Opening up APIs brings in benefits

Allowing third-party access to application programming interface offers benefits of reach, revenue and innovation, but companies should prepare for associated implications.
Written by Jamie Yap, Contributor on

When companies release their application programming interface (API) to third-party developers, they are also opening themselves up to benefits of revenue generation, user traffic and innovation, especially with the growing adoption of mobile devices among consumers today.

The financial benefit for companies and vendors which offer third-party developers access to their APIs is "significant", Frost & Sullivan research analyst, Ng Jun Wen, told ZDNet Asia, adding that the large ecosystem of devices presents a significant revenue opportunity for both companies and developers.

For instance, Apple in July said developers earned US$2.5 billion since the launch of the App Store, while Cupertino itself received a substantial commission from the app sales.

Referring to Twitter as another example, Ng said an open API also enables third-party developers to create a rich and broad range of value-added products ranging from Twitter clients to analytics tools, thereby, increasing the functionality, innovativeness, scope and reach of the microblogging platform.

Dion Hinchcliffe, executive vice president of strategy at Dachis Group, added that the benefits of opening up an API can be strategic. The Austin, Texas-based consultancy focuses on social technologies for businesses.

Hinchcliffe highlighted revenue generation and traffic growth as "very real benefits" of open APIs, but noted that the most important outcomes are having direct access to innovation and company sustainability.

"APIs are a way to cost effectively scale a company's businesses in many simultaneous new directions as well as tap the ingenuity of a large partner ecosystem, all while largely firewalling risk," he said in an e-mail. This ability is important, he emphasized.

He explained that traditional business partnerships, joint ventures and product integrations are time-consuming and expensive to create and maintain. In comparison, the open API model is "designed for nearly effortless, asymmetric scale", where almost all the work needed with the partner is pushed to the other end of the relationship, he said.

All the API provider has to do is "create the API and support it well", Hinchcliffe added.

This requirement highlights the need for organizations to evaluate certain issues in order to maximize the rewards, as well as manage the implications associated with an open API model where developers eventually become part of the larger ecosystem.

Always prepare for implications
For example, Twitter in March instructed third-party developers to stop creating third-party Twitter clients. It said the clampdown would produce "a less fragmented world" and ensure consistency in user experience.

Hinchcliffe, however, said: "That Twitter was getting more traffic through its API than its own site, is a prime example of why APIs are more powerful than offering individual traditional customer touchpoints."

He noted that an open API means a company's data is embedded, in a controlled way, into hundreds of other products which may eventually become the primary way that company engages with, and provides value, to its users.

Therefore, he advised, the first thing a company should note is to encourage innovation with its API as long as it does not break the law or violate regulations or customer privacy.

The organization should also invest in providing quality support for its external developers and treat them as equals alongside its other business partners, Hinchcliffe added.

Finally, the organization needs to "make it simple both legally and technically" for partners to apply the API, he said.

Ng concurred, noting that companies must ensure customers are well-protected against rogue developers who seek to misuse the API for personal gains.

Another challenge companies face when releasing their APIs is to create a functional API, such as enabling third-party developers to re-innovate existing services and products, he said. This entails ensuring the open APIs are secure, Ng said, though he noted that the best way to do so is to expose the API to hacking attacks and then actively learning from such attacks to improve the API.

These considerations and precautions when embarking on an open API model highlight the need for businesses to ensure they set aside enough resources to retain control of its data, he pointed out.

Ultimately, companies should look at their options and figure out the results they want, he added.

If they want to gain experience and slowly nurture an ecosystem, a closed API is a better alternative as it allows them to serve a limited audience and maintain control over data and resources, before eventually deploying an open API, Ng recommended.

Open APIs suitable for most companies
Efforts to free up APIs have been notable in some industry segments such as payment processing.

For example, Visa last month launched its digital wallet, V.me, and announced a new Visa Developer Center where its payment technology is open to third parties to build on. Other market players such as PayPal and MasterCard previously also released their respective APIs to court developers.

Adopting an open API strategy is also suitable for various industries. Ng pointed to companies involved in Web 2.0, financial services, e-commerce, marketing and entertainment, as examples.

He added that any company thinking of developing apps for smartphones or tablets to value-add their existing products or services can also consider releasing an API.

With the proliferation of digital devices entering the market, manufacturers of consumer goods as well as service providers should offer more seamless integration with these devices. For instance, electronics giant Samsung provided developers with APIs to create applications and widgets for its smart TVs.

Ng added that a car manufacturer could also release an API for third-party developers to access its onboard entertainment system and car diagnostics.

Hinchcliffe concurred: "There's virtually no industry that's not a good candidate [for open APIs]. Some just have a bigger immediate potential for revenue."

Industries such as retail, media, travel, telecommunications, public sector, OEMs (original equipment manufacturers) and real estate, should take up the option of opening up their APIs, he added.

"Nearly any data set that cannot be easily recreated by another company, whether it is too expensive or time-consuming, is a good candidate for opening up to the world for access via the Web. Most companies have a pretty clear sense of what data their business partners and customer would like access to. This can be company data, industry information, vendor ratings, or content.

"Whatever their line of business system process, as long as it's not confidential, those are prime candidates," Hinchcliffe concluded.

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