API Business Models: 20 Models in 30 Minutes - John Musser, API Science

thanks Caroline all right good afternoon everybody so indeed in this session we're going to take a look at a whirlwind tour of API business models okay there were 30 minutes more over 20 models and you sort of segue there but for the last eight years I've been focused on the world of api's first the Perera web now with API science and we've seen 10,000 api's write programs almost about a 10,000 that directory and so we had asked a lot of questions a lot of questions about API is whether it's business questions technology questions you know you would think a classic ones are you know rest versus soap and JSON versus XML or you know what are the big trends but I'll tell you what the biggest the question we got asked most often was how people making money with this stuff you know what should my business model be my giving away the note for free these are the class of questions that a programmer web we got asked the most so without further ado I think I tend to answer that question when somebody comes to me and say what's my business model be for my API might my answer to that question is another question my answer is why why why is it that you have why do you want to have an API why do you have an API and so here's a bunch of good reasons right so I think everybody in this room either has an API or it's thing about having API and you have probably one or more of these as the strategic objective as to why do I have an API right but and you know in this thirty minutes I'll talk about what I think are some secrets and things about API is that people don't really talk about enough and so the first one is that an API strategy which are those things that we just looked at on this slide are these are not API business models right these are objectives this is why I'm going to have an API so don't confuse a strategy with a business model and I think this why question is the first question to think about before you start positing what should my API business model be the second question is who the who questions about who is my API for right this is a product I'm going to have a consumer of this product so who is that and I think if you look today in our sort of relatively young industry we've kind of for now settled on this is what the Hoos look like in the API marketplace in terms of it's either my I'm a consumer my own API so it's me it's my company or it's my customers and partners or farther out it's everybody else right it's the open API program but any internal private open or public right so I think that's a very good way to sort of think about the who question but again this is very important to your business model because your business model and who are very intertwined and then the third question is before you start thing about the business models what you know what the hell is it that I'm said why why do I even have an HR in the first place and what is it that I'm selling what's the service what's the data what what you know you can have those beautifully designed REST API and developers will shrug if there's not something of value behind it that they're getting access to it can also be that you have lots of things that you can offer access to from your organization but you also have to decide sort of what it is you're going to start with right because particularly with API programs you might have a whole laundry list of things you might want to have but you have to pick some to start with so and I think this was sort of secret number two API is only succeed if they offer something of value and I put value in quotes because it depends so here you have a dozen examples of valuable things that have api's that are successful now coming shortly after me we have Twilio up on the on the stage here but right one of my favourite api is all time it's really a valuable service cloud communications right valuable data you know what one of the most search phrases is on programming webOS cells is whether developers love weather API so valuable data whether valuable audience right so here are three very valuable sets of audiences all these things of course have API is valuable functionality right enterprise functionality and over half of all the transactions that go into Salesforce come from the is not from the web right so it's a very valuable piece of what Salesforce has to offer valuable market right so access to eBay whether you're putting things into eBay or getting things out of ebay you guys give you a way to do that and then last but not least the valuable access right I mean you don't just sort of waltz in and get access to the airline traffic schedules right that doesn't happen right so there's something that you can get access to through an API but again it's controlled so the preface here is that you need to answer these questions about why who and what before you should really doing the how question right what's my business modeling okay so the business model there are I'll give you the history well I think it was the history of business models for api's in two slides the first being 2005 right so back in 2005 a few things happened does he who sort of don't remember those early days the API universe that's when the Google Maps API came out that's when housing maps the phrase web mashup was born in 2005 right that's kind of considered the birth of this sort of class of API is 2005 and in the program web started in those days these were I think the four core business models right there was free developer pays developer gets paid and then this others with other bucket called indirect and if you fast forward to 2013 what do you get you get a much richer pun intended set of API business models right it's here's the 20 right and I think a couple of things you I don't expect maybe in the front where you can't read it either we'll go through all these in more details so you can't see these don't worry but at the top there's a couple things I want to call out here maybe three things first of all that there's free developer paint once at the top so the same ones from 2005 I think still fundamentally apply today it's just that we figured out as an industry more ways to monetize you get a return on investment for api's as you sort of walk across this spectrum and I think it's a bit of a story there in a sense of a go from people assume that it's free but as you can see in this diagram that's just a tiny piece of the puzzle right there's so much more that's not free and then you come over to indirect and since we will walk through all this and I think the second thing I want to call out was you might be tempted to go well okay where am i where is my organization or where as my API should it be is it in that diagram a triumph I'm one of those sort of nodes on this matrix to say