In this final part of a 3 part interview series, Steve Willmott, CEO of 3scale, an Apigee competitor, gives his take on the API space and what Apigee's $35 million round of funding signals. This follows part 1, Interview with Apigee CEO Chet Kapoor on its $35 Million Funding Round, and part 2, Interview with Promod Haque, Norwest Venture Partners: Apigee, the API Economy and “Sticky Infrastructure”. As noted previously, some questions overlap intentionally, in order to get different views on an issue.
Programmableweb - Welcome. This $35 million round that Apigee secured is pretty large. How does that affect the API space generally and the API platform space specifically?
Steve Willmott - It is a crazy time. You’ve seen consolidation, including Mashery being bought by Intel, and Layer 7 being purchased by CA Technologies. We raised $4.2 million recently. Apigee raised $35 million. Things are moving quickly. This shows that infrastructure providers are rising. Real enterprise demand is growing. We have a self-serve product. Demand is very consistent and investment underlines the interest in the space.
But there are differences among the players. Apigee is all about enterprise. 3scale aims to serve a lot of mid-size and smaller customers as well as larger ones. So Apigee’s round of funding won't be a significant game changer for us.
PW - So do you foresee further consolidation, or will it mostly be competition between existing firms? How will it play out?
SW - There is lots of competition. Apiphany and SOA are two among many other firms. Even IBM has talked about adding API management to their products. What we see is more competition and more solutions. We see this as a positive. There are lots of APIs. But there’s not enough structure out there. And we need so much, like good documentation.
There are many companies helping people use APIs. But developers finding APIs is a very under-served market.
PW - So how does that translate into opportunities for 3scale?
SW - We feel that our platform is easiest to use and open. We have about 250 customers. We are self service. We’re helping people use APIs.
PW - It seems like everyone in this space is claiming the term “self service” as their own. What do you mean by it?
SW - With our system, a customer can go through a portal and get to the point of using an API in a few hours, sometimes less. Then you can scale up. And you can do all this without having to talk to a sales person, just working through our site. We think this is a good strategy because we’re seeing the mass breakout of APIs. With Apigee you have to talk to sales people. Most of the rest of the world wants to just try the tools and use them rather than talking to sales. Enterprise likes to talk to sales. But for a large section of the market, the mid-size and smaller companies that we focus on, they just want to grab the tools and go.
PW - How to protect yourself from competition? What’s your moat, to use Buffett’s term?
SW - Every provider feels some competition. But the market is growing so fast. Every business in the next 5 years will need an API. Today there are, what, 10,000 to 50,000 APIs out there? Most companies have no structured process for managing them. The real story involves how to help them do that, to manage their APIs. The moat question is important. But there is way way more growth than the current players can handle. And we will see so much growth for the next few years. No one is trying to take one customer from another.
PW - Why did you choose to focus on smaller companies?
SW - We have 20% of our customer base that are large companies, in the Fortune 2000. We serve that market. But because most companies will need APIs, it makes sense to automate things. We want to create tools rather than operate in a consulting model. So we’ll help a large company that has created its first API and will be launching 60 more. But we are excited about smaller companies as well. We want to provide automated tools rather than sales people aimed at enterprise.
We compete on a lot of accounts, for perhaps as much as 30 to 40% of our customers. But a lot others are using us without our having to compete. For many of them, Apigee is simply out of their price range.
PW - I’m trying to visualize your model, and it sounds like a tool shop where customers can come in, grab the tools they need and go.
SW - That’s right.
PW - I also see almost a parallel between Apigee and 3scale that is similar to Apple vs Microsoft. Apigee has high-end customers needing to buy something with a lot of bells and whistles. Your customers just need something that works, is ubiquitous and inexpensive to implement. Is that a reasonable analogy?
SW - The luxury comparison doesn’t make a lot of sense. It’s more like high-end capacity servers vs PCs. Apigee is targeting the big server end of the market, and big enterprise needs those servers. But at the same time, lots of little PCs work. And many customers need the latter. People are focused on functionality.
PW - What problems do your customers have that you are focused on?
SW - A big one is mobile enablement, tracking APIs across platforms. Let’s say you want to enable something on Blackberry. You’ve got more than one app, one for each of the different mobile platforms. You wind up with multiple different products in the field. That creates a host of issues, from how do you manage them to analytics—how do you measure each of them separately and together?
A second big issue is the customer ecosystem. SaaS companies are trying to improve service by adding APIs. When customers integrate your API, that becomes a factor of stickiness, you can charge a little extra for the use of your API. So it is an extension of product. But you need to be able to build that out.
Third is the issue of a partnering system. IGN, International Gaming Network, is an example. They have a community with a lot of content and discussions about various platforms including play stations and others. They are a media company. Or take distribution via Flipboard. How will the partnering work?
Then ecommerce needs APIs to present subsets of things like their catalog to drive sales.
PW - Can you give me an example of how these problems play out in the field?
SW - 50% of companies are writing their own internal APIs. Johnson Controls has a big commercial real estate business. So they will write apps to do things like help their customers control lighting, say. A lot of their customers are building managers, or at least it’s building managers who control the Johnson equipment. Johnson writes its own apps and sells or gives them to people to control buildings. But you could just as well use public APIs. Building managers could buy an app from someone else that manages the building equipment Johnson sells. That app would have been created by third-party developers who used a Johnson API to make it possible to control their equipment in the buildings. It becomes compatible for Johnson to promote third party apps that offer temperature visualization, or ways to control HVAC, etc.. These apps can map things in various ways. And they can do so in ways that are much more varied than Johnson Controls could ever hope to build out.
So Johnson Controls can pull in competitors, pull in app developers to create better and more varied apps than Johnson can do itself to control its devices. Since Johnson is making money by installing it’s equipment, that equipment becomes more valuable when there’s a whole platform of apps available to control them.
PW - So Johnson Controls is quite similar to the Apple model. Apple has software, apps and services, but it makes its money (for the most part) through users purchasing their devices. By having an app store, Apple created huge value for their iPhones, iPads and iPods, perhaps for their computers as well.
SW - Yes, the Johnson Controls model is very similar to Apple’s.
PW - What does the future hold, for you and the space?
SW - There’s a lot more happening in the space. Automated tools, for example. And we have new products coming. But I can’t talk about them yet.
PW - What’s likely to stay the same in this rapidly changing space?
SW - A lot of people are scared to launch APIs because they feel like they need things like rate limits. Or they are worried about opening back end infrastructure because of access and security issues. They need to impose limits on usage and need to figure out how to do that. As I mentioned earlier, good API documentation is hard and they need help with that. It’s a ton of work. We see it as our job to provide the tools to make it easy to launch and manage APIs.
I respect Apigee a lot. But we do have a different take. Apigee’s handholding is good for big enterprises. But you need 3scale's tools approach for companies in other market segments.
PW - But it seems from your description that a lot of the smaller companies need guidance as well. How does handholding work with your grab-the-tools-and-go model?
SW - People feel pressure to open APIs, and they want to do it. Finding a set of tools that are out of the box, that solve a lot of these problems, is very very powerful. Our customers tell us things like, “If we didn't have these tools, it would have taken us 6 months to do this, and we would not have done it.”
PW - You gave a recent talk built around an idea of Marc Andreessen’s that “software is eating the world.” You argued that, while this was true, APIs were eating the software that’s eating the world. Where will that take us?
SW - That’s true—APIs are eating the software that in turn is eating the world. I honestly believe that we will have all these real world systems that will control almost everything, that make huge amounts of public data available, all of which makes for very exciting times.
PW - Thanks, Steve.