Embracing the api economy

Embracing the API economy
Microsoft Proprietary and Confidential Information Page 1
The API economy is changing the way businesses innovate.
Find out what it means for you and how to join the revolution.
Prepared by: Shashi Rana
Microsoft Enterprise Strategy
Date: February 5, 2015
UK Enterprise Strategy
Microsoft Services

The information contained in this document represents the current view of Microsoft Corporation on the
issues discussed as of the date of publication. Because Microsoft must respond to changing market
conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft
cannot guarantee the accuracy of any information presented after the date of publication.
MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE
INFORMATION IN THIS DOCUMENT.
Complying with all applicable copyright laws is the responsibility of the user. Without limiting the rights
under copyright, no part of this document may be reproduced, stored in or introduced into a retrieval
system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording,
or otherwise), or for any purpose, without the express written permission of Microsoft Corporation.
Microsoft may have patents, patent applications, trademarks, copyrights, or other intellectual property
rights covering subject matter in this document. Except as expressly provided in any written license
agreement from Microsoft, the furnishing of this document does not give you any license to these
patents, trademarks, copyrights, or other intellectual property.
The descriptions of other companies’ products in this document, if any, are provided only as a
convenience to you. Any such references should not be considered an endorsement or support by
Microsoft. Microsoft cannot guarantee their accuracy, and the products may change over time. Also,
the descriptions are intended as brief highlights to aid understanding, rather than as thorough coverage.
For authoritative descriptions of these products, please consult their respective manufacturers.
© 2014 Microsoft Corporation. All rights reserved. Any use or distribution of these materials without
express authorization of Microsoft Corp. is strictly prohibited.
Microsoft and Windows are either registered trademarks of Microsoft Corporation in the United States
and/or other countries.
The names of actual companies and products mentioned herein may be the trademarks of their
respective owners.

Table of contents
Executive summary .................................................................................................................................................... 4
Why APIs matter......................................................................................................................................................... 5
Understanding APIs........................................................................................................................... 5
New paradigm, new opportunities ..................................................................................................... 5
Public and private APIs...................................................................................................................... 5
The business value of APIs ............................................................................................................... 6
API business models ......................................................................................................................... 7
APIs as a tool for change................................................................................................................... 7
Drivers of API economy ..................................................................................................................... 8
API case studies .........................................................................................................................................................10
API case studies .............................................................................................................................. 10
Benefits for the business, IT and partners....................................................................................... 11
How to join the API economy................................................................................................................................12
Start small, start now ....................................................................................................................... 12
Target real business needs.............................................................................................................. 12
Embrace social ................................................................................................................................ 13
Adopt new development models...................................................................................................... 13
Consider the HR implications .......................................................................................................... 13
Be clear about rights, IP and brand guidelines................................................................................ 13
Get the security right........................................................................................................................ 13
Existing middleware is not the answer............................................................................................. 14
Choose the right API platform.......................................................................................................... 14
So I have an API, now what?........................................................................................................... 15
Choose the right business model .................................................................................................... 16
Microsoft’s API platform .........................................................................................................................................17

Executive summary
Markets and industries are changing faster than ever. Disruption takes many forms and businesses
must grapple with the ‘innovator’s dilemma’: how to set the pace of change without stumbling. They
need to embrace new technologies wisely to innovate fast at low cost and low risk. Application
Program Interfaces (APIs) offer a powerful way to do this.
The rise and rise of APIs
There are already more than 11,000 public APIs and perhaps ten times as many private ones1
. They
make it possible for developers to share services and data easily and to build applications that link to
other people’s services and data. It is creating new business models and new sources of value for
companies.
The internet of things, social media, changes in IT delivery and the desire for multi-channel customer
experiences will drive further growth in the API economy.
The business value of APIs
Pioneers such as Amazon and eBay are using APIs externally, to change how they interact with
customers and with their supply chain and internally, to change how the IT department works with
the rest of the business.
The key point is that an API platform can change the way IT deliver and the businesses innovate. But
it doesn’t require wholesale changes or five-year transformation programmes. Instead, take the first
few easy steps on the journey using the API approach and continue in an agile, iterative way.
This document explores the significance of APIs, discusses different API business models and sets out
recommendations about how to take the first steps into the API economy.
Everything is connected to everything else
In order to participate in the new digital world, think about your business as one of many neurons
that interact with each other in a wider value chain. You cannot expect to own the entirety of a
consumer’s experience or to participate in all their digital interactions. So the API approach lets you
focus on what you do best and connect with others to do the rest.
Getting started
An API platform helps you connect your business processes, services, content and data to partners,
internal teams, and independent developers in an easy and secure way.
In brief, we recommend:
 Introducing the API model in small steps
 Rapid, agile prototyping, development and testing using APIs
 Exploring new approaches to development
 Renting and using an off-the-shelf API management platform
This approach maximises flexibility and innovation while reducing risk and minimising costs.
1
http://www.slideshare.net/3scale/progress-in-the-api-economy-april-2014

