Four ways to generate value from your APIs
It’s been 20 years since Jerry Maguire hit movie theaters in 1996, and yet one line from the movie still resonates like no other. The constant banter between the agent, Jerry Maguire (Tom Cruise) and budding professional football player Rod Tidwell (Cuba Gooding Jr.) is fun, if not bombastic, with one central theme that Tidwell not only enthusiastically expresses but also insists Maguire express as well:
“Show me the money.”
Tidwell’s passion for football was far outweighed by his passion to become rich; indeed, one of the movie’s themes is that only once he got past playing for the money could he achieve the level of play required to drive real value to his team, his team’s owners, and ultimately himself.
What does this have to do with API management? Digital product owners tend to follow a similar path: the knee-jerk reaction is that the easiest way to drive value from APIs is to charge for them. While this may be the easiest thing to do, more often than not, API value is best extracted from other indirect means. By creating a tri-partite value exchange—a proposition that satisfies end users, partner developers, and the company publishing the APIs— a great amount of untapped value may be mined. And just like the football player, the agent, and the team, putting some heart into the game can make all three of them winners.
How to start deriving value from APIs
Behold: here are the four best practices to derive value from APIs:
1. Extend channel reach
Suppose your application is great but targeted toward a specific set of users. What if there’s a set of users—perhaps even an entire channel—that cannot use it? Perhaps your application doesn’t integrate well with other corporate systems, or perhaps it isn’t available in certain markets, doesn’t accept certain currencies, or can’t support certain business models (such as pre-paid or post-paid). Creating an API product—that is, an API designed for developer consumption and productivity, not just integration between systems—is the single best way to make your application flexible enough that the functionality can be adopted into channels that aren’t being addressed by your current go-to-market approach.
An excellent example of this is the Walgreens Photo Prints API. As photos have moved from digital cameras to mobile phones, a cadre of third-party photo applications has cropped up...yes, pun intended. These applications took great pictures and featured wonderful effects but offered no easy way to print the photos. By leveraging the API and the connection it facilitated to Walgreens photo printing facilities in stores nationwide, these apps can now use Walgreens stores as a venue for photo printing. This has enabled customers to quickly get prints of their favorite photos, helped developers to build richer apps, and let Walgreens photo services go well beyond the store, embedding a presence in a multitude of apps and handsets they wouldn’t have addressed without a productized API. Walgreens has turned their developer ecosystem into channel partners and now offers them much more than just photo printing services.
In this model, the API product is offered for free, as there is an obvious value proposition to all three parties—API publisher, developer, and user. (Learn more about how Walgreens uses Apigee.)
2. Consider brand awareness and promotion
Your application is lost in a sea of hundreds of other similar apps in an app store. What now? One way of driving awareness is to extend your branch reach/footprint via an API, then reward users or developers for sign-ups and usage, in order to proliferate the application to new surface areas, experiences, and form factors.
Streaming services, for example, generally have an incentive to make their streaming players easy to integrate across a wide variety of devices, form factors, and digital experiences. This can in turn create an incentive among device-makers and app-makers to integrate the service, creating a potentially exponential increase in the value proposition for the end consumer and the developers integrating the streaming player API. And when this variety of viewing options for the user meets quality content from the service, the result can be a self-reinforcing cycle of more subscribers and increased reach across more consumer touchpoints. Developers, device-makers, and the service publishing the API create ways to make money, and end users get a steadily-improving and flexible service.
Similarly, Brazilian retailer Magalu (formerly Magazine Luiza) leveraged APIs to achieve, as CTO Andre Fatala put it in a 2019 blog post, a “newfound ease and speed of spinning up new services and customer experiences and adjusting existing ones,” which let “everyone … work in small teams of five or six people that take care of segments of an application, whether it's online checkout, physical store checkout, or order management.” The approach means Magalu “work[s] much more like a software company than a retail company now,” he said.
With these new agility, the company has expanded its e-commerce strategy to third-party sellers and created a digital marketplace that lets merchants easily join the ecosystem via Magalu’s API platform. Whereas the company’s old legacy sales and distribution systems only supported 50,000 SKUs, the marketplace supports thousands of sellers and millions of SKUs, significantly expanding the brand’s reach.
3. Enable customization to create new value propositions
In a bid to create an ecosystem around its banking products, ABN Amro partnered with telecommunications company KPN, smart homes expert 50five, and Energizer—and begun leveraging its first-party payments app Tikkie, the Olisto IoT device triggering platform, and the Google Nest API—to create an entirely new value proposition around smart home solutions. Thanks to this collaboration, when the Nest Protect smart smoke alarm runs low on batteries, it can order replacements automatically, performing the payment through Tikkie and triggering the batteries to be delivered directly to the owner’s home. This capability significantly reduces risk of a smoke alarm not working due to battery failure—and with Google currently rolling out new Nest initiatives to replace the program under which ABN Amro’s solution was created, we’re excited to see what novel and convenient user value propositions our APIs enable in the future. These API partnerships let ABN Amro position their offering as a flexible platform, able to generate network effects to aggregate demand. As new value propositions are created in these many ecosystems, ABN Amro will already be integrated and available to meet the needs of the ecosystem. The company’s flexible, customizable platform will offer the path of least resistance for future similar API partnerships.
In this model, the API product is offered for free, as there is an obvious value proposition to all three parties—the API publisher, the bank, is a more desirable destination to keep money (and do business with) because of its flexibility; the developer drives value and differentiation to their product by alleviating a significant consumer pain point; and the end user benefits from having a functioning smoke detector.
4. Enable access to rare and valuable competencies
There are situations in which the best way to generate value from an API is to charge for it. If the API product substitution risk is low—if your value proposition is rare, valuable, and is not being competed against by indirect competitors—there is an opportunity to generate direct value from the API by charging for access. A great example of this is telecommunications infrastructure APIs, such as telematics APIs for in-vehicle connectivity. Though there are other telecommunications providers likely competing, the threat of other non-telecom providers offering in-vehicle applications and connectivity—i.e., the product substitution risk—is very low. As a result, telecoms can charge for those API products, as they are rare and valuable.
Reducing the importance of API value generation to simple revenue generation or cost savings frequently misses the key sources of untapped value available when targeting developers with an API program. This ability to inspire developers—not unlike Gooding’s Rod Tidwell character rediscovering the drive that inspires people to watch football—is the bedrock of the internet economy, the “demand aggregation” model that enables ecosystem effects and significant value generation.
When considering an API productization approach, make sure to have all of these in mind as you map your path to success. To learn more, check out our ebook on API productization.
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