API Business Models

Now Trending: API Platform Economy


Judging from the subject lines in my inbox the next great invention after sliced bread must have just occurred – the word “Platform” is everywhere, and everyone is talking about it or writing about it (so I guess I am guilty too).  As is frequently the case, the word is not being used with consistent meaning. And, there also seems to be some confusion between platforms, ecosystems, and marketplaces. 

I recently wrote two articles covering the Ecosystems and Marketplaces topics:

 But, what about ‘platform’?  What does it mean? And, is it the same as Ecosystems and/or Marketplaces? 

 The term API Platform has two related but very different definitions.  If you search on “API Platform definition” you will find some results that describe an API Management platform that helps a company build, manage, and secure APIs.  IBM offers an API Management platform called “API Connect” that performs these functions as do many other vendors.

 The second definition as supplied by Rhys Fisher is:

an organization 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 organizations 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!

 The two definitions are related in that API Management Platforms (definition 1) are typically used to create API Platforms (definition 2).  Of course, this second definition is incredibly like having created an Ecosystem and Marketplace. So, is a platform just another name for an ecosystem and marketplace?  Arguments can be made on both sides – so I will.

Platform = Ecosystem + Marketplace

From the definition above and based on my observations and discussions I do believe that most businesses think of a platform as the marketplace where they and others share capabilities across an ecosystem both in and beyond their specific industry.  This interpretation seems to be the most common – at least initially.

 Whether your company is the owner of the marketplace or a capability provider using the marketplace to reach new customers and opportunities, the goal of using a platform to improve your business reach can provide significant business value.  The platform is where the consumers are, so you want to be there.

 The Institute for Business Value (IBV) paper, “Capturing rewards of platform business models” compares platform business models to the early days of the internet – “Remember that less than 25 years ago, you could find plenty of business leaders who were certain the internet meant nothing to their strategies or operations. Today, substitute “platform business model” for “the internet,” and then consider whether your enterprise has fully evaluated the platform opportunity.

Platform > Ecosystem + Marketplace

The most likely starting point for a Platform effort is the creation of an Ecosystem and Marketplace.  Many companies will stop at this point and declare success. And, that is okay.

 But some companies will go further looking for new business opportunities by providing core functional capabilities as a service accessed via API.  As an example, Amazon started in the 1990s by selling books online. They realized that their competency was not selling books, but that they could sell other products too.  Finally, they realized that not only could they sell products, but they could provide a platform where others could sell products as well. Most would agree that this worked out well for them.

 Encapsulating core platform capabilities as microservices and providing access through APIs, enables an innovative approach toward new business models.  What are the core capabilities that your company has that other companies might use? Billing, A/R, hosting, payments, messaging, etc. are just a few examples – some of which entrepreneurial companies are providing today.  Like Amazon, these new business offerings might become larger than the business you are already doing! Amazon’s book sales are insignificant compared to their new business.

 Companies undergoing a digital transformation are embracing self-disruption and are taking a customer-centric perspective.  Creating a digital platform including ecosystems and marketplaces and perhaps more can play a significant role in this transformation.

Alan Glickenhouse
Alan Glickenhouse is the IBM Digital Transformation and API Business Strategist.  Alan assists clients with their business and IT strategy for Digital Transformation and the API Economy.  Starting with an understanding of the business direction, current IT strategy, and existing environment (both business and technical), Alan helps businesses successfully adopt a Digital Transformation and API strategy that fits their environment. He meets clients in all industries, all geographies, and of all sizes and brings knowledge of best practices shared with and by these businesses.  Alan is the author of over 150 papers, articles and videos on these topics.  

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