Have you ever wondered why companies like Salesforce open up their organization by providing third-parties with tools such as APIs? I know I did! To understand this, I dug really deep into accelerated growth strategies, and wanted to share some of the insights I have gained. What I learned is that many businesses are struggling to keep up with the pace of innovation. In the face of disruption, many organisations simply ignore it, or try to partner up instead of transforming their business model to adapt.
Through this investigation, I discovered various elements necessary to adapt to disruption. Understanding these elements and instruments is key when you run a platform business. An important part of platformizing your organization is the way you create and capture value. The approach of out doing competitors by keeping knowledge, tools and resources private has become old fashioned. Today’s fastest growing platforms work differently. They open up their core, publish APIs, and start up developer programs. Understanding the mechanics of becoming an API platform is key. In this post I will show you the transformation of one pioneering API platform businesses, and the massive impact of open value creation.
Transformation begins with Understanding
The transformation into an API platform requires a concerted strategy. The facets of this plan will depend on how you characterize your business model. Traditionally, businesses have either been product or services companies. More and more, product companies have morphed into services providers. This metamorphosis is happening again; this time, however, from service-based to platform-based.As we said in our definition of an API platform, a fundamental characteristic of such a business is that it allows third-parties to leverage its core capabilities and/or resources. This usage may bring either direct or indirect revenue to the platform provider; it will also provide some commercial benefit to the software vendor building on the platform. In all cases, ecosystem members will symbolically coexist for the mutual benefit of all parties. By exposing your core value as an API, you can change your position in the market from being just another fish in the sea to to being the Barrier Reef!
If you are one of those I mentioned that is struggling to keep up with innovation, you may dismiss this claim as exaggerated marketing. Don’t! It’s happening all around you. Dismissal will result in obslence. You have been warned!
Punctuate your Business Model with an API
As a service, you focus on user growth and optimization of your offering. This tuning is natural for any company. You can not be a service provider or platform without being a profitable business. . While tuning their offering, many businesses end up in the standardization loop. Don’t get stuck here! You will be relegated to little more than a service, and disrupters must grow beyond this into platforms. The standardization loop can be seen as a combination of increasing efficiency, cutting expenses and making acquisitions. Although this might influence growth, it does not rapidly accelerate it. After proving your business model, business platformization accelerates growth.
Business platformization is central to the success of some of today’s most successful companies, e.g., Android and Salesforce. They have grown exponentially to the place they are now, and exemplify how businesses should open up their core value proposition. It begins with a vision of forming an ecosystem, and growing into the “reef” through a solid, standard offering. Let’s take Salesforce as an example of this.
Salesforce: An API Platform Pioneer to Follow
They are the leader in cloud computing for enterprises in many respects, and have been for over a decade. The standardization phase took them many years. During the first several years, Salesforce launched multiple customer relation management applications. As they did this, they focussed on improving and creating their value proposition. After having fully standarized all services and growing their userbase, Salesforce launched the Appexchange and Force.com in 2006 and 2007, respectively. These enabled developers to use Saleforce’s tools and APIs for commercial purposes. They opened up their core value proposition and quickly accelerated their growth by running a viable marketplace on the platform that they had bootstrapped.
Platformization begins with a vision, followed by product standardization, and then assumption of the central position with the ecosystem that’s been formed.
Control the Tools that Define the Market
Two years after launching the Appexchange, almost 300 thousand test drives took place and almost 800 applications were available. The Force.com platform counted over 100 thousand developers after being avaialble for one year. Salesforce’s platforms was growing quickly while they kept controlling and developing tools that enabled developers to create value. As with Salesforce, your strategy to become a platform should progress from standardization to enabling developers with tools for value creation. A platform should create an infrastructure of co-creation that helps developers increase the value of their offerings. Helping developers understand how the infrastructure works is essential to optimize the common value proposition that they and the platform can create. For example, Salesforce offers a technical library that informs developers how to use their APIs and commercialize and manage their Force.com applications.
Part of successfully managing an open value creation strategy is understanding the role of your platform in the market. It is to facilitate the mutual benefit of all members of the ecosystem, including end users, application developers, and the platform provider. To obtain and maintain continuous growth, platforms should not capture all of the value that is created by third-parties for themselves. Neither should they seek to completely control the outcomes of what developers create using the API. A platform needs to provide the ability for others to co-create using its facilities. Benevolently managing this infrastructure will lead to an increase in value creation, and, thus, growth. Being a platform will enable you to keep up with the rapid pace of innovation; the faster the better, you’ll find.
Open up or Lose Out
Salesforce is the world’s leading online CRM software vendor. How did they get to this position? Salesforce allowed its 1.4 million registered developers to create and commercialize their applications. No wonder almost 2.5 million Salesforce customers have used their marketplace to procure additional apps. Salesforce exemplifies the power of enabling third-parties with tools and knowledge.
If Salesforce had kept all these resources private, it would not have succeeded in building a “workforce” of millions of developers that were willing to risk their time and effort (at no cost to Salesforce) to try and create and commercialize their applications on the Salesforce platform. Salesforce envisioned the possibility to grow well beyond what they could do through in-house creation. By opening up their core, the CRM provider in tandem with API developers, produced more value for the entire ecosystem. Salesforce enabled developers to build apps that then could be sold to customers of Salesforce. The API was the doorway into this new channel.
Salesforce’s strategic decision to enable developers to market their products in its own ecosystem resulted in them becoming the number one marketplace for business applications. Imagine if Salesforce would not have opened up their core and supported developers with knowledge and tools. Their growth would have been limited by their own internal resources. Salesforce would never have grown to the level they have without:
- Envisioning the day that they would be a platform
- Standardize and solidify their offering to pick up the cash necessary to bootstrap the ecosystem
- Grow beyond a service provide into a platform business by opening up their core as an API platform
- Maintaining and nurturing the ecosystem that formed around them
Grow like Salesforce into a Platform
You can grow without becoming an API platform. However, accelerating growth, as Salesforce has done, is much more likely if you make a platform move. Technology is rapidly changing and has presented all of us with the opportunity to make such a move. To do this, create a shared vision within your organization to become an API platform. When momentum grows internally, don’t stop there. Instead, couple the sales of a standardized offering with the introduction of more and more APIs and API-related resources. This will result in your obtainment of the platform role within your ecosystem, springboarding your growth to new levels.
For more about how APIs can help you grow and platformizing your company, be sure to join us in Stockholm this October at our Platform Summit. Till then, please share your thoughts here in a comment, on Twitter, or on Facebook.