CIOs Seek Growth Through API Programs

IT Modernization

Accelerating Enterprise Growth

The potential for accelerating enterprise growth through a sound, well-thought-out API program is significant. However, most existing APIs are not positioned to fuel transformative ideas, since they were developed for a specific, closed application. The problem is further compounded in that most APIs have not been built with modern Web API practices or by using disciplined service governance techniques. 
In this piece from Razorfish, we explore and highlight:  

  • The move toward open business models
  • How APIs enable business agility 
  • Crafting an API strategy
  • Recommendations

The trend

Technology executives in every sector manage hundreds, even thousands, of APIs within their existing portfolios. Many of these existing APIs have the potential to create new value for customers while opening up new sources of revenue. While turning APIs into cash is more than feasible, such a goal requires a different mindset coupled with a strategy and execution plan designed to ensure the organization reaps the rewards of these important business assets without compromising its competitive position. 

The Move Toward Open Business Models

Just as the World Wide Web exploited the Internet’s potential for information access, APIs—which specify how to exchange information or request online services from an organization—are providing the catalyst for companies eager to take their place in the connected economy. 

Today, value comes from products that work together

A company takes its solutions to market through a combination of resources that only it can provide; also known as its unique, albeit closed, business model. But in a connected economy, things have changed. Now, customers value products that work and interact with each other, even when that cooperating brand is a competitor.   For example, developers integrate Yahoo and Google search into their own software applications. Customers create accounts on their favorite travel sites using their Facebook credentials, made possible with Facebook’s open API. A Google API lets organizations integrate YouTube into its applications by providing facilities to search for videos. Customers of Sutter Health refill prescriptions from its patient portal thanks to an API from Walgreens pharmacy. Capital One bank recently launched its developer portal and three open APIs, signaling its shift to a more open banking platform.

Most APIs have not been built with modern Web API practices or by using disciplined service governance techniques.

McKinsey Survey on Connectivity.
Figure 1: Consumers are increasingly willing to switch manufacuturers and pay for connected-car services.

How APIs Enable Business Agility

Use APIs to accelerate development

The traditional methods, tools and techniques most enterprises use to bring new software products to market were designed and built for a previous age, when product life cycles lasted years, even decades. In these traditional environments, ideas were prioritized, often from an annual brainstorm session — and then pushed through a waterfall-oriented requirements specification process. After a lengthy design and development process, the whole cycle easily lasted 18 to 24 months. By the time the product launched, market conditions had changed. Today’s CIO is addressing the challenge with APIs to accelerate the process. However, such an approach requires shifts toward agile development methodologies.

Use APIs to inspire architectural innovation

Today, architectural innovations such as microservices and continuous delivery use APIs as a catalyst for fueling transformative ideas and increasing business agility. ING’s internal API, for example, is reused across its global operations, facilitating rapid creation of new products and services. American Express, Visa and MasterCard all use APIs to reduce complexity and accelerate onboarding. 

Others use APIs to create new sources of revenue and brand awareness.  For example, Best Buy's API provides detailed information for thousands of products, including pricing, availability, specifications, descriptions and images. Target offers an API to its partners that can be used to predict a prospect’s interests informed by searches, social network activity, tweets, even things such as membership in alumni organizations. This information is used for targeted advertising or for offering recommendations. The API uses RESTful calls; responses are in JSON format. All of these examples demonstrate how APIs can be used to generate higher brand awareness and opportunities for growth.

American Express, Visa and MasterCard all use APIs to reduce complexity and accelerate onboarding.
American Express, Visa and MasterCard all use APIs to reduce complexity and accelerate onboarding.

APIs for Business Transformation

Amazon made an early investment around building its solution around APIs, which helped it accelerate several transformative ideas. Starting off as a solution for e-commerce, Amazon has used its APIs to provide fulfillment, authentication and payment services to third parties, allowing distributors to sell on its platform. The decision also allowed it to separate its infrastructure from its overall e-commerce solution to later support the creation of Amazon Web Services, a $10 billion business that accounts for more than half of the company’s operating profit. 

Now, Amazon is using its API strategy to extend services through Amazon Business, a separate retail site for business buyers that delivered $1 billion in upside revenue within its first 12 months. Today the site contains 9 million business-relevant offerings from industrial deep fryers and stethoscopes to printer cartridges (from more than 30,000 suppliers). 

An API strategy enabled Amazon Business to deliver $1 billion in new revenue in 12 months.

Amazon API Strategy.
An API strategy enabled Amazon Business to deliver $1 billion in new revenue in 12 months.

APIs as Growth Drivers

Twitter, which began as a simple messaging solution, has leveraged its open API to create a third-party ecosystem of tools. Dashboards such as TweetDeck, for example, were created by independent developers, which fueled rapid growth in its early years. Once a critical mass had been achieved, Twitter APIs got more restrictive, allowing the company to get more ownership of the customer and data, and to gain new revenue streams around advertising and data.

An unstoppable trend

Many business leaders think of APIs as the purview of digital companies, given how Amazon, Google and Facebook have used APIs to create thousands of applications. But consider how these successes inspired API strategies at AT&T, Sears, Alcatel-Lucent and hundreds of other companies. Salesforce generates over half its revenues through its APIs. eBay uses APIs to share freemium content and commercial offers within third-party applications to drive growth. Capital One’s APIs let customers pay for merchant offers with reward points. At The Guardian, APIs have transformed the organization from a publisher to a news platform provider. APIs at The New York Times give developers permission to hack its news. These are not isolated examples, but rather they represent an unstoppable trend toward the use of APIs to compete in a connected economy.

APIs transformed The Guardian from a publisher to a news platform provider.

