Q

Where's the ROI in a public API?

Should enterprise architects provide public APIs that open up their systems? Mike Ogrinz takes a look at what rewards open APIs can bring in terms of ROI.

It seems like more and more companies are opening up their systems and creating public APIs. Can you elaborate on their motivations? Can a company make money with this approach, and how do I get business management on-board?

 
The number of public APIs on the web has definitely been on the rise. Programmableweb.com, the web’s de facto expert on the subject currently has over 5,100 open APIs in their directory. Some of these APIs are provided by startups, but a significant number are hosted by Fortune 100 and 500 companies.

There have been a lot of articles written about the technical issues involved inhosting external APIs, but not much material on the “how” or “why” a company chooses to develop one. That’s why I was happy to recently receive an advance copy of the O’Reilly book, APIs: A Strategy Guide. The authors, Daniel Jacobson, Greg Brail, and Dan Woods have a rich background on this subject. Daniel leads API development at Netflix, whose API strategy is well known thanks to efforts like the Netflix Million Dollar Challenge. Greg is employed by Apigee, a firm that helps companies deliver reliable and secure public and private APIs to developers. Finally, Dan Woods co-authored one of the first books to directly cover enterprise mashups and APIs in “Mashup Corporations: The End of Business as Usual”.

This book addresses your question in much greater detail than this short blog post can cover. I’d like to highlight a few topics that I think you will find helpful, and I’d recommend you pick up a print or electronic edition if you’d like to learn more.

For the most basic question on why one should build an API, the authors list a number of reasons. Here are a couple that I think are particularly important:

  1. Your customers ask for one

This is flattering, but don’t ignore the fact that it also could be a warning. Perhaps customers want an API because they want to integrate your products more tightly with their own internal systems. That’s good. Or, they might be trying to create new products outside your firm’s vision. This is good too; it can lead to new business opportunities. On the other hand, they might be building proxies around your products so that they can easily swap in another provider later. In essence, they are trying to commoditize your offerings. That’s bad. You need to weigh the potential risks versus benefits. If competitors offer a similar API, you can focus on delivering a faster, more scalable offering.

  1. You have data to make available

Every business collects and generates data, and while some of it may be proprietary, a portion can inevitably be opened up. For example, most retail websites have a “Where is the closest store near me?” widget on their homepage. Even offering this simple service via an API can lead to some interesting third-party mashups. Maybe someone will create a site for the busy parent that plots the optimal route through all their daily errands. If your competitors offer this location data and you don’t, who do you think will wind up getting more customers?

The next most common question a company faces is, “Can we monetize this thing?” Development and support costs for an API are usually not trivial, so it’s natural to ask about ROI (return on investment). APIs: A Strategy Guide addresses this issue as well, with an entire chapter devoted to the API value chain. There are many areas to consider: Should your API be free? Will it help you enter new markets? What indirect revenue will you gain? This is arguably the most useful information I have come across for making the case for an API to management. This is also the first book I have seen that covers the legal aspects of APIs. It’s a litigious world out there, so no organization should expose a public API without researching this area.

Lastly, since this is an O’Reilly book, you can expect a deeper-dive into some of the technical aspects related to exposing an API. These range from security and scalability to other technical considerations like XML versus JSON for data delivery. 

If you are making the case for either a public or private API, I recommend this book. It provides a lot of helpful information that communicates the value of APIs and can help your management understand the risks and benefits.

This was first published in February 2012

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