. 

These scenarios and many others represent a fundamental shift in how customers are interacting with businesses and their products and services. Consumers are interacting less with web sites and more through apps on numerous devices and platforms, social media, and cloud services.

The question on the provider side becomes whether businesses have a strategy to capitalize on the explosion of consumption and whether they are doing business in the full context of customers and consumers. It is always an imperative that businesses align their strategy with their customers’ habits and needs.

Doing business in the full context of customers

How does a business effectively target and support the consumers in our scenarios? Look at how apps are built in a typical enterprise. It is common for the initial order for an iPad app to come from the executive office or the marketing team. A business might start by developing an app in conjunction with one of its products, a partner, a social network (say, Facebook), or a cloud service (say PayPal). The app is built and all is well, for the time being...

Then they realize that there is also a user base on Android so they build it again on the Android platform. Then they realize that they should target another social network. So they build again. And again and again to target more social networks, platforms, partners, and cloud services. This way of development will result in a pile of incompatible apps focusing on all these different targets.

Just as resources were increased exponentially to support different browser types in the mid-1990s (to facilitate exposing internal systems via the Web), resources are again exponentially increasing. Today, support is needed for different app platformsdifferent versions of Android and iOS, and so on.

Clearly, this method of developing apps need to be dramatically overhauled so that companies can effectively and efficiently target all aspects of our customers’ needs. 

Introducing APIs

The cloud, social, and mobile app phenomenon is stimulating an explosion in the API economy. Frequently when a mobile app user clicks a button to do a transaction (send messages, make trades, get credit information, and so on) or sends or retrieves data, an APIeither transactional or datais called.  Apigee's Anant Jhingran describes transactional and data APIs as the Yin and Yang of APIs. He posits that while the API conversation is dominated by transactional APIs today, a revolution is underway in the world of Data APIs because of the demand for easy consumption, flow, and interaction of data in a world of big data.

Bridging the Gulf Between IT and the App Economy

Ubiquity and an explosion in consumption driven by the threesome of cloud, social, and mobile apps presents major challenges.  Businesses need to effectively target and support their customers and partners in these new contexts.

What do the forces of cloud, social, and mobile apps mean for how businesses create, evolve and offer apps, data, and services? What does it mean for IT? How do we bridge the gap between IT requirements and those of the new app economy?

In this section, we will dig deeper into how APIs are the answer to handling mobile and social ubiquity and how they bridge the gap between IT requirements and those of the new app economy.

Gulf Between IT and the App Economy

The traditional axiom is that IT resources are scarce and expensive. This resulted in the creation of big budget IT projects and many high-risk projectssome of them long-term, measured in years. There were obviously big successes but there were also many over-time and over-budget project failures.

 

However, companies like Amazon and Google pioneered a new way to leverage existing assets and IT to maximize the efficiency of existing IT systems. The core principle is opposite to the one we saw previously. In this world, IT is increasingly cheap and ubiquitous. Budgets are iteratively assigned and success criteria determine whether projects moved forward. 

Former Google CEO Eric Schmidt explains his “fail fast” approach to development: “It’s better to launch and iterate; to fail fast and learn from your mistakes, than to spend years in planning and end up miles off the pace.” This fail fast philosophy allows nimbleness and flexibility in all stages of development. The results are smaller, more focused projects.

From a direct to an indirect model

How do companies accomplish the “fail fast” strategy shift? In essence, it is a shift from a direct model to an indirect model. It is about a technology shift to APIs that allows you to create a robust and versatile platform. 

Fundamentals of the app economy and the role of APIs

In the past, a business was in good shape if it provided a website. Today a company’s data or services need to be consumable by a wide array of application clients, ranging from cars (the “2-ton client,” which is fast becoming more connected), to smart TVs, gaming consoles, and handheld mobile devices. APIs power it all.

Consumers are demanding apps because apps convey information in a easily-consumable manner on devices that are heavily integrated with the modern consumer’s lifestyle. Given the hundreds of apps available on app stores for every platform, the app store is a competitive place. App developers are the key people behind the supply side of the app economy. Their creativity, technical knowhow, understanding of the marketplace and customers is what makes apps successful.

Companies who want their brand and value proposition leveraged through apps understand that there is value in their internal systems and that they can and must participate in the app economy in the same way as they participated in the Web economy in the last decade.

However, an app developer cannot simply access a typical internal system at a Fortune 500 company. Providing such access is a very deliberate and thoughtful offering on the part of the business.

While social, mobile, and cloud services empower developers by allowing them to access and interact with corporate data, IT departments still need to be concerned with security, compliance, and rapid changes, along with a variety of other things. 

The key to bridging the gulf between IT requirements and those of the new app economy is an API.

