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Where Is The API Economy Heading, And What Does That Mean For You?

In Why You Must Respond To The API Economy, we examined the growing number of reasons why firms are embracing APIs as a key enabler. Whether you’re exposing core capabilities as a digital business, supporting mobile apps, monetizing data assets, building a developer or partner ecosystem, or all of the above, APIs are key to accomplishing the goals of your Digital strategy.

But what is a Digital strategy? @Bud_Caddell has produced a good overview of the broadest perspective, which gives two definitions – simple, and less simple:

Simple: A digital strategy is a plan to accomplish something with digital tools.

Less simple: A digital strategy is the who, what, when, and where of listening and responding to consumers, bridging brand experiences, iterating offerings, and collecting and activating consumer relationships in order to accomplish an actionable and measurable objective.

Your APIs contribute to achieving the what and where of your Digital strategy, in all these domains (listening, responding, bridging, iterating, collecting, and activating), as well as in measuring its achievement – and also in monetizing its outcome. Building on Forrester’s definition of the API Economy cited in my earlier post, all these elements contribute to the value of the commerce your APIs generate.


But What About Your Digital Business?

As defined above, Digital is something that any business can have. But some businesses are special: they are mainly Digital. Forrester labels this as Digital Business, and Randy Heffner of Forrester advocates an approach he labels Digital Business Design, for defining the way you want the pieces of your Digital Business to fit together. And once you’ve figured that out, the core of your APIs will embody that Digital Business.

What does that mean? Consider these examples:

  • Banks are primarily digital businesses today – the brick and mortar aspects of the bank are less and less significant to the value a bank delivers. So the APIs a bank uses to serve its customers and conduct business on their behalf represent the core of what the bank is all about.
  • Insurance firms are primarily digital businesses today – their services for managing risks, investments, and for servicing policies and claims, are all heavily dependent on Digital – again, increasingly embodied as APIs.
  • Telecom firms are primarily digital businesses, and have been since the phone network converted to digital decades ago. Everything telcos do to add value is digital, and APIs are a critical element of all telcos’ strategy today.

The Future Of The API Economy Will Shape The Future Of Your Digital Business

As the API Economy continues to develop, I expect it to drive or accelerate these trends:

  • Lowering the bar to entry. The cost and time it takes to start a new digital business gets lower every year, driven by the inexorable decline in the cost of the cloud, connectivity, and device capabilities. This in turn drives the pace of innovation faster and faster, generating new businesses, whether as startups, or as new lines of business from innovators like Google.
  • Increasing customer intimacy. As Nigel Fenwick points out in his post, business travel has been transformed by mobile apps such as TripIt, TripAdvisor, FlightTrack, SeatGuru, Uber, and BestParking (my personal faves). This “business process” has been transformed, end-to-end, and services like Bookings.Com empower individuals and weaken former intermediaries. This is just one of many such transformed processes: shopping, shipping/logistics, mapping/navigation, weather, entertainment, fitness/health, photography/video, and personal productivity are all multi-app folders on my smartphone, and probably yours, too.
  • Shifting roles within business ecosystems. Time was, large firms’ programs for partners or franchisees were the dominant model of business ecosystems. Digital, and APIs in particular, are driving many new ecosystems that enable value to be created and delivered in new ways, with shifting allegiances and power positions among the players – think about how much the process of buying a house changes when you have Trulia and Zillow on your iPad. Switching costs are lowered, lockin is reduced, and firms that provide API platforms fight tooth and nail to build and grow their ecosystems.
  • Enabling new dominant players to emerge. The API Economy is a race (like any economy), and you can win it. Size matters, alongside the continual arrival of innovative startup businesses, driving continuous innovation whether through acquisition or organic development (by only the most innovative large firms).

What Does This Mean For You?

The rulebook for winning the API Economy race is pretty simple:

  1. Watch your back. New threats, and potential partners, are coming out of the woodwork in all directions. You must tune your antennae carefully to pick up the signals you must receive to know how your markets are evolving.
  2. Draw your customers closer. Customer intimacy is a two-edged sword: if you fail to keep up with your customers’ ever-increasing expectations for transforming the “business processes” of their lives, they’ll find someone who will.
  3. Make the power play. Recognize the advantages of size, while working to transform your approach to delivering APIs and services to be as close to the level of agility smaller startups achieve as possible. You can never be quite as nimble as a startup, but you can get a lot closer than you are today. But to leverage the advantages of size (more customers, more assets, more ways to engage with customers), you have to become excellent at tying those advantages together to make the power play, which today is about deep and broad relationships that deliver greater value from the customer’s perspective.
  4. Gear up to win the race. Invest to equip your teams with what they need to win. Just as equipment innovation has driven vastly improved outcomes for winter sports, you need the right tools to help your business and technology teams to beat the competition and come out on top in the API Economy.

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