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Cloud API Business Strategy – A Must for Thriving in the Next Decade

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Web APIs are growing at a phenomenal rate. According to Programmableweb, the number of publicly available APIs grew from 105 in 2005 to 8000 by the end of 2012, and by June 2013 the number had jumped to 9000. With enterprises going through major transformations driven by cloud, big data and mobility trends, APIs are the connective tissue of the ecosystem and interface between software programs to provide access to data and other services. Going beyond simple data access, APIs enable  highly flexible infrastructure and platform availability from infrastructure and platform service providers. Moreover as everyday devices get connected to the internet, the vision of Internet of Things will require ‘things’ to provide APIs that hide underlying complexity, and deliver the  right data at the right time in a manner that can scale.

Some examples from the API Billionaire’s club: Over half of Salesforce’s FY 2013 $3.05 Billion revenue came through applications making calls to Salesforce APIs. Twitter serves over 15 Billions API calls per day. Almost all of AWS’s $2B revenue is from infrastructure component provisioned using APIs. As for the Internet of Things, Evrythng and RealTime.io provide a cloud platform for the Internet of Things where everything is API driven. Users make simple RESTful API calls and control physical objects and connect to external web services such as Twilio, Twitter, and ThingSpeak.

Cloud ecosystem players are using APIs to unlock their core assets for broad consumption. Applications employing APIs allow businesses an unprecedented view into end-user behavior where every call is an opportunity for deep understanding of customer usage and behavior. The API strategy for a company should be based on who are the consumers of the API, whether it is for internal or external use, what motivates the developer to adopt the API and what is the business and channel model for APIs. For example, Openstack provides a set of well designed RESTful APIs that allow provisioning and management of compute, storage and networking resources. Business using Openstack should be able to write to their APIs for deploying self-servicing applications. We see API business models have evolved into four categories: Free, Developer Pays, Developer Gets Paid, and Indirect models.

Free — Free APIs give businesses advantage such as accelerating developer adoption, and increasingly online presence, but over the long run, the costs associated with the API infrastructure and support will have an strong bearing on the economics of the business. Facebook APIs are free, but, user data and activity information is used by Facebook to enable its advertising business model. This model is used by companies for promoting the adoption of their platform.

Developer Pays — Amazon AWS APIs have a direct or indirect charge associated with every API call. A call to provision an EC2 instance in the Cloud does not have a direct charge, but the developer making the call pays for the instance on an hourly basis. AWS block storage (EBS) costs have a combination of a time based charge, and a charge per 1000 calls. Developers using Paypal or Amazon Flexible Payments need to pay 2.9% + $.30 per transaction using APIs. Google’s ADWords API had a developer pays model, until the costs were retired earlier this year. Combinations of freemium, tiered pricing or spot market pricing approaches can be adopted by service providers. Typically APIs in this class enable developers to use or deploy an infrastructure or a specialized service on which to build or deploy their service.

Developer Gets Paid model essentially means that every API call results in the developer getting paid. Amazon.com affiliates program pays developers based on their Cost-per-action (CPA) rate when users click on affiliated links pointing to Amazon.com products. Expedia follows a similar affiliate network, and it generates $2 billion per year in revenue, 90 percent of which is through APIs. Rdio’s affiliate program results in a recurring revenue stream to developers for each subscriber recruited through the developer’s application.

Indirect API business models capture a broad collection of approaches where calling an API itself does not directly result in revenue, but value is created indirectly. Ebay’s content acquisition API platform allows affiliates to manage their listings by viewing, adding, deleting and updating content. The API itself does not generate revenue, but facilitates transactions which generate revenue.  NYTimes API targets not only content syndication to drive traffic to nytimes.com, but to further innovation for new product deployment and to spread the Times brand using 3rd party API consumers. Besides being a part of the core platform, APIs provide SaaS providers such as Salesforce an upsell opportunity for premium features.

A well-designed, accessible API can be a tremendous point of leverage for applications or solution providers. Cloud infrastructure providers use APIs to provision, monitor and manage IT resources for compute, storage and networking. OpenStack Compute “Nova” provides APIs to create VMs, create of firewall rules for these instances and attach block storage to them. OpenStack APIs are available for block and object storage. Software Defined Networking using the OpenStack Networking (Neutron) API makes possible for users to programmatically create their own virtual networks, control traffic and connect servers and devices to one or more networks, and enables multi-tenancy and massive scale. As APIs have become an essential tool for businesses to thrive and grow, it is important for businesses to have sound API strategy, API business model and management solutions to stay competitive in the cloud ecosystem.

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