How to Choose the Right Business Model to Win in the API Economy

The afternoon sessions at the API Strategy and Practice conference included one focused on business models in an API centric world. The session featured talks on the Evolution of API Business Models, Market Driven API Business Models and Lessons learned from $0 to $1M API Revenue. One talk that caught my ear was by 3scale CMO Guillaume Balas discussing how to select the right business model.

In highlighting several models and the factors supporting each, Balas' main takeaway was that your organizations core asset(s) is what has the most value and that an API is only a channel to that. To that end his advice to any company is "don't ask what business model should we use for our API; instead ask what API should we use for our business model?" He went on to describe the four main business models.

API as Product

  • Core value is the API
  • Key example is Twilio - they provide easy access to complex telecom technology
  • Other examples include: Stripe, Amazon Web Services, Skype, musiXmatch

API Projects the Product

  • The API pushes the functionality of the product to new places
  • Can be seen in mobile apps and 3rd party Integration
  • Key example is Salesforce - 1,700 apps on and over 50k devs
  • Other examples include: Yellow Pages, Hoovers, eBay, FedEx and Spotify

API Promotes the Product

  • Secondary (non-core) Function and an indirect revenue impact
  • Designed to drive leads/traffic
  • Key example is Amazon - embedded widgets directing users to whole sites powered by tens of thousands of affiliates
  • Other examples include: Expedia, Lulu, Digg, Vimeo and Netflix

API Powers and Feeds the Product

  • Content Acquisition via the API
  • Content, user information, ratings, comments directed into the service
  • Key example is Twitter - 13B API calls/day, 75%+ traffice via the API
  • Other examples include: Foursquare, Disqus, YouTube and Facebook

He summed up his talk by reminding listeners to identify the core business asset, recognize that the API is a channel into it and that decisions on the API should be based on the business model, not the other way around. Balas makes the distinction between his business models and John Musser's models which were identified as revenue models. Regardless of the model though, his message stood that APIs provide businesses with a lot of flexibility.

Be sure to read the next Events article: Novartis Challenge Shows There Are Still Entry Points into Mobile Health Market