Embracing the api economy

Embracing the API economy

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Embracing the API economy The API economy is changing the way businesses innovate.

Find out what it means for you and how to join the revolution.

Prepared by: Shashi Rana

Microsoft Enterprise Strategy

Date: February 5, 2015

UK Enterprise Strategy

Microsoft Services



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Table of contents Executive summary .................................................................................................................................................... 4

Why APIs matter ......................................................................................................................................................... 5

Understanding APIs ........................................................................................................................... 5

New paradigm, new opportunities ..................................................................................................... 5

Public and private APIs ...................................................................................................................... 5

The business value of APIs ............................................................................................................... 6

API business models ......................................................................................................................... 7

APIs as a tool for change ................................................................................................................... 7

Drivers of API economy ..................................................................................................................... 8

API case studies ......................................................................................................................................................... 10

API case studies .............................................................................................................................. 10

Benefits for the business, IT and partners ....................................................................................... 11

How to join the API economy ................................................................................................................................ 12

Start small, start now ....................................................................................................................... 12

Target real business needs.............................................................................................................. 12

Embrace social ................................................................................................................................ 13

Adopt new development models ...................................................................................................... 13

Consider the HR implications .......................................................................................................... 13

Be clear about rights, IP and brand guidelines ................................................................................ 13

Get the security right ........................................................................................................................ 13

Existing middleware is not the answer ............................................................................................. 14

Choose the right API platform .......................................................................................................... 14

So I have an API, now what? ........................................................................................................... 15

Choose the right business model .................................................................................................... 16

Microsoft’s API platform ......................................................................................................................................... 17



Executive summary Markets and industries are changing faster than ever. Disruption takes many forms and businesses

must grapple with the ‘innovator’s dilemma’: how to set the pace of change without stumbling. They

need to embrace new technologies wisely to innovate fast at low cost and low risk. Application

Program Interfaces (APIs) offer a powerful way to do this.

The rise and rise of APIs

There are already more than 11,000 public APIs and perhaps ten times as many private ones1. They

make it possible for developers to share services and data easily and to build applications that link to

other people’s services and data. It is creating new business models and new sources of value for

companies.

The internet of things, social media, changes in IT delivery and the desire for multi-channel customer

experiences will drive further growth in the API economy.

The business value of APIs

Pioneers such as Amazon and eBay are using APIs externally, to change how they interact with

customers and with their supply chain and internally, to change how the IT department works with

the rest of the business.

The key point is that an API platform can change the way IT deliver and the businesses innovate. But

it doesn’t require wholesale changes or five-year transformation programmes. Instead, take the first

few easy steps on the journey using the API approach and continue in an agile, iterative way.

This document explores the significance of APIs, discusses different API business models and sets out

recommendations about how to take the first steps into the API economy.

Everything is connected to everything else

In order to participate in the new digital world, think about your business as one of many neurons

that interact with each other in a wider value chain. You cannot expect to own the entirety of a

consumer’s experience or to participate in all their digital interactions. So the API approach lets you

focus on what you do best and connect with others to do the rest.

Getting started

An API platform helps you connect your business processes, services, content and data to partners,

internal teams, and independent developers in an easy and secure way.

In brief, we recommend:

Introducing the API model in small steps

Rapid, agile prototyping, development and testing using APIs

Exploring new approaches to development

Renting and using an off-the-shelf API management platform

This approach maximises flexibility and innovation while reducing risk and minimising costs.

1 http://www.slideshare.net/3scale/progress-in-the-api-economy-april-2014



Why APIs matter

Understanding APIs API stands for application programming interface. It is a way for developers to access services and resources from other pieces of software that they didn’t write. For example, it’s common for web applications to have APIs that let other applications integrate with it. But it’s more than mere middleware or just a service gateway. A company releases its API specifications to the public or chosen third parties so that other developers can design products that work with it. It connects devices, processes,

services and software in a digital ecosystem.