Why APIs matter
Understanding APIs
API stands for application programming interface. It is a
way for developers to access services and resources from
other pieces of software that they didn’t write. For
example, it’s common for web applications to have APIs
that let other applications integrate with it. But it’s more
than mere middleware or just a service gateway.
A company releases its API specifications to the public or
chosen third parties so that other developers can design
products that work with it. It connects devices, processes,
services and software in a digital ecosystem.
New paradigm, new
opportunities
APIs are becoming the de facto standard for companies to exchange data and build consistent cross-
channel customer experiences. They also help companies offer services which are flexible, low-cost
and low-maintenance and which support a pay-as-you-go model.
When the internet took off, new service models, architectures, service layers and service-oriented
programming flourished. The same thing will happen with APIs. With the internet of things, social
media and new partner-driven business models, services are still central but this time around it's not
about building middleware, on-premises infrastructure or point-to-point custom gateways. They’re
going look as old-fashioned as dial-up modems and bulletin board systems.
You cannot own the entire customer experience and it’s impossible be party to all their digital
interactions. Instead, you have to decide where you can add the most value and what your core
strengths are. By leveraging the network effect of interconnected APIs, you will open up more
possibilities than were ever possible inside a walled garden.
In order to participate in the API economy, you should think about your organisation as one neuron in
a vast interconnected supply chain and partner network, all linked by API synapses.
Public and private APIs
Open or public APIs are the tip of the iceberg; there are many more private APIs than public ones.
Fuelled by mobile, cloud, social, big data and the internet of things, the number has grown enormously
as shown in Figure 2:
Figure 1: APIs everywhere

Figure 2: The explosive growth in the number of APIs
The business value of APIs
Figure 3: Different API use cases
APIs offer new ways to differentiate yourself and build a competitive advantage by, for example:
 Integrating content from partners to create opportunities to cross-sell and upsell
 Creating new lines of business
 Extending product offerings by using corporate data in new ways
 Strengthening the brand by providing a consistent, personalised experience across multiple
customer touch points
 Enabling reusability, so new partner integrations are faster
 Delivering services internally in a more efficient way

API business models
APIs can also make money directly or indirectly. There are various business models to choose from:
 Free. Companies can open up their API to generate new revenue or share information widely.
For example, Transport for London’s journey planner API or Amazon’s Product Advertising API
which lets people advertise Amazon products on their own site.
 The API is the product. Companies like Twilio and Stripe sell their services to other app
developers exclusive via an API: internet telephony and instant messaging as a service in the
case of Twilio and internet payments for Stripe.
 Developer pays. Some companies sell access to their information via an API, either on a pay-
as-you-go model, with transaction fees, or with a monthly or annual fee.
 Developer gets paid. Some companies share revenue with developers. For example, The
Guardian shares advertising revenue with developers and Walgreens’ QuickPrints API pays a
percentage of revenue to app developers who use the company’s photo printing service via
the API.
 Content acquisition. The content acquisition model gathers valuable data for business use
such as feedback, opinion or content. For example, the Flickr API lets people upload images
to the site.
 Content syndication. This makes content available to be published by third parties such as the
TripAdvisor API which lets travel websites share user reviews.
APIs as a tool for change
An API can change a company’s business model altogether or enlarge the value chain or engage it in
a new way. The traditional model of working with company services and data is unwieldy, inflexible
and hard to scale (see Figure 4).
Figure 4: The ‘traditional’ model
On the other hand, the new model lets third parties create additional value and supports API-powered
change. (See figure 5).

