API Business Models - How to choose the right one for you?
20 Apr 2011Presentation assets are the user interface or visual front-end to an application. Logic assets are the algorithms, analytics or services which take data inputs, do some processing and provide a response. Data is the raw content but can also include simple transformations of the content. Different services can be linked together to provide a complete application system.
It is important to break out of the mind-set that your company has to deliver all three assets. It is true that traditionally the only way to deliver applications was for a company to own responsibility of all three. However the World Wide Web and APIs liberate companies from the need to deliver all three. Now more and more companies benefit if they focus on their unique value-add. Once you identify your core assets, it becomes clear which complementary assets will be provided by your partners. Thus to reach a strategy you are satisfied with, follow the simple steps:
- Identify your own core asset(s)
- Choose the complementary asset which will deliver most value
- Define the strategy to capture the value most effectively
Let us say that of the two complementary assets, Twitter decided to focus on Presentation, because they realised that it is critical to get mobile client coverage. Then the strategy definition was to power mobile apps. The company defined the specific APIs and a business model that would attract developers to create new mobile front-ends for Twitter. An example of a Twitter partner that leverages the API to deliver a mobile client and fulfil this strategy is TweetDeck:
API business strategy examplesIn the following table are examples of how several companies' strategies could be analysed using this framework:
|Indeed||Aggregate job search|
|Netflix||Deliver new ways to watch and choose movies|
|Twilio||Outsourced telephony functionality|
|Wolfram Alpha||Bring computational knowledge to apps anywhere|
|Infochimps||Access big data without the big data hassle|
|The Guardian||Expand the reach of content and engage users|
Business Model options with an APIOnce the strategy is agreed, you will find that the use of an API opens up new options in the choice of business model. For each potential business strategy you need to evaluate which is an appropriate business model to execute. The options related to APIs include:
- Product / Service: if the main way for the company to deliver value is through its API e.g. Twilio from the table above.
- Distribution: to extend the company's reach, the API allows the company's content or services to be accessed from other applications or devices (such as smartphones). This could be in the form of a channel business model, but it may simply be to broaden access via partnerships. There are several options for monetizing the channel option including product resale, whitelabel licensing, or affiliate commissions. An example of this is Wolfram Alpha's partnership agreement with Microsoft's Bing search engine.
- Promotion: if an important role is to raise awareness for the company's products or brand, and generate additional traffic. This is the business model used by Netflix and The Guardian for movies and news content respectively.
- Content Acquisition: to make it easy to gather content which will then form a strong base for the value of a company. An example of this when job posting websites cross-post job openings to Indeed via their APIs.
|Correlation transparency of revenue to the API:||Direct
|Typical pricing drivers:||Number of calls to API||Transactions implemented through the API||Affiliate model or other indirect revenue model||Increased awareness/leads or better functionality/ content|