New paradigm, new

opportunities APIs are becoming the de facto standard for companies to exchange data and build consistent cross-channel customer experiences. They also help companies offer services which are flexible, low-cost and low-maintenance and which support a pay-as-you-go model. When the internet took off, new service models, architectures, service layers and service-oriented programming flourished. The same thing will happen with APIs. With the internet of things, social media and new partner-driven business models, services are still central but this time around it's not about building middleware, on-premises infrastructure or point-to-point custom gateways. They’re going look as old-fashioned as dial-up modems and bulletin board systems. You cannot own the entire customer experience and it’s impossible be party to all their digital interactions. Instead, you have to decide where you can add the most value and what your core strengths are. By leveraging the network effect of interconnected APIs, you will open up more possibilities than were ever possible inside a walled garden. In order to participate in the API economy, you should think about your organisation as one neuron in a vast interconnected supply chain and partner network, all linked by API synapses.

Public and private APIs

Open or public APIs are the tip of the iceberg; there are many more private APIs than public ones. Fuelled by mobile, cloud, social, big data and the internet of things, the number has grown enormously as shown in Figure 2:

Figure 1: APIs everywhere



Figure 2: The explosive growth in the number of APIs

The business value of APIs

Figure 3: Different API use cases

APIs offer new ways to differentiate yourself and build a competitive advantage by, for example:

Integrating content from partners to create opportunities to cross-sell and upsell

Creating new lines of business

Extending product offerings by using corporate data in new ways

Strengthening the brand by providing a consistent, personalised experience across multiple customer touch points

Enabling reusability, so new partner integrations are faster

Delivering services internally in a more efficient way



API business models APIs can also make money directly or indirectly. There are various business models to choose from:

Free. Companies can open up their API to generate new revenue or share information widely.

For example, Transport for London’s journey planner API or Amazon’s Product Advertising API

which lets people advertise Amazon products on their own site.

The API is the product. Companies like Twilio and Stripe sell their services to other app

developers exclusive via an API: internet telephony and instant messaging as a service in the

case of Twilio and internet payments for Stripe.

Developer pays. Some companies sell access to their information via an API, either on a pay-

as-you-go model, with transaction fees, or with a monthly or annual fee.

Developer gets paid. Some companies share revenue with developers. For example, The

Guardian shares advertising revenue with developers and Walgreens’ QuickPrints API pays a

percentage of revenue to app developers who use the company’s photo printing service via

the API.

Content acquisition. The content acquisition model gathers valuable data for business use

such as feedback, opinion or content. For example, the Flickr API lets people upload images

to the site.

Content syndication. This makes content available to be published by third parties such as the

TripAdvisor API which lets travel websites share user reviews.

APIs as a tool for change An API can change a company’s business model altogether or enlarge the value chain or engage it in

a new way. The traditional model of working with company services and data is unwieldy, inflexible

and hard to scale (see Figure 4).

Figure 4: The ‘traditional’ model

On the other hand, the new model lets third parties create additional value and supports API-powered change. (See figure 5).



Figure 5: The new API-powered model

Drivers of API economy

Over the past 15 years, APIs have flourished everywhere but we don’t think that’s the end of the

story. In fact, we are still in the early days of the API economy. Four things are going to drive its

future growth: the internet of things, social media, the need to deliver amazing, consistent

experiences across multiple customer touch points and the ambition of progressive IT departments

to contribute more directly to the business’s growth.

The proactive IT department. Consider an IT department that stays in the back room, only

doing desktop and server stuff, constantly saying ‘no’ and focusing purely on ‘keeping the

lights on’. On the other hand, imagine an IT department that proactively gives business

decision-makers new ways to attract, retain and engage customers or improve business

efficiency and agility or reach new customers, markets and supply chain partners. Which

department would you rather lead? If you were CEO, which one would you rather have in

your business? APIs are an important tool for transforming IT departments.

The internet of things. By 2020, there will be 7.3 billion smartphones, tablets and PCs but

that’s nothing next to the 26-50 billion things that will be in the ‘internet of things’ – the

collection of internet-connected devices that make up our growing digital ecosystem234.

Gartner estimates that the worldwide economic value-add from the internet of things will

reach $1.9 trillion by 2020. It’s a huge opportunity (see Figure 6) and APIs are a critical for

getting the most out of internet-connected devices and tapping this market opportunity.