Figure 5: The new API-powered model
Drivers of API economy
Over the past 15 years, APIs have flourished everywhere but we don’t think that’s the end of the
story. In fact, we are still in the early days of the API economy. Four things are going to drive its
future growth: the internet of things, social media, the need to deliver amazing, consistent
experiences across multiple customer touch points and the ambition of progressive IT departments
to contribute more directly to the business’s growth.
 The proactive IT department. Consider an IT department that stays in the back room, only
doing desktop and server stuff, constantly saying ‘no’ and focusing purely on ‘keeping the
lights on’. On the other hand, imagine an IT department that proactively gives business
decision-makers new ways to attract, retain and engage customers or improve business
efficiency and agility or reach new customers, markets and supply chain partners. Which
department would you rather lead? If you were CEO, which one would you rather have in
your business? APIs are an important tool for transforming IT departments.
 The internet of things. By 2020, there will be 7.3 billion smartphones, tablets and PCs but
that’s nothing next to the 26-50 billion things that will be in the ‘internet of things’ – the
collection of internet-connected devices that make up our growing digital ecosystem234
.
Gartner estimates that the worldwide economic value-add from the internet of things will
reach $1.9 trillion by 2020. It’s a huge opportunity (see Figure 6) and APIs are a critical for
getting the most out of internet-connected devices and tapping this market opportunity.
2
http://www.gartner.com/newsroom/id/2636073
3
http://www.eetimes.com/document.asp?doc_id=1321229
4
http://newsroom.cisco.com/feature-content?type=webcontent&articleId=1208342

 Social media. ‘Over the next eight years we may recognize that social media is not just
another piece of technology that changes the world,’ but, according to Social3, ‘a new era
very similar to the industrial revolution. While the industrial revolution changed the way we
produce (the first half of a business) the social revolution is changing the way we sell,
market, service and deliver our solutions (the second half of a business).’ As this trend
continues to grow, companies will use APIs to engage with social media, understand the
opportunities and explore ways to make money from it without damaging their brands.
 Multi-channel customer experiences. Businesses are constantly seeking new ways to
engage with customers. For example, retailers already embrace multi- or omni-channel
strategies that integrate web, physical stores and mobile. But with proliferating channels -
including internet, mobile, kiosk, stores, branches, digital walls, in-car, games, TV and more –
companies need the agility to exploit new channels quickly and cost-effectively. Imagine
being able to deliver a consistent customer and brand experience on a new channel in less
than a month. API technology is the key to doing this.
Figure 6: Derived from Gartner’s estimate of the economic impact of the internet of things

API case studies
An API platform bridges the needs of the business and the technical possibilities created by APIs. Here
are two examples of how businesses can use an API platform to solve real business problems. Although
they are anonymised composites, they are based on real-world scenarios in companies such as AXA,
Crédit Agricole and ING Direct.
API case studies
COMPANY A COMPANY B
Business goal Company A wants to raise awareness of
its brand among a younger audience
using an addictive gaming app that can
capture and upload some basic
demographic and usage data.
Company B wants to explore social media, to
inform its future strategy, without risking any
damage to its brand.
How an API
platform helps
Instead of investing in an expensive
development process with a creative
agency or game development company,
the company rents an API platform,
publishes two or three simple APIs, with
documentation, and invites the
development community, partners and
agencies to submit their apps to
compete for an award, such as a prize or
a contract for additional development.
Like Company A, they decide to expose one
or two sets of data in read-only mode, which
people can consume using apps and social
media sites.
Business
benefits
The company harnesses the ingenuity
and inventiveness of a wide pool of
developers, while minimising its risk and
upfront costs. Once the app is
developed and tested, the company can
use the API platform to handle data
transfer back and forth between the app
and the enterprise in a secure way.
In the background, the company can collect
social media IDs and see who has engaged
with them online. They can also learn about
consumer behaviour without spending
money on advertising.

Benefits for the business, IT and partners
In both these cases, using a collection of APIs gathered into an API platform for central control and
management, brought significant benefits.
Business benefits IT benefits Partner benefits
 Exploit the imagination and
creativity of the community at
large to generate new ideas.
 Do not necessarily need to
have the full social, business
or app strategy figured out.
 An innovative but low-risk
approach to experimenting
and learning.
 Create apps and web front-
ends quickly at low cost.
 Rapid innovation and
transformation, while staying
focused on the core business
 Strong control, security and
compliance.
 Gather valuable data in the
process (social IDs, customer
behaviour etc.).
 Making content available to
third parties; increasing
exposure and reach.
 Lower operational cost thanks
to changed development,
testing and support
processes.
 Simplify and reduce vendor,
HR and procurement
overheads and
responsibilities.
 Allow IT to raise its profile and
help drive the business
forward.
 Increased agility and
responsiveness to business
needs.
 Greater industrialisation by
having APIs documented and
published.
 Reduce development time
and cost.
 Lower operational cost and
overhead.
 Use the same platform for
consumer and internal teams.
 Leverage the platform across
all channels and devices.
 Adopt ‘rent-before-buy’, ‘try-
before-buy’, ‘buy-before-
build’ and ‘configure-not-
customise’ principles for
development.
 Individual developers or
development houses can
participate in development
competitions run by
customers. This in turn could
raise the profile of the
developers or the
development house.
 Social networking sites or e-
commerce businesses can
create their own plugins, web
or apps consuming your APIs
to improve their own business
model or user experience,
providing you in return with a
broader reach and insight of
the behaviours of other
enterprises and consumers.
 Partners can use your API to
create apps for smart TVs,
video game consoles and
other devices while still
delivering a consistent user
experience across different
platforms.
 New creative business models
could spawn by third party or
multiple members in a value
chain starts consuming your
API to improve their own
business.