that's what we did why do I say that I say that because I think that secret number four which is most API so the most successful api's have more than a single way in which they achieve the return on investment right everybody in this room knows that it costs money to build provisions of poured evangelize api's are not free to build and support its therefore if you're going to make that case as to why am I going to have an API you need to have I think it helps to have that ammunition of a set of reasons why right so I might be using a free internal some of those going back to that sort of Y slide you know n number of those a number of those will then you give you that ROI so think about as we go through these 20 business models which combinations make sense so free we all know free and facebook is done pretty well with free right they've done okay with that but that's you go back again to the question of why do they even have an API they have it because they want to be the web social operating system right they want to be ubiquitous and so the API and having a free API in Zuckerberg had said at one point they thought about having paid access to their API but then they decide it easily against it but the reason you can log in everywhere with Facebook and get that data forever as a developer that fits their strategy right so free makes sense for them one other free one I call out here is really all the Gov api's for example all those public API is from the government sector those are all there's a few hundred those at this point and they're all essentially free but that's free because that's effectively their mandate now second part of the story is developer page I think this is again going from from left to right and the sort of types of AP is what you sort of think of them to where you might think less of so developer pays here are five examples right page ago tiered freemium unit based and transaction fee these are all different types of developer or partner or consumer of your API is paying to get access to that API and I will go through examples of each of these now I don't think anybody in this room doesn't know about Amazon Web Services and to my mind this is the quintessential paid API right it's page you go and what I'm showing you here just like that's a snippet of the ec2 pricing page and then if it's a very long page a lot of text on it a lot of description but what two sentences they start with they start with this this is what Amazon want you to know at the very top of their page they say pay only for what you use there is no minimum fee right it's out of the ten thousand words of text on that page these they consider to be the two most important points and that's true for their entire Atos platform right that it's paid by the drink as nasal calls it and this to my mind embodies pay-as-you-go right so that's a paid model another paid model that isn't necessarily a shock to anyone right tiered pricing right this is bulk pricing for api's MailChimp right so it's showing you this is their pricing page if you go from left to right you see that you pay less as you send more emails per month from MailChimp so this down here it says you can start with 995 and then go up to 40 cents an email once you go over a million emails a month right so there's no shock there but again the API is reflecting the fundamental business model of MailChimp freemium another one that we're all familiar with as a general concept but when you think about applying that general concept to AP is and I don't very small to print here don't worry about not seeing a print here's the Google Maps there's Maps API and then the business version of the Maps API and in a classic sort of freemium sense you see more checkmarks on the right-hand side right the thing you're paying more for has more features a part of the freemium strategy is okay what is it for them you know I'm going to get service I love agreement I'm going to get a technical contact I'm going to get a bunch of things when I'm paying more for that API so part of the question about you know is PPI business models is maybe what do I offer at that free level and then what is it that I'm giving value on top of that that can be in this case it's two tiers but it could be in four right classic pipe pricing matrix and what if you combine those two right so you take freemium plus two your pricing and going back to that MailChimp example right they do both and then we see that a lot with a lot of this sort of where you're going to have some free tier and then you're going to have tiered pricing above that this is a very common model now how many I like to so check how many of you know what unit based pricing is three people four people it's about on average that's a lot for a room there's so you know base pricing is an edge case so this is an edge case where you might use this so here sprint where you have different API calls or different data that you want to charge a different price for and then rationalize so here's Sprint what they do is they have so really over here twenty thousand credits cost you a hundred bucks and then you spend those credit on API call so for example and SMS call cost you four credits to make where as a location-based service call it's going to cost you six right so that's just how they buy the bulk of credits then you spend them on your individual API calls and just another example a word stream which is a keyword optimization tool they also have a thing they call them I think they don't they they call them units they've a unit based pricing model where you buy you know X amount it's like tickets at the fair okay and but like so many things in life you can get carried away so here's an example well I think it's carried away with pricing this is but this is if you want to use SMS from orange this is about a quarter of their pricing Paige I couldn't fit it all in one big slide but this is the pricing matrix for SMS from or to me lots of geocell s just be careful about right you feel simplicity matters a lot here and you know speaking of simplicity if you look here transaction fee this is the fifth of the developer pays business models I want to talk about all of the net when you see this you oh yeah okay I understand what the transaction fee part is well we all understand that this is the business model for payment gateways payment hippy is right so makes complete sense as oh they're going to charge me a percentage on that transaction right so these api's are simply reflecting the underlying business model of the core business but also simplicity why stripe came in a couple years ago a they did an awesome job with a fantastic API they really cater to developers they did a whole bunch of things right just like Twilio and they also had a very simple pricing model right so they didn't do the