2 http://www.gartner.com/newsroom/id/2636073 3 http://www.eetimes.com/document.asp?doc_id=1321229 4 http://newsroom.cisco.com/feature-content?type=webcontent&articleId=1208342



Social media. ‘Over the next eight years we may recognize that social media is not just

another piece of technology that changes the world,’ but, according to Social3, ‘a new era

very similar to the industrial revolution. While the industrial revolution changed the way we

produce (the first half of a business) the social revolution is changing the way we sell,

market, service and deliver our solutions (the second half of a business).’ As this trend

continues to grow, companies will use APIs to engage with social media, understand the

opportunities and explore ways to make money from it without damaging their brands.

Multi-channel customer experiences. Businesses are constantly seeking new ways to

engage with customers. For example, retailers already embrace multi- or omni-channel

strategies that integrate web, physical stores and mobile. But with proliferating channels -

including internet, mobile, kiosk, stores, branches, digital walls, in-car, games, TV and more –

companies need the agility to exploit new channels quickly and cost-effectively. Imagine

being able to deliver a consistent customer and brand experience on a new channel in less

than a month. API technology is the key to doing this.

Figure 6: Derived from Gartner’s estimate of the economic impact of the internet of things



API case studies An API platform bridges the needs of the business and the technical possibilities created by APIs. Here are two examples of how businesses can use an API platform to solve real business problems. Although they are anonymised composites, they are based on real-world scenarios in companies such as AXA, Crédit Agricole and ING Direct.

API case studies

COMPANY A

COMPANY B

Business goal Company A wants to raise awareness of its brand among a younger audience using an addictive gaming app that can capture and upload some basic demographic and usage data.

Company B wants to explore social media, to inform its future strategy, without risking any damage to its brand.

How an API platform helps

Instead of investing in an expensive development process with a creative agency or game development company, the company rents an API platform, publishes two or three simple APIs, with documentation, and invites the development community, partners and agencies to submit their apps to compete for an award, such as a prize or a contract for additional development.

Like Company A, they decide to expose one or two sets of data in read-only mode, which people can consume using apps and social media sites.

Business benefits

The company harnesses the ingenuity and inventiveness of a wide pool of developers, while minimising its risk and upfront costs. Once the app is developed and tested, the company can use the API platform to handle data transfer back and forth between the app and the enterprise in a secure way.

In the background, the company can collect social media IDs and see who has engaged with them online. They can also learn about consumer behaviour without spending money on advertising.



Benefits for the business, IT and partners In both these cases, using a collection of APIs gathered into an API platform for central control and management, brought significant benefits.

Business benefits IT benefits Partner benefits

Exploit the imagination and creativity of the community at large to generate new ideas.

Do not necessarily need to have the full social, business or app strategy figured out.

An innovative but low-risk approach to experimenting and learning.

Create apps and web front- ends quickly at low cost.

Rapid innovation and transformation, while staying focused on the core business

Strong control, security and compliance.

Gather valuable data in the process (social IDs, customer behaviour etc.).

Making content available to third parties; increasing exposure and reach.

Lower operational cost thanks to changed development, testing and support processes.

Simplify and reduce vendor, HR and procurement overheads and responsibilities.

Allow IT to raise its profile and help drive the business forward.

Increased agility and responsiveness to business needs.

Greater industrialisation by having APIs documented and published.

Reduce development time and cost.

Lower operational cost and overhead.

Use the same platform for consumer and internal teams.

Leverage the platform across all channels and devices.

Adopt ‘rent-before-buy’, ‘try-before-buy’, ‘buy-before-build’ and ‘configure-not-customise’ principles for development.

Individual developers or development houses can participate in development competitions run by customers. This in turn could raise the profile of the developers or the development house.

Social networking sites or e-commerce businesses can create their own plugins, web or apps consuming your APIs to improve their own business model or user experience, providing you in return with a broader reach and insight of the behaviours of other enterprises and consumers.

Partners can use your API to create apps for smart TVs, video game consoles and other devices while still delivering a consistent user experience across different platforms.