How to join the API economy
Start small, start now
We recommend that companies embrace APIs in stages over time. If the process is well-orchestrated,
every step will create value, thus making the process self-sustaining, manageable and cost-effective.
You don’t need a fully-developed strategy for social, apps or channels. Nor do you need a completely
new business model. Take an iterative approach to innovation by experimenting and learning with
small, incremental projects. For example:
 Get creative apps and web front-ends built quickly and cheaply.
 Rent and use the platform without fully integrating it.
 Start by exposing a handful of functions for developers to use.
 Leave stubs for future development.
 Try ‘rent-before-buy before build’ and ‘configure-before-customise’ approaches.
 Don’t invest heavily in infrastructure and in-house resources for this prototyping and rapid
development stage.
Do not start with a pre-conceived set of rules or limit your creativity worrying about security, risk or
other constraints. Instead brainstorm all the possibilities and then pick a few low-risk, quick-win
possibilities to start with.
For example, a bank could develop a Facebook app to show customers their balance in a read-only
mode, a transport company could share its routes so passengers can estimate journey times, and a
retailer could share its reward point information creating an opportunity for third-party developers to
include that information in their apps.
This approach helps organisations learn fast and react to evolving opportunities. Each iteration
provides a jumping-off point.
Target real business needs
Keep focused on strategic business goals. For example, you may want to use APIs to:
 Improve customer satisfaction
 Differentiate and compete
 Innovate
 Partner with other companies
 Increase sales with upselling and cross-selling
 Lower costs (people, process, and technology)
 Grow the business
 Attract and retain customers
API-driven innovation can help achieve these goals.

Embrace social
Connect, listen and learn in the social sphere without risking your brand. Open up useful information
with public APIs. When developers use them, you will get information about the people who engage
with you on social networks and you will learn a lot from the social noise and brand chatter. This kind
of social listening is a very good way to understand market and customer sentiment without expensive
marketing, pushy in-your-face promotions or damage to your brand.
Adopt new development models
You can exploit the imagination and creativity of the open community to get new creative ideas or use
your current partners to create a low-cost, no-ownership development and testing model. The API
model also streamlines the current offshore and onshore development, cutting the overall cost.
For example, in 2012, AXA Bank launched an open API competition to source new ideas and mobile
apps. They exposed a few functions and invited developers to submit their apps, offering a €50,000
reward as an incentive.
Consider the HR implications
This model enables sourcing without the management overhead. Developers, testers, partners do not
necessary need to be hired or contracted in the traditional way. Companies and developers can sign
up to a digital online contract when they start using your API. Rather than the traditional costs and
management overhead of hiring people to work on proprietary systems in-house, an API lets you work
with developers in a much more cost-effective way.
Be clear about rights, IP and brand guidelines
You should publish clear brand guidelines, legal terms and conditions and copyright notices on the API
portal so that developers can incorporate them into their applications.
You can also get developers to sign a digital contract before giving them access to your APIs. Your API
portal should include this functionality. And the contract should specify how intellectual property
rights will be handled and what you expect from developers.
For example, you might insist on a small footnote in an app identifying the source of information pulled
through your API and including a copyright notice.
From a privacy perspective, it’s important to ensure that applications and developers can’t connect to
any of your resources with the end customers’ permission.
You may want to have a process to check that minimum requirements are met by each app before
they go live.
Get the security right
We recommend using 2048-bit SSL encryption for all API connections and adopting the OAuth open
standard to authenticate third-party access to server resources without sharing credentials. In
addition, developers should get a development key to access the development resources and the final
production application should be assigned a separate production key to access production resources.

