The Emerging Economics of Open Mobile APIs

This guest post comes from Dr. Catherine Mulligan, fellow at Horizon Digital Economy Research where one of her research areas is the economics and business models associated with the new digital era. Open APIs are one part of her analysis in The Communications Industries in the Era of Convergence.

Most developers view an API as a technical boundary – one they use to access the functionality of another component or service in order to improve their own offering. Combining several technical components together leads to an improved over all product for end-users. Open APIs, however, serve a far wider purpose within the current communications industries – they provide not just a technical boundary, but also an economic one.

It will come as no surprise to the readers of ProgrammableWeb that Open APIs are now a fundamental part of the technology landscape for both the mobile and Internet industries. In comparison to a few years ago, this is quite a turnaround: any new service or start up released today needs an Open API strategy of some kind.

Why is this?

There is a great deal of industrial ‘turbulence' in the market today due to the rapid uptake of mobile Internet technologies thanks to smartphones. End-users are now in control of which services they are able to access from their mobile devices in a manner they have never been previously. As increasing amounts of data is made available through smartphones, sensors, RFID and social networks, it is extremely difficult to know what combination of these will be successful or liked by end-users. This leads to uncertainty in the development of the market around these data sets. Open APIs are the market's response to this uncertainty.

For example, let's say a developer wishes to build an application that guides users through their favourite clothing store and identifies an appropriate outfit for their tastes. This could be done through combining together personal information from a social network (that the user has approved for use in this manner) with location information gathered from a smartphone. The application could then link with the RFID information on the clothes to ensure the user picks up the right combination of clothes.

Without Open APIs, this would be a cumbersome task – the developer would need to create contracts with several different companies in order to get access to the correct data to develop the application, e.g. the mobile operator, the clothing store, the social network and possibly the company responsible for the logistics. The establishment of these contracts, also known as transaction costs, would be extremely expensive, not just in terms of technical development, but also in terms of legal costs and the development of business relations with the companies in question, as illustrated below:

Open APIs remove the need to create these contracts. Open APIs allow companies to establish ‘contracts' with one another and with developers dynamically, without legal teams, without negotiating contracts, without even meeting one another. Open APIs therefore reducing the transaction costs associated with establishing a market. In addition, Open APIs mean that developers can move relatively easily between companies, for example, the application in the above example could be extended to include other social networks, or another smartphone model. In addition, the clothing stores in the example would benefit from having many developers create a number of different applications. Open APIs therefore create a market for innovative capacity as well, as illustrated below:

The past few years have only been the beginning for the explosion of Open APIs. As increasing amounts of data are exposed, in particular with new smartphones and the capabilities that these provide in terms of capturing data about individuals in real time (e.g. location or their proximity to sensors or RFID), developers can expect to see an increasing number of Open APIs to play with – and make money from.

Be sure to read the next Mobile article: Hey Mobile, Thanks for All the APIs


Comments (2)

Hi, Do you think this is something that needs communicated more widely to the businesses who have data to expose? Or, is this a consequence of wider trends toward more open business models and convergence of technology?

Is there a way to make open API's understood (or at least noticed) not just by developers, but by the strategists and managers higher up?

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