The Guardian APIs
APIs transformed The Guardian from a publisher to a news platform provider.

Avoid ad hoc management

Technology executives have used APIs for 40 years, but over the past decade the Web’s permeation of APIs has fueled new capabilities in areas such as digital commerce, social media and cloud services. Yet many CIOs pursue APIs on an ad hoc basis, limiting the intrinsic value of APIs to create long-term value. Marketing executives, together with their CIOs, should have a clear understanding of how their API plan advances the organization’s larger growth strategy, a vision that can be shared through a developer portal that houses code and provides discussion areas for sharing ideas. 

Manage APIs as products

Experience and skills in product management should be used to treat each API as a product supported by a cross-discipline team; e.g., product managers, business leaders, developers, and marketing, sales and business operations professionals. Product managers put the customer at the center, ensuring that your APIs provide the fuel to fill customer needs. Getting legal and compliance departments involved will avoid future surprises, and integrating a product management approach can help build a plan that goes beyond technical implementation. Similar to a product, an API has its own life cycle, and the API evolution needs to be planned as well. What are new capabilities? When are certain services going to be retired?

Work with your customers to develop APIs

Similar to digital experience development, a deep understanding of your customers’ needs and desires is critical for being successful. How are they planning to use your APIs? What data do they need and when do they need it? As we have seen in our work, it is impossible to guess the right set of APIs without direct collaboration and testing with your direct users. 

Use API programs to attract talent

Many organizations use hackathons to attract talent, particularly developers who prefer working with APIs (especially REST) for mobile app development.  In most sectors, talent outside the corporate walls remains largely untapped. External APIs and hackathons can be conducted to reach beyond traditional alliances to third-party developers, including startups (which prefer using APIs for service delivery and mobile app development).

Feature APIs at hackathons

Many CIOs conduct hackathons to inspire startup cultures and to get developers excited about modern architectures and development practices. In the hackathon context, “hacker” is not about breaking security; rather, it's about solving old problems in new ways (and generating a wealth of new ideas that marketers can prioritize by business value). Hackathons give developers permission to disrupt the organization’s traditional product development process (while having fun doing it). Citi, for example, uses APIs and hackathons together to get creative mobile apps into the hands of its customers as ongoing, versus one-time, events. This is important in an industry where startups regularly enter financial services with innovative mobile solutions, free from the legacy of a traditional bank’s brick-and-mortar operation. 

Use APIs to define your two=speed IT architecture

APIs are the perfect construct to decouple your agile systems from your core backend systems. They allow you to respond quickly to market demands and adjust to your customers’ experience, while at the same time ensuring stability of your transactional and operational systems.

Tap into the vendor community

Business and technology leaders are also accelerating their API strategy execution by tapping into the vendor community. San Francisco’s AngelHack, for example, organizes API hackathons that enable brainstorms, customer experience innovation and the exploration of new revenue opportunities from partner ecosystems. In a short time, AngelHack has developed a reputation for helping established brands generate scores of new ideas for innovating apps and creating new business value through well-designed, managed events. Blockspring, another Bay Area firm, realizes that for most business users, APIs are difficult to use. Hence, it provides prebuilt spreadsheet functions that enable citizen developers to quickly and easily populate spreadsheets, dashboards and websites from numerous public APIs, data feeds and search engines (without calling on IT professionals for help). Then there’s Golgi, an innovative vendor in Ireland that helps development teams implement IoT solutions without investing in niche IoT integration skills. Golgi’s approach enables developers to treat IoT devices like any other API-enabled system (it also connects devices to the API ecosystem and provides an API developer portal as part of its offering). Given the complexity of IoT projects, Golgi is bringing the advantages of the API economy to the Internet of things. 

Recommendations

Develop an open business mindset

In the public sector, NASA (which says, “no one owns space”) makes its terrestrial and space-based data available through its 9,000 APIs. NASA’s portal offers a library of APIs to nearly every data set that it has made public; each is paired with an API developers can use to create apps to teach people about the world around them (while helping engineers and scientists arrive at higher levels of insight based on what the data is actually telling them). 

Communicate the business value of APIs 

CEOs and boards of directors are especially receptive to initiatives that drive a digital transformation strategy for business advantage. Marketing executives should take this opportunity to work with CIOs to articulate how APIs advance the ability to compete in a connected economy. Use resources such as the chief marketing technologist to communicate the value of APIs in business language the CEO and executive teams can understand and appreciate. For example, most enterprise revenue generation capability is limited to its own sales force, website and a few partners. Show how APIs extend the value of your existing assets into a new set of sales channels. 

Modernize your architecture

While API architectures are 40 years old, Web APIs represent the next generation of Web services that share commonality with service-oriented initiatives (e.g., SOA). These types of APIs, however, depart from SOA application services, given the interface is managed independently from its implementation. Bring disciplined service governance techniques into your architectural governance. For example, a good Web API targets developers as its customers – and it is designed for general consumption and ease of use. Make sure your APIs aren’t dependent on local application infrastructures or limited to the constraints of older, even obsolete technology platforms.

Build a business ecosystem with APIs

A Connected Home API from AXA France lets customers reduce their insurance rates by letting them self-monitor their homes against intrusion and fire, capabilities enabled by its API platform for third-party IoT vendors.  Airlines let travelers check in with mobile devices while offering value-added services through APIs. AT&T and Sabre have partnered to alert staff when a high-status passenger’s flight is about to depart. Passengers are also notified of special promotions as they approach an airport bookstore. Travelers can also be warned when they are at risk of missing a connecting flight.  These mergers of digital and physical experiences meet the ever-rising demands of the connected customer. Brainstorm ways you can take the lead in similar digital ecosystems that are occurring in your space. 

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