Recent developments in social technologies have placed the consumer at the center of growth strategies, raising the need to rethink the way we define and understand business. Long gone are the days where consumers are considered a passive audience. Instead, they are potential distribution partners, and play a key role in the transformation of value. In essence, modern businesses have become less about owning the production of products, and more about facilitating specific roles and certain transactions. The leaders of tomorrow’s connected environment will excel at building platforms where customer groups are incentivized better than competing platforms to create, curate, and consume in an ecosystem of collaboration, open innovation, and non-linear transactions.
In this post, I will review our definition of one of the most sought after business statuses of this decade: the API platform. I will also provide you with some insights that will give you a leg up on competitors.
The API Platform Defined?
As we wrote a few weeks ago, an API platform is an organisation which brings together two or more distinct, but interdependent groups, through a programmatically consumable service or an Application Programming Interface (API) , creating a foundation for automated interactions between them. These organization expose data and/or capabilities to become the defacto way by which others conduct their business; they are used as verbs in conversation; they are a catalyst for multi market disruptions; and they are what smart leaders want to become!
Where Did it Come From?
The democratization of technology has made content creation and digital applications accessible to a global audience. As more people participate, the opportunity to build platforms grows. This trend is only going to continue with the Internet of Things (IoT), wearables, and mobile crashing over our societies; we will soon find ourselves in a sea of limitless connectivity.
Who is the API Platform Relevant to?
Platform businesses, to the annoyance of their entrenched counterparts, do a good job of restructuring the value chain of traditional industries. By facilitating interactions and exchange between producers and consumers, platforms often solve problems traditionally tackled by manufacturers, service providers, or other traditional forms of business. Platform businesses are a direct competitor of ones that use a classic structure. It is for this reason that business leaders should not regard this topic as irrelevant without some deep thought. If it is ignored, you may find yourself facing stiff competition from a new entrant that is able to out maneuver you using its more modern structure and approach.
What is the Benefit of Becoming an API Platform?
When Apple launched their App Store, it was easy to overlook the importance of the key strategic decisions that the hi-tech company had made, specifically to allow third-parties to offer goods in the same space as Apple was. It’s a (good thing they did)[http://nordicapis.com/lessons-learned-apples-api-strategy/], or they would have never been able to create such a rich and diverse ecosystem. Restricting development to in-house use would have dwarfed the potential of the now-flourishing iOS platform.
This is one of the core ideas behind the API platform approach: to empower a free labor force of external talent; creating a more valuable ecosystem by allowing the world to create what the world wants.
At their core, API platforms enable unstoppable growth, which can unlock new revenue streams and help you establish a competitive advantage.
The API platform breaks down traditional market size limitations. The markets themselves have been replaced with potential roles (often overlapping), and each one has its own ability to create value through interactions. Take Facebook as an example. You have developers who use the social network’s API to create third-party services such as games. This provides a unique value proposition for the social network’s users. Facebook also gains because of the increased usage of the platform — something they can monetize with advertisements. If engineered correctly, all roles can benefit. The API platform is key to unlocking this hidden market value.
As Sangeet Paul Choudary write, “Competing purely on the quality of algorithms is not a common occurrence. (Google is a rare exception.) Instead, it’s much wiser to compete on something that cannot be easily reverse engineered and replicated; something like an ecosystem.” Creating an ecosystem has two very interesting features, which are highly marketable:
It’s ability to become a communication channel; and
The enormous quantities of data it can create.
Here are some more benefits that we will dive into in subsequent posts. (Subscribe to our newsletter to never miss one of them.)
- Speed to market
- Enhanced security
- Increased agility
The rules of the game have been rewritten, and the cliche of adapt or die has it’s place once more. The age of the API platform is here, and leaders who seek to remain relevant should make room on their agenda for some re-education; business school basics for a new era!
Successfully creating an API platform is a mission, but make no mistake. It is possible. Just look at Moves and TalkTo: If critical mass is reached, or if you build something that can be plugged into an existing platform, a platform play can pay off handsomely.
To learn more about becoming an API platform, book you tickets to this years Platform Summit. There are only a limited number of seats!
- Multi-sided business models
- “Strategies for Two-sided Markets” Harvard Business Review
- “Invisible Engines: How Software Platforms Drive Innovation and Transform Industries”
- “Managing the Maze of Multisided Markets” – Strategy & Business
- Platformed.info by Sangeet Paul Choudary