API, the new currency of the Digital Economy

A number of service providers are already using Application Programming Interfaces (APIs) to improve operational efficiency and productivity, though these interfaces are about to become the currency through which Digital Transformation pathways can be monetized in terms of innovation and co-creation of opportunities and business models inside an increasingly extended ecosystem of vendors, partners and client companies. The ‘most appetising opportunities’ come from Big Data and IoT projects not only for Telcos and Communication/Content Service Providers, but also for vertical sectors such as Automotive, Energy and Finance. That’s according to Gartner!

It is only a short distance from the App economy to the API economy. We’re still not entirely used to the idea and maybe we haven’t even understood the details of how and to what extent software can revolutionize companies’ traditional business models in such a dramatic way – we have already switched from applications-enabled economy to the one where value is generated by another layer of software, that of programming interfaces.

After all, this is also one of the tangible effects of that ‘digital revolution’ of which over the last few years I’ve been analyzing market scenarios, developments and technological innovations, effects inside organizations – not just for user companies, but also ICT vendors and the whole ecosystem revolving around them, namely that of service providers… perhaps some of the first entities to be able to draw opportunities and value from the API Economy.

As a matter of fact, APIs have long shown their potential for the automation of internal processes, namely allowing for the reduction of design cycles, development and launch of new products and services. However, they still need to show their potential in increasing collaboration (both internally and externally), in the integration of processes no longer confined within the company’s walls, but increasingly extensive; all that enables innovation intended both as new products and services but also, and most importantly, as new business models that can generate new value and new income, not just for service providers and the ‘third parties’ of top vendors.

APIs for any objective

The US analysis company Gartner believes that the opportunities generated by the development and use of programming interfaces will soon emerge, thereby allowing a number of businesses to monetize their value (generating income thanks to innovation and digitalization), as highlighted in its report “Market Trends:APIs Accelerate CSP Success in Digital Business”, a detailed study on both the current and future market economy driven by APIs, but above all, an in-depth analysis of the areas where these ‘software layers’ represent the key to economic success in new digital businesses.

The reason why this analysis starts from the world of Communication Service Providers (CSP) is easy to understand: “APIs are the instrument, or rather, the cascade of instruments for value monetization among those who generate this value upstream and those who consume it downstream,” according to analyst Gyanee Dewnarain. The very first businesses affected by this change are Telecoms and Media companies [it is no coincidence that the acronym CSP is increasingly interpreted as Content Service Provider – Ed.].

However, one thing is sure: 2016 will already see the first ‘transpositions’ from the world of CSPs towards other vertical segments such as Manufacturing, namely Automotive, Energy or Finance who could be the first to tap into what Telcos have been experimenting for a while, i.e. the use of programming interfaces for objectives such as:

1) operational and manufacturing efficiency: as briefly mentioned earlier, APIs are now an essential instrument to accelerate design cycles, development and launch of new products and services (in their widest meaning, not necessarily just as the development of ICT solutions), with a certain cost reduction thanks to process automation (in fact, APIs become the software layer able to integrate systems and processes at several levels, thereby accelerating production cycles);

2) innovation and collaboration: the true revolution comes from open standards and therefore the possibility of using APIs to integrate core and mission critical platforms towards greater collaboration not just between corporate teams, but also and above all with partners, users and clients outside the company, who by integrating with it might give and receive value and contribute to business innovation (for instance through co-creation/co-design processes and projects);

3) new business models and income: APIs are often used to improve processes to measure and control business, namely as a software layer through which to set new metrics and KPI sets. Moreover, as mentioned, they will increasingly become the integration instrument between those who ‘create’ digital value (developers, vendors, ISVs, system integrators, etc.) and those who use it (users/clients and companies), even more in Cloud, Big data and IoT projects, which will have a significant impact on business models.

The rules of the game

It is precisely on these last two fronts that CSPs are giving their all, at least Telcos and media companies that have understood how new digital services will dominate M2M/IoT and Big data initiatives: these are precisely the fields where APIs will increasingly represent the critical key to success and this is what the ‘competition war’ will focus on – at least initially, i.e. now, when the lack of reference standards leaves the door open to the eternal fight between the strategies of those (vendors, service providers and partners) who ‘shoot off’ to seize market share and increasingly convince early adopters and those who instead keep a close eye on the future but moves at a slower pace. Are we going to see a unification/evenness process from which a universal API standard can be obtained or a combination of federated ecosystems integrated with various layers of ‘translators and integrators’ (APIs, indeed), possibly only uniformed by geographical use or by industry?

There is no answer, at least at the moment, though what will actually make it possible to monetise the value of integration will be the business model adopted by the counterparts called into play: According to Dewnarain, “success comes from the ability to generate the right incentives and benefits both from those who create value and those who consume it”. “Technological vendors, developers, ISVs and OEMs will be increasingly ‘inclined’ to opening and integration if they will be able to see the potential in terms of target markets, attractive business models (for instance new and different forms of licensing or maintenance) or if they will consider their partners as allies who can promote their solutions. From the point of view of companies and value consumers, APIs will generate income where these can draw a benefit by choosing innovative products and services (where user interface and user experience have a decisive role), with appealing pricing models or even the potential chance of accessing one-stop-shop solutions with a single invoice, a single contact person for both customer care and multi-platform support – all of that assured by data protection and safety at all levels.”

In the mentioned report, Gartner goes further and suggests elements to consider when ‘building’ an API business model, or rather, the questions to ask oneself:

1) business strategy: opt for integration between Network and IT or take a broad approach and consider a ‘new digital platform’?

2) type of product: develop individual APIs or consider ‘composite’ products able to influence technological integration at various levels?

3) market trends: in this case, there are endless options; one can reason in terms of standardisation or on the contrary develop proprietary APIs with market niches or special verticalizations in mind… and again, the service access model (public, semi-public, private, etc.);

4) pricing models: as mentioned, there are countless scenarios and, therefore, also ‘monetisation’ options (free, freemium, subscription, pay-per-use, pay per transaction, revenue share). Perhaps it is precisely on this aspect that service providers and partners will need to ‘sit down together’ and collaborate. The success of the API economy will depend on the ability to share objectives and value by all the players involved.