Just as app stores are competitive, the world of APIs is competitive. There is much value to be created if app developers can leverage a business’s internal systems, meaning that many APIs compete for the time and resources of the app developer.

Types of API Initiatives

Several flavors of API strategies support the app economy. To determine which strategy is most suitable, ask whether the app developer is internal to your business, in a partner’s business, at a customer’s company, or an independent developer in the wild. Depending on what roles you want app developers to play, one of four API initiatives will come into play: InternalPartner, Customer, or Open.

So what does each of these API initiatives look like? What are common scenarios in which you see them employed and how do you align your business goals with a particular strategy? Let us start from inside a business with an internal Initiative and work outward to the open Initiative.

We have observed that many successful API initiatives are done in stages. With each stage, businesses can build on previous projects, assume more risk, and investment in larger projects more easily.

Anatomy of an Internal API Initiative

Loners: A favorite use case for the internal scenario is called “Loners.” There are many organizations within a company that have no developersthat is, no technology people to make an app. But other departments within the organization often have budget to hire developers to build apps. For example, a marketing department can often take the budget they may have applied to creating Web pages in the past and redirect it to building apps based on APIs.  This can give quick wins, but can also leverage the marketing department’s influence to help gain acceptance for a new strategy and API initiative. 

Cross Departments: APIs solve the problems of keeping things secure when providing access to a company’s backend. These are common concerns even internallywhen departments are trying to work together to create new value for an organization.  Today, cross-departmental initiatives often involve big program management apparatus and onerous processes.

If businesses implemented open APIs within departments, they could do a lot less worrying, a lot more doing.  (The open Initiative will be discussed in detail later, but for now think Twitter, Foursquare, or Facebook as the archetype.) It would be as if businesses thought of the Twitter ecosystem as one company, with developers building Twitter apps in different departments.  What degree of reuse or value could developers take from existing internal systems to their new initiatives? The answer is 100%.  

Internal Mobile and Social Apps

As companies become larger and more complex, many are deferring to API ecosystems to minimize the amount of development effort to support multi-channel enablement. Dell is an exemplar in using internal APIs to better support internal development teams, partners, and retailers. Dell provides Dell Mobile applications for both Android and iOS devices that make use of Product Catalog, Product Advisor, and CRM APIs to efficiently deliver critical business information in real time.

Making IT more productive

Systems of record have both vices and virtues. The most important virtue is that they generate revenue. If you are in the hotel business, then your system of record is your reservation system; if in finance, it is your stock trading system; in the automobile business, it is your inventory and analytics system that predicts economic cycles.

Systems of record are also stable. Because they are stable, they are also often slow-moving and do not allow for core systems to keep up with market evolution. By thinking as a platformthat is putting APIs between the database and the appsyou can achieve agility and flexibility while taking advantage of the stability of those systems.

IT has tried to do this several times through historymost recently with Service Oriented Architecture (SOA)with mixed success. With APIs we have strong archetypes, and businesses are demonstrating success with API-based platforms.

Anatomy of a Partner API Initiative

The Internal API initiative is usually the first stage in a successful API strategy. The second stage is then to collaborate with partners. A partner API initiative is one that focuses first on collaboration with strategic partners. Those partners create applications, add-ons, or integrations with the API. At this stage the API gets hardened, and because the API is used across organizational boundaries, the API team will gain experience in support, documentation, authentication schemes, and so on.

National Public Radio (NPR) is a good example of an organization that ran a successful API project focused on powering the internal website and collaborating with partners first.

They launched their API at OSCON in 2008, targeting four audiences: NPR member stations, NPR partners and vendors, internal developers and product managers, and lastly the open-source community. The NPR API grew tremendously very quickly, from only a few hundred thousand requests per month to more than 60M.

The automotive industry is another example of one that typically starts an API initiative with partners because of the demands of the complex supply chain in which partners are heavily invested, and therefore have significant influence over innovations.

Here are a few scenarios for a Partner API initiative.

Channels: The most obvious way of partnering using APIs is creating new channels. Netflix is a classic example that was transitioning from being a mail-order DVD provider to an online streaming media system.

Netflix has been phenomenally successful in this spacestarting first with an open strategy then achieving huge success through a partner initiative that spurred innovation on their APIs. Their partner initiative resulted in the popular Netflix-integrated applications for the Web, the desktop, mobile devices, and TV.

As a result, Netflix is seeing unprecedented levels of market share, and has become the major determiner of how people watch video content. Nexflix is the number 1 source of Web traffic during prime time in North America, with most of its calls coming from gaming consoles.

Extenders: A partner organization wants to use your value proposition or core offering to strategically expand their footprint. It could be something that helps them expand into an adjacent business. There have been many cases across industries (such as the weather and the financial industry) in which APIs have facilitated this kind of expansion.