New creative business models could spawn by third party or multiple members in a value chain starts consuming your API to improve their own business.



How to join the API economy Start small, start now We recommend that companies embrace APIs in stages over time. If the process is well-orchestrated, every step will create value, thus making the process self-sustaining, manageable and cost-effective. You don’t need a fully-developed strategy for social, apps or channels. Nor do you need a completely new business model. Take an iterative approach to innovation by experimenting and learning with small, incremental projects. For example:

Get creative apps and web front-ends built quickly and cheaply.

Rent and use the platform without fully integrating it.

Start by exposing a handful of functions for developers to use.

Leave stubs for future development.

Try ‘rent-before-buy before build’ and ‘configure-before-customise’ approaches.

Don’t invest heavily in infrastructure and in-house resources for this prototyping and rapid development stage.

Do not start with a pre-conceived set of rules or limit your creativity worrying about security, risk or other constraints. Instead brainstorm all the possibilities and then pick a few low-risk, quick-win possibilities to start with. For example, a bank could develop a Facebook app to show customers their balance in a read-only mode, a transport company could share its routes so passengers can estimate journey times, and a retailer could share its reward point information creating an opportunity for third-party developers to include that information in their apps. This approach helps organisations learn fast and react to evolving opportunities. Each iteration provides a jumping-off point.

Target real business needs Keep focused on strategic business goals. For example, you may want to use APIs to:

Improve customer satisfaction

Differentiate and compete

Innovate

Partner with other companies

Increase sales with upselling and cross-selling

Lower costs (people, process, and technology)

Grow the business

Attract and retain customers API-driven innovation can help achieve these goals.



Embrace social Connect, listen and learn in the social sphere without risking your brand. Open up useful information with public APIs. When developers use them, you will get information about the people who engage with you on social networks and you will learn a lot from the social noise and brand chatter. This kind of social listening is a very good way to understand market and customer sentiment without expensive marketing, pushy in-your-face promotions or damage to your brand.

Adopt new development models You can exploit the imagination and creativity of the open community to get new creative ideas or use your current partners to create a low-cost, no-ownership development and testing model. The API model also streamlines the current offshore and onshore development, cutting the overall cost. For example, in 2012, AXA Bank launched an open API competition to source new ideas and mobile apps. They exposed a few functions and invited developers to submit their apps, offering a €50,000 reward as an incentive.

Consider the HR implications This model enables sourcing without the management overhead. Developers, testers, partners do not necessary need to be hired or contracted in the traditional way. Companies and developers can sign up to a digital online contract when they start using your API. Rather than the traditional costs and management overhead of hiring people to work on proprietary systems in-house, an API lets you work with developers in a much more cost-effective way.

Be clear about rights, IP and brand guidelines You should publish clear brand guidelines, legal terms and conditions and copyright notices on the API portal so that developers can incorporate them into their applications. You can also get developers to sign a digital contract before giving them access to your APIs. Your API portal should include this functionality. And the contract should specify how intellectual property rights will be handled and what you expect from developers. For example, you might insist on a small footnote in an app identifying the source of information pulled through your API and including a copyright notice. From a privacy perspective, it’s important to ensure that applications and developers can’t connect to any of your resources with the end customers’ permission. You may want to have a process to check that minimum requirements are met by each app before they go live.

Get the security right We recommend using 2048-bit SSL encryption for all API connections and adopting the OAuth open standard to authenticate third-party access to server resources without sharing credentials. In addition, developers should get a development key to access the development resources and the final production application should be assigned a separate production key to access production resources.



Ensure the highest levels of security for key allocation, invocation, revocation and renewal. Look for systems that have been security checked by trusted third parties. For example, Microsoft Windows Azure has acquired impact level II clearance from CESG, the UK’s national technical authority for information assurance.

Existing middleware is not the answer Most middleware systems do not have the necessary functions to deliver a true API. For example, they often lack a process to on-board developers, an app store, key management, monitoring tools to report on consumer behaviour and usage. Dedicated API platforms are designed to get developers up and running quickly, making it easy to:

Expose data services through well-crafted APIs which are robust and easy to scale

Register and on-board developers

Submit, review and approve apps

Provide accessibility while protecting the business from threats, back-end overload, and service issues.