orange thing right they've really thought about how we're going to digest this into something which is just bare-bones simple easy to understand I can get going both technically and from a business perspective to kind of just get that ball rolling right I'm going to be up on stripe in no time so those are the developer pays ones now developer gets paid and I think that once it hurt less obvious so if you look anybody in this room who comes from an e-commerce background or an online advertising back I would recognize some of these tips that we got a fair number of them here you recognize these terminology right so like rev-share affiliate program CPA CPC these are all terminology for the most part come from the worlds of e-commerce and advertising so we'll dive into a few of these but these are interesting sort of an often can be seen as a bit of a win win model right so you because your developer makes money you make money so to my mind this is a classic example right Amazon has had that affiliate program for probably a decade or more where you get an affiliate code you can put it on your blog and somebody clicks through that you get a percentage right so they're down below here is the percentage that you get when somebody a CPA which is cost per action right so somebody goes through and buys a product based upon it and clicked through your affiliate code you get that Commission right and it varies but what they did which is really smart is that they took that already existing model from the web I just applied that to their API right so they just baked they took that model and put it right to the API to fit naturally and there's no there's no rate-limiting right so it's a good sort of symptom of doing a good job they don't worry about rate limiting it because they'd love for you to make more calls and as a developer as a partner you want to make more calls because that means you might be doing something right right because you're both making money in this case now the other part of that is CPC which is a cost-per-click so here is shopping comm and there's their their partner program page and there is the API elfin you'll find write API programs somewhere under partner programs as well right so there's the API program and a couple of websites that use the shopping comm API right so this is different in the Amazon one as much as Amazon somebody clicks through and they have actually the action as they have to buy a product right whereas here if somebody clicks from your site your app that you built using this API you get some fraction of a penny every time somebody clicks through to the destination site right so those are the two different ways but literally I think almost every single shopping app to use on your phone like you know those red scanner ones and so on and you get to do product comparison you know a big part of how those apps make money and websites make money is by using these api's then getting that click-through revenue that's their monetization strategy and you can think oh well that's that's money from my blog that doesn't really add up too much right but it can add up to a lot so here's Expedia their Affiliate Network is about a two billion dollar a year business and ninety percent of that two billion dollars is API driven traffic right so it's not just pennies from the blog right because of much bigger business at work here so here's a billion dollar API business which happens to be in this particular case built off of affiliate money and the last of this class of API rightwards so this developer get spayed model is arty so our do is a subscription streaming music service you sign up you get so the monthly as a customer and what they've done is interesting right so they took their API and again match to what they they're a match their API business model to what they do because what they want you to do is they want you to sign up and stay on as an evergreen customer right they want you to keep every month after month be an RTO customer so the API incentivize of that because what they do is they give you a recurring commission so as opposed to the CPA a CPC those are effectively one-time Commission here you get a recurring revenue and at how much you get as a third-party developer varies based upon what that customer had signed up for right so again what they've done is I think then it comes back to the sort of seek in this case secret number five which is how do i how do you bake your business model into your api because think about those examples we just saw those are two completely nicely meshed match of their fundamental business model of what they're having our api to for them so baking your business model in eureka i think it's a very important principle to live by so to speak and you know following that story of going from free which is obvious and developer pays which is fairly straightforward and some of them serve edge cases which of the developer gets paid and if you think about this whole indirect one this is a much bigger and if you go back to that initial slide that I showed you breaking down all these 28km aatul business models this is actually the widest one it's the biggest one but yet at the same time it's the one that gets talked about the least yet to my mind is probably the many ways the most important one it's not small for no reason so we'll talk about these but you can see there's sort of a couple related to content there's a couple reiter to SAS and the cloud and then there's this little tiny one about internal use over here and the ways in which you can use your API and get that ROI for yourself you know internal right so content acquisition and people don't often necessarily think about api's in this way I think these are two good examples of content acquisition eBay right I sort of alluded to that before but they get I know the exact stat is 60 plus or minus percent of all the items on eBay got up there through the API so that's the whole uploading and 80 powerseller tools every powerseller tool out there uses the eBay API to get stuff up on the marketplace right and there it is almost seven billion dollars back in 2008 of merchandise got up on eBay through the api's so it's very important to eBay and then you have Twitter of course regardless of all the match nations with their API program the fact of matter is is that even with iOS 7 which was course announced new phones today you'll be able to tweet from your phone right so operating system iOS 7 as do all the operating systems allow you to tweet into that third party API right it's basically an API under the cover this is this whole movement where we're not going to talk about API is anymore at some point in the future because we're develop software that way but here's content acquisition for Twitter which you can still do through their