Blog / Business Insights /

Shifting to an API economy

Shifting to an API economy

Worldline

Corporate

An Application Programming Interface, commonly referred to as API, is a set of functions and procedures that allow the creation of applications which access the features or data of an operating system, application, or other service. The concept of an API is not new in and of itself. APIs have been used and well known in the IT sphere for many years. Today, they are becoming strategic stakes for all kinds of enterprises. But why?

Leaders in the field, such as Google and Twitter, have paved the way by using them to introduce new economic models and new ways of providing services. Through their APIs, these brands deploy their services on other applications via the web. This can be illustrated with the Google Maps API, which, when integrated in an e-commerce website, enriches the user experience. Thanks to this easily accessible API, Google has established itself as the reference for geographical data by placing its brand at the heart of the digital services preferred by consumers.

As of today, three types of APIs are used:

Open APIs: these APIs are publicly available on the web. They are made available to all developers through a simple online contract.

Semi-open APIs: these APIs are accessible to a limited number of partners selected by the company.

Closed APIs: these APIs are for the company's internal operations; their use is reserved for internal developers.

 

Unifying the customer experience in the omnichannel age

Traditionally, a service provider would build its applications for its channels and thus maintain the relationship with its users. The challenge now is to control an ecosystem whose size is limited to a carefully selected group of partners. In an open API strategy, the principle is to make the service accessible as widely and as simply as possible. It is even common not to develop interfaces dedicated to end users; in other words, the service is consumed by customers through applications or equipment developed and provided by third parties. The more your API is consumed, the higher the associated revenue.

Netflix: video streaming service available on more than 200 types of devices, including smartphones, televisions and games consoles.

 

Netflix customers are no longer surprised to find the episode they started on their iPad paused at exactly the right second when they go back to it on their TV two hours later. 

This consistency and availability of service is the result of Netflix's API strategy. In this way, the video provider can focus on its core business and is free from having to develop and update hundreds of dedicated client applications. The development teams of smart TVs, Internet boxes and other Chromecast manufacturers are responsible for integrating these APIs into their products while benefiting from Netflix's support. For its part, Netflix moderates a community of external developers, offers them all the needed support, and secures the use of its APIs.

In 2014, despite the 18,000 developers in its community, Netflix closed its open APIs to focus on semi-open APIs, i.e. those offered to partners. This was because Netflix failed to obtain the desired multiplicity of innovations. The consumption of open APIs represented only a very small volume of uses. This example shows the importance of properly identifying the target audience and expected uses.

Multiplying customer acquisition opportunities

The economic model of APIs is, in most cases, based on pay-per-use billing. The objective is therefore to be consumed by as many applications and websites as possible, as is the case with Google and ViaMichelin with their mapping services.

Other actors have come up with more creative models. Walgreens is an American supermarket chain that offers, among other things, an online photo printing service, a business in sharp decline worldwide. Most photos are now taken on mobile phones and almost never printed. Rather than trying to bring consumers to its online platform, Walgreens has opted to be directly accessible via applications that consumers already use to take photos. To do this, the brand puts forward APIs that allow developers to easily integrate a print ordering feature into their applications. To encourage developers to get on board, Walgreens offers a revenue sharing model. For every print ordered through its application, the developer receives a share of the value of the order. This approach has been very profitable for the brand, which, to date, is integrated within about 100 mobile applications with a limited initial investment.

The creation of value is beneficial to both the brand, which builds up customer loyalty by enriching its services, and the publisher, which increases sales through this new channel.

Improving the ubiquity of B2B services

APIs are the easiest way to add new features to digital services. They are also particularly effective for interfacing with a variety of websites and mobile applications. In these use cases specific to B2B services, the billing of the API is often linked to the value provided to the final service.

Typical case of a digital B2B service: online payment solutions essential to any e-commerce website.

These payment features are deployed on e-commerce applications and websites via APIs and draw their revenue from commissions on the amount of the payment itself.

The particular case of APIs related to financial services

Financial services process huge amounts of data. The new Payment Services Directive (PSD2) requires banks to open access to this data. Agile third parties will therefore be able to offer innovative services to bank customers. The usual example is the aggregation of the data for accounts held in several banks within a single application. Coupled with artificial intelligence, it is possible to imagine a rapid expansion of services with cash management, automatic transfers, stock exchange orders, etc. APIs are therefore an ideal and essential solution for interconnecting these third-party services and banking services.

 

What new opportunities are there for which actors?

 

Become an API provider

Example - a dry-cleaning company:

If it provides APIs for presenting its services and taking orders, and defines a revenue sharing model, it can put itself in a position to be integrated very easily into larger service offerings such as hotels, concierge services and convenience stores. In this model, the dry-cleaning company benefits from the visibility of its partners and acquires access to a new clientele. This digital ecosystem facilitated by APIs is a win-win scenario in that it reduces customer acquisition costs and enriches the service provided.

Example - a classified ad website:

If the site exposes an API that makes it possible to manage ads, the API can be integrated within real estate management softwares. In this case, when properties are entered in the database, the ad can be posted automatically. This example can be used indefinitely for cars, employment, etc.

 

Become an API consumer

A brand that already has different sales channels can choose to enrich the experience of its customers by integrating services available as APIs. In this way, the brand becomes a consumer of APIs. This position has many advantages: enriching its service offering and monetizing its audience, and adding features without having to bear the cost of development. The roll-out of APIs is underway. A more and more substantial offering of APIs is emerging. All you have to do is consult a public directory of APIs to get an idea of this.

 

A move towards new ecosystems that are richer but also more unstable

Besides the many benefits stated, this new practice also introduces new risks that need to be taken into account. The nature of the risks varies depending on the role of the API consumer or provider. 

The contractual relationship between consumer and service provider is turned upside down. In a totally open system, enrollment to the service is carried out through a simple online contract. The service can be consumed within seconds of registration. The terms of sale or service levels are almost never negotiated by mutual agreement. The service offer is defined by the provider, who is in charge of the terms of use, the warranties and termination rules. In return, there is usually no commitment of duration nor minimum billing. The change of provider is simplified.

This degree of volatility is a risk for the provider, who can quickly lose its customers to a more attractive competitor. In addition, the exposure of poorly protected business functions comes with a risk of data or intellectual property theft. A malicious user could systematically mine data or carry out reverse engineering. Service consumers should be aware that the API service may be modified or discontinued with a relatively short notice. If a service is critical to their business, using a public API with this type of contract poses a significant risk to their operations.

Conclusion

The opening up and monetization of APIs present real opportunities in terms of value creation, new revenues, reductions in the cost of customer acquisition, but also in terms of agility and a reduction in the time needed to make them available on the market. Nevertheless, this openness must be part of a clearly established strategy built on a relevant economic model.

Will APIs be offered only internally, to partners or open to all? The transition to open APIs must be carried out in a reasoned way without neglecting the new challenges that come with it. Technical solutions and specialized products have emerged to facilitate and secure this transformation. Your API platform must guarantee access security and the monetization of the service. To this end, it is important to be accompanied by experts in the field, who, to this day, are still relatively few in numbers.