Product Completers: This is a simple use case where a business has an app or an API and needs something to complete the offeringsay, a language translation service. A partner’s language translator API can complement and enhance the product package, making the company offering more holistic and valuable to customers.

After the API team gets comfortable with a couple of strategic partners it is a natural next step to create resource portals and automated systems for provisioning partner keys so that more and more partners can on-board and take advantage of the API.

Pearson is an example of a world-leading learning company using APIs to connect with internal and partner developers to build innovative products that offer new ways of using and interacting with Pearson content. Pearson’s Plug & Play platform allows developers to easily explore and utilize all of their APIs. By offering this API-based platform, Pearson has made it easier to create apps and deliver greater value to a wider demographic. 

Anatomy of a Customer API Initiative

Internal and partner initiatives, the first two stages of a company’s API strategy, are inter- and intra-corporate by nature of their use cases. Both internal and partner Initiatives seek to create value in internal systems.

The customer API opens your API strategy to entities outside of your strategic network and allows them to create value for the parent company, themselves, and users of their apps.

The customer API initiative falls into one of two categories. The first is when offering software as a service (SaaS). A great example of this is salesforce.com and their force.com platform, which allows the use of APIs and run-time components to fully extend or add functionalities to its out-of-the-box offering. The second is a B2B scenario where the customer of your business is another business. For example, B2B APIs are the backbone of the numerous cost estimation applications that auto-repair shops use. These programs use APIs to connect with parts suppliers for live inventory data and current market pricing.

Here are a few scenarios for the customer API initiative.

Innovation (Saas)

The innovation use case comes into play when a customer has an idea for something they want to do with your product’s existing feature set. Without an API they have only what is available out of the box. With an API, someone at the other company can use the API to create innovative apps.

Integration (B2B)

Integration is a well-known and common scenario that has been approached with different technologies for years. It is about keeping data synchronized between your business and your customers’ businesses, facilitating business process integration between companies, and so on. 

Batch kick start (B2B)

This use case describes a scenario in which a business has acquired a new user or customer and needs to add the new batch of information and user data from the customer. Providing an API to allow customer to write that data to your system is the most efficient and quickest way to merge data sets. 

Anatomy of an Open API Initiative

The final API initiative is open API, probably the most familiar of strategies given the success of companies like Twitter, Foursquare, and Facebook.

A lot of companies are inclined to start with an open API using Twitter, Foursquare, or Facebook as the archetype. We generally recommend against this approach. Rather, we recommend an open strategy after a business has learned lessons and mitigated risks by executing an internal or partner model first.

After the API team has learned from internal and partner projects there will be a vast amount of institutional wisdom and courage for opening the API to the world of innovative developers.

There are no absolutes and it does not always work out that the flow is from internal to partner to open. Netflix has seen huge success by starting with an open API, then working with partners who were building streaming services for specific connected devices, and are now using their API more and more internally as well. For example, internal developers re-engineered their private streaming API by using the public API.  

Here are some of the use cases served by an open API initiative.

Breakthroughs

This is the most common of all use cases, and is a well-known paradigm given the success of companies like Twitter, Foursquare, or Facebook. This is the case for innovation by leveraging the creativity and know-how of hundreds of thousands of developers around the world using your API to create cool apps and make big breakthroughs.

If you decide to start an open Initiative, chances are that your internal or partner strategies will play well too. It is important to be careful about setting expectations. A lot of things need to go right to get huge numbers of developers to  successfully create apps with your APIs.

Niches

A company may have a geographical or demographic niche that represents a nice new value proposition for the business. But it may not have the resources or the budget to get the value proposition into those niches. Taking advantage of an open API program, any developer can create an app that generates new value for both herself and the API provider.

Directed

Netflix started with a directed approach. They ran a contest in the academic researcher marketplace and offered a substantial dollar reward to provide incentives for researchers to use the Netflix API to create a better movie recommendation system. The automotive industry has succesfully used a similar approach to solve problems. It extends R&D budgets and resources beyond the borders of your business and spurs innovation on a broad scale.

The Enterprise API Engine

Many successful API initiatives are done in stages, starting internal and expanding to partners and customers and then possibly open, each stage building on the preceding one.

But again, there are no absolutes, and generally when you know you need an API, you should start where you have the most trouble. Start where the business drivers are, which might be Internal if you are meeting demand for mobile and social apps within your enterprise (Dell as an example), or Partner if you need to innovate with partners to deliver on a backlog of business development opportunities, or Open if you need to inspire a broad community of app developers to innovate and create growth and new opportunities.

When a business gets all four scenarios working together it creates a strong enterprise API engine.

The business will be on the road to having a robust platform that allows you to compete in the world of ubiquity while maximizing the effects of budget and resources. Simply put, a strong API strategy future-proofs any business.