As pharmacy retail giant Walgreens has announced a new revenue sharing program that rewards in-app developers using its QuickPrints API with a bigger slice of the customer pie, we take a closer look at the business model behind the API.
The Walgreens QuickPrints API will now provide up to 20% to app developers whose end customers use Walgreens' photo printing services via the API. Explaining the motives behind the increased revenue share, Joe Rago, product manager at Walgreens, told ProgrammableWeb:
"We have been keeping a close eye on the competitive landscape of photo print APIs that have come into the fold since we launched our API program. And while we know our API has significant benefits over other photo printing APIs available for developers to use, we want to reward both our existing integrated app developers, as well as encourage further integrations by modifying our baseline revenue share program."
Walgreens has provided APIs as part of its business services since 2012 and is set to release more API products in early 2014. How does a brick-and-mortar business—currently listed at number 37 on the Fortune 500, with a revenue base of $77.6 billion in 2012—use APIs to generate new business and enter new markets? What business model is Walgreens applying to its APIs? In this case study, we look at how Walgreens developed the QuickPrints API and how it uses the API to build new market entry points and generate (or preserve) customer revenue.
The business case
Walgreens uses a "Developer Gets Paid via Revenue Share" business model for its QuickPrints API.
This API allows third-party developers to provide an in-app photo printing service, for home delivery of prints or collection at a Walgreens store location. Originally, Walgreens offered 15% of the revenue collected for photo printing with the third-party app developers, but has just enhanced the program to offer a sliding scale of percentage share depending on the total amount and type of service sold in-app. Walgreens also frequently offers app creators additional discount coupons and codes to help them increase their initial revenue base and to encourage an app's new customers to try the service.
Walgreens by the numbers: QuickPrints API
Launched: July 2012 (16 months)
Revenue share provided to developers:
- 15% for photo print orders under $10
- 20% for photo print orders over $10
- 15% on photo creative gift products
Time to hello, world: Less than 30 minutes
Israel Derdik, CTO with photo app Aviary, which uses the QuickPrints API, told ProgrammableWeb: "A simple standard implementation took us less than 30 minutes to implement. Walgreens has made it very easy for developers to get started. Our final implementation is highly customized and therefore took considerably longer (understandably so), but the Walgreens API team were very helpful during that process."
Level of developer interest: According to ProgrammableWeb API catalog data, details about this API match average levels of interest for any API in the PW database
Growth rate (as of November 2013): 15x growth rate for live integrations since July 2012 program launch
API Business Model characteristics
(This case study uses the business model template approach described in the Business Model Generation.)
Type of business model
Developer Paid via Revenue Share (as categorized in John Musser's 20 API business models in 20 minutes presentation)
Main customer segment: Mass market
Walgreens stores service an estimated 45 million customers every week, with 14 million of these making purchases online. Walgreens estimate 10% of its online customers access Walgreens via tablet devices, and 40% on mobile.
As Walgreens continue to expand its API strategy, it hopes to scale some services (such as photo printing) into a global business market, according to Tim McCauley, Senior Director of Mobile Commerce at Walgreens.
Recent presentations by McCauley and Rago have highlighted how the API helps Walgreens demonstrate its core business goal. Walgreens wants to be known in the U.S. consumer market for "creating wellness experiences" that help customers "get, stay and live well." This is reinforced by the Walgreen's slogan "At the corner of happy and healthy."
To communicate and create market-entry pathways for customers using mobile devices, Walgreens has relied principally on building a motivated developer community around its API. (Walgreens also dogfoods its own APIs by using them to power its own photo printing app product.) When customers access services like photo printing, Walgreens' goal is to ensure they're seamlessly funnelled along to their store location or home delivery services because of the relationships and access points Walgreens has built with developers.
Walgreens' strategy is built on a sophisticated model that links self-service customer empowerment with automated service delivery in order to manifest the sort of wellness and happy experiences it promises in its value proposition. Via the third-party app partnerships that Walgreens has developed via its QuickPrints API, the retailer has encouraged a co-creation customer relationship that, in addition to making photo-printing more convenient, enables customers to create greeting cards, calendars and custom gifts based on their own photos and memories.
By working with third-party app developers, Walgreens is able to communicate its value proposition to potential new customers, while also partnering with apps that have complementary value propositions for the same target market. Aviary's Derdik explained the partnership:
"Photos are an integral part of the mobile experience today and will become more and more so in the future. It's fun to play with apps like Snapchat and Instagram that focus on the digital medium, but at the end of the day, some people like holding a physical photo album and leafing through it with their family and friends. Walgreens and its photo API make this very easy for us to do without having to divert resources from our core mission of improving photos."
The revenue Walgreens generates through providing the API aims to win back some of the market share it lost in a disrupted photo printing market. Like Blockbuster's loss to Netflix, coming into a store to print photos from film was largely replaced with image manipulation apps that can route an app user's photos direct to a printing service and even include home delivery. To win back market share, Walgreens provided the API to these image manipulation apps so it could become (again) the preferred photo printing service and leverage its 8,200 stores so collecting the photo prints is convenient for the end customer.
But it's not just about re-creating a revenue stream that the business already had. For Walgreens, providing access to store services via APIs has a multiplier effect on sales revenue. Mobile customers spend four times as much as store-only visitors, and omni-channel customers who access Walgreens across touchpoints, including the internet, mobile and in-store, spend six times as much as store-only customers.
The key resources that enable Walgreens to use the APIs as a revenue generator include:
- API developer portal and coding resources
- Terms and conditions of the API/revenue-sharing agreements with third-party app developers
- The ability to leverage the more than 8,200 Walgreens store locations
After creating the API, Walgreen's activities to build its developer community have included:
- Participation in four hackathons and more than 10 industry-related conferences
- Multiple competitions to encourage developers to create specific resources using the APIs (for example, last year)
- Participation and developer evangelism at events including local meetups and API industry conferences
The major partnership harnessed by Walgreens has centered on working with third-party app developers. This includes revenue sharing, providing co-marketing support for third-party apps by way of promotional content on the blog and in press releases, and provision of discount coupons to help third-party apps onboard new customers.
Major cost centers involved in the QuickPrints API include:
- Product development resources
- Technical development and testing resources
- API platform management and maintenance fees (with Apigee)
- Event sponsorship and marketing (inclusive of travel-related expenses).
Aviary: A third-party app developer using the QuickPrints API
Aviary—which raised $6 million in venture round funding in July 2012—uses the QuickPrints API within its app as one of the features that allows its customers to move seamlessly from image manipulation direct to printing services. The in-app service is "among the most requested and loved features in our applications. A meaningful percentage of our users print to Walgreens and we expect that to increase during the holiday season, as seasonality would suggest," said Derdik.