Monitor how people are using the APIs with detailed reporting

Get insight into customer behaviours

Add features such as news feeds, geolocation, search engine integration

Investigate errors and performance problems to improve responsiveness The big question is whether you want to rent, build, buy, configure or customise. The platform which allows you to rent and configure which is by far the cheapest and our recommended approach.

Choose the right API platform Consider the following factors when reviewing API platforms:

Is it cloud-ready?

Is it cost-effective?

Does it provide a secure framework for the gateway to talk to your core systems and to the outside world?

Does it offer well-documented APIs and version control capabilities?

What is the developer registration process?

Does it include a process and capability for delivering development and production keys?

Does it include monitoring and management information (including social instant messaging)?

Is there an app store facility?

Will it let you publish brand guidelines and manage an approval certificate process?

Does it offer a platform that allows developers, IT and marketing teams to collaborate?

Can you create ‘stubs’ without having to integrate them with the enterprise?

Does it support metering, reporting, scalability, caching and traffic management?



So I have an API, now what? Successful API strategies have four key elements:

Driving developer adoption of your API

Delivering and scaling your API in a reliable fashion,

Managing and protecting your API

Gaining insights into your API and API ecosystem. Figure 7 breaks down these strategies into their component parts.

Figure 7: The elements of a successful API strategy



Choose the right business model There are many different business models in the API economy. ProgrammableWeb has produced the breakdown shown in Figure 8. For more information see: GetElastic.

Figure 8: Taxonomy of API business models

http://www.getelastic.com/20-api-business-models-deconstructed/



Microsoft’s API platform Microsoft has an API management platform under its Azure umbrella. Microsoft Azure is Microsoft’s cloud platform: a growing collection of integrated services—compute, storage, data, networking, and app—that help you move faster, do more, and save money. The Microsoft Azure API management platform includes all the essential elements you need to join the API economy as shown in Figure 9:

Figure 9: The Microsoft Azure API management platform

Benefits include:

No waste. You get all the benefits of a cloud application. There is no on-site hardware to buy, configure and manage and no risk of expensive over-provisioning.

No upfront costs. Instead you pay for what you use as you use it.

No risk. The Microsoft Azure platform comes with service level agreements that help to address performance and scaling concerns.

No delays. You can stand up your developer portal and launch your API very quickly.

No barriers. Microsoft does not place any barriers. You can easily turn the service on or off. The Microsoft Azure API management platform is underpinned by the four key elements that are critical for a successful API strategy as shown in Figure 10:



Figure 10: The API platform lifecycle

The Microsoft Azure API management platform is a launch pad into the new API economy. It will

help you innovate faster, with less risk and lower costs. More importantly, instead of spending time

and effort building the technology to deliver the APIs, you can focus on the data and services behind

them and in encouraging developers to use them.

Engage the Microsoft Enterprise Strategy

Programme Microsoft helps customers assess their portfolios to unlock new business opportunities for

competitive advantages and to improve business performance. Fuelled by Microsoft’s extensive

knowledge and experience of delivering business ready strategies across many enterprises,

industries and geographies this will be expedited with structured and phased approach, by delivering

rapid increments of business value. This programme consists of four core elements:

▪ Enterprise architects. Dedicated to the customer and charged with accelerating customers toward

their business goals.

▪ Microsoft network. Subject matter experts from across all areas of Microsoft, including product

groups, research and development, internal IT resources, and Microsoft Research.

▪ Value realization. Microsoft provides a framework and methodology designed to discover and

promote business value.

▪ Library. A collection of exclusive intellectual property including comprehensive guidance, reference

architectures and implementation information, and worked examples from Microsoft engagements.

For more information about the Microsoft Enterprise Strategy Program, contact your Microsoft

account representative or visit www.microsoft.com/GoESP.

For more information about the Microsoft API Management platform visit

http://azure.microsoft.com/en-gb/services/api-management/

http://www.microsoft.com/GoESP

http://azure.microsoft.com/en-gb/services/api-management/

Technology

Embracing the api economy