API because they want tweets right so it's a huge part of that strategy the flip side of that is content syndication right you have the New York Times a lot of the media companies have API is now and it's not that they didn't do content syndication before it's just that an API enables that in a much more fluid way you might be able to have a broader reach better biz dev better integration let's technical support so maybe I can take models that it existed in the old days and give you a whole new both delivery mechanism business mechanism to make that happen in a more efficient way right so here's New York Times version of that right see look two sides of content API is in the cloud I was at the cloud beat conference yesterday and there's a whole bunch of talk about api's in the cloud I think this is a good example here where api's can be a upsell to your cloud SAS service talked earlier about how much ppi traffic sales does salesforce doesn't charge you they don't make you pay by the drink for every API call you make their sales for us because their business model is selling sheets right they make money by selling seat licenses and they'd love for you to buy the most expensive seat license so in this matrix you go up one two three four levels before you get integration via Web Services API right so you're at $125 seat level on sales for us so is that charging you for the API not really right it's an indirect model but yet it's important it gives you a reason to as a customer to upgrade to a more expensive model we see this such a sales force that does this we see a lot of cloud and SAS companies use a model that's a variation of this and it's not you know it's not a bad idea it works well as a matter of fact if you haven't I encourage you to check out if you haven't seen the small business web before this is a trade association of Fast Company that primarily targets SMB market but also go larger but they all have API so to be part of the small business web organization you need to have an API and part of the reason that this organization exists is because they've all seen how valuable it is to them as enterprises to have an API which allows in particular cloud to cloud service a service integration and I love this old quote from a couple years ago with suni Rashad front when he was a fresh box where he said we find that if our customers use any single integration right now so first of all integrations code word for API right but they're integrating the FreshBooks accounting software with maybe MailChimp for sending emails they are three times more likely to convert to paid right so going even when they try that service out they're much more likely because it's already a customer that kind of a they're comfortable with the cloud and B they like the idea that they can integrate these cloud service together to improve their workflow and you think about it naturally there's also going to be a stickiness factor so you're once you've done these sets of integrations and you're using a couple of cloud services that work well together you're also much less you know it's like the modern equivalent to some extent of the old giant ERP integration where god forbid you had to change that old enterprise integration stuff because it's just a big project like this is a minor version of but nonetheless it you know helps the customer cuz I can integrate stuff together on the other hand also makes it stick here for the provider and if you sort of just so take one step back and think about what the stuff I've covered so far you know direct right s Amazon Web Services pay-as-you-go pay-as-you-go Expedia MailChimp Salesforce all API business models and grows with your using one or more I think exists on this continuum from very direct to very indirect we have talked about Netflix yet but I will in a second and again we'll talk about that earlier and there's no one sort of fundamentally right place to be you know it exists depends on soar what you do I think it's useful to think about it as I continue you know I think at least to the secret that it's not a one-size-fits-all you know it's not this is my business model and the last part of again the indirect going back that diagram last part of what I think are the important indirect business models are the internal use case eating your own dog food using your own API for your own stuff and these days certainly where web we saw this almost every time we talk to API provider we said why do you have an API in the last couple years I can't remember only one or two cases where the answer wasn't part of it anyway well for mobile strategy you know for our own app we got an iPad app Android app you know all that sort of stuff and here's an example from a couple years ago where net NPR this is their API traffic and those purple ones are when they release their iPhone iPad Android apps but using their own API right so they were dogfooding using their own stuff and this is where they got a lot of the ROI from they were trying to monetize the API they were simply using it for themselves you all know Evernote and they have a very successful API they actually have a very successful externally third party API program although this chart would give that away but because all of their abs primarily mobile apps use their API look at that who's using their API the most well they are right pie chart that barely alive for the external usage right and again that's a great case where it's mobile driven the new client-server right it guys the client-server and I think last but not least in this group again is it is Netflix where how the how the hell are you going to support a thousand devices without having some sort of platform strategy right it makes complete sense and they'll necessarily even have to focus on anybody else out of themself because they get so much of value for themselves by having this platform strategy and they can do all sorts of stuff that helps them because they editor in the hoop right who is using this API going about those early questions well it for Netflix answer is us it's us and our partners and our device partners and how we going to drive these billions of API calls per day through our platform and so I think you know just to sort of wrap up here I think it's the internal use case that might be the biggest of all of the use cases I'm not thinking from anyways it's the least obvious so there you go twenty we made it come in as a spare get to twenty models in thirty minutes and you know I'd love to talk about the stuff we don't really it probably of time for Q&A right now but I'll be around all day so you won't talk about this not talking of it thanks

Channel: TIBCO Mashery

Views: 20,011

Rating: 4.7857141 out of 5

Keywords:

Id: gfguGS8HYvM

Length: 27min 18sec (1638 seconds)

Published: Fri Oct 18 2013