Between Idealism and Realism – the Rise and Fall of APIs

Yesterday, Benedict Evans pointed out that APIs seem to be suffering death; many well-known services (in the literal, not technical, meaning) are disabling or removing their APIs – Google, Skype, etc.

At the same time, many other, younger services, seem to heavily promote their APIs. Facebook is not young, but it has gone through many iterations; Twitter has its API, although it has been known to get into battles with third-party services that use their APIs to compete with Twitter’s own interfaces (shades of Apple?). Many truly smaller firms like SmugMug (semi-pro photography management), FreshBooks (invoicing and time-tracking) and many others expose APIs and reasonably aggressively market them, encouraging others to use them.

Why the contrast?

I believe there are two separate industries, and two competing interests within one of them.

A Tale of Two Industries

In the tech world, there are many ways to slice and dice industries, but in the end, it comes down to two: paid services and free services.

  • Paid Services: You go to a store, you buy a banana, you pay for it. It is a straight two-party transaction. In the tech world, Cisco, Apple, SmugMug and FreshBooks are all examples of two-party transaction business models.
  • Free Services: In the world of free services – Google, Skype, Facebook, Twitter, StackExchange – the user of your service does not pay you. Rather, you offer the free services to gather a large enough user community to entice third parties, e.g. advertisers, to pay you for access to your user base.

If you are on the Web, and you get paid directly for usage of your services, then you have a strong incentive to open up APIs. After all, if some third-party discovers a better way to use your services, you get paid even more. Hence, companies like SmugMug will always want open APIs and encourage more and more usage.

On the other hand, if you are in a multiparty market, you have competing interests.

Between Idealism and Realism

When a multiparty market company is young, it has one overriding interest: encourage as much usage of the free services as possible. You are trying to grow a large user base: the more you offer, the more they will come; the more they come, the more you will be able to sell access at a later stage.

Unsurprisingly, many founders of such startups often have an idealistic vision of offering access to information or services to the entire world in an affordable or free manner.

Thus, at the early stage, the founders’ idealism and the company’s interests align to offer access from anywhere possible, and allow third-party developers to leverage APIs to your services, as they encourage ever more usage and a growing user base.

Over time, however, as the company begins to monetize its user base by selling access, the monetization often happens at the user interface (UI) itself, rather than the service layer. Google ads are on the top and side of the search results; Facebook ads are next to the News Feed. The UI is only one of several possible ways to get at the services; an API allows access that bypasses the UI… the very place where monetization occurs!

As a multiparty market company grows, the incentive to cut off APIs and allow access only via its sanctioned (and money-making) UI grows and eventually overwhelms the idealism and growth incentives that drive API access.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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