Ensure the highest levels of security for key allocation, invocation, revocation and renewal. Look for
systems that have been security checked by trusted third parties. For example, Microsoft Windows
Azure has acquired impact level II clearance from CESG, the UK’s national technical authority for
information assurance.
Existing middleware is not the answer
Most middleware systems do not have the necessary functions to deliver a true API. For example, they
often lack a process to on-board developers, an app store, key management, monitoring tools to
report on consumer behaviour and usage.
Dedicated API platforms are designed to get developers up and running quickly, making it easy to:
 Expose data services through well-crafted APIs which are robust and easy to scale
 Register and on-board developers
 Submit, review and approve apps
 Provide accessibility while protecting the business from threats, back-end overload, and
service issues.
 Monitor how people are using the APIs with detailed reporting
 Get insight into customer behaviours
 Add features such as news feeds, geolocation, search engine integration
 Investigate errors and performance problems to improve responsiveness
The big question is whether you want to rent, build, buy, configure or customise. The platform which
allows you to rent and configure which is by far the cheapest and our recommended approach.
Choose the right API platform
Consider the following factors when reviewing API platforms:
 Is it cloud-ready?
 Is it cost-effective?
 Does it provide a secure framework for the gateway to talk to your core systems and to the
outside world?
 Does it offer well-documented APIs and version control capabilities?
 What is the developer registration process?
 Does it include a process and capability for delivering development and production keys?
 Does it include monitoring and management information (including social instant messaging)?
 Is there an app store facility?
 Will it let you publish brand guidelines and manage an approval certificate process?
 Does it offer a platform that allows developers, IT and marketing teams to collaborate?
 Can you create ‘stubs’ without having to integrate them with the enterprise?
 Does it support metering, reporting, scalability, caching and traffic management?

So I have an API, now what?
Successful API strategies have four key elements:
 Driving developer adoption of your API
 Delivering and scaling your API in a reliable fashion,
 Managing and protecting your API
 Gaining insights into your API and API ecosystem.
Figure 7 breaks down these strategies into their component parts.
Figure 7: The elements of a successful API strategy

Choose the right business model
There are many different business models in the API economy. ProgrammableWeb has produced the
breakdown shown in Figure 8. For more information see: GetElastic.
Figure 8: Taxonomy of API business models

Microsoft’s API platform
Microsoft has an API management platform under its Azure umbrella. Microsoft Azure is Microsoft’s
cloud platform: a growing collection of integrated services—compute, storage, data, networking, and
app—that help you move faster, do more, and save money.
The Microsoft Azure API management platform includes all the essential elements you need to join
the API economy as shown in Figure 9:
Figure 9: The Microsoft Azure API management platform
Benefits include:
 No waste. You get all the benefits of a cloud application. There is no on-site hardware to buy,
configure and manage and no risk of expensive over-provisioning.
 No upfront costs. Instead you pay for what you use as you use it.
 No risk. The Microsoft Azure platform comes with service level agreements that help to
address performance and scaling concerns.
 No delays. You can stand up your developer portal and launch your API very quickly.
 No barriers. Microsoft does not place any barriers. You can easily turn the service on or off.
The Microsoft Azure API management platform is underpinned by the four key elements that are
critical for a successful API strategy as shown in Figure 10:

Figure 10: The API platform lifecycle
The Microsoft Azure API management platform is a launch pad into the new API economy. It will
help you innovate faster, with less risk and lower costs. More importantly, instead of spending time
and effort building the technology to deliver the APIs, you can focus on the data and services behind
them and in encouraging developers to use them.
Engage the Microsoft Enterprise Strategy
Programme
Microsoft helps customers assess their portfolios to unlock new business opportunities for
competitive advantages and to improve business performance. Fuelled by Microsoft’s extensive
knowledge and experience of delivering business ready strategies across many enterprises,
industries and geographies this will be expedited with structured and phased approach, by delivering
rapid increments of business value. This programme consists of four core elements:
▪ Enterprise architects. Dedicated to the customer and charged with accelerating customers toward
their business goals.
▪ Microsoft network. Subject matter experts from across all areas of Microsoft, including product
groups, research and development, internal IT resources, and Microsoft Research.
▪ Value realization. Microsoft provides a framework and methodology designed to discover and
promote business value.
▪ Library. A collection of exclusive intellectual property including comprehensive guidance, reference
architectures and implementation information, and worked examples from Microsoft engagements.
For more information about the Microsoft Enterprise Strategy Program, contact your Microsoft
account representative or visit www.microsoft.com/GoESP.
For more information about the Microsoft API Management platform visit
http://azure.microsoft.com/en-gb/services/api-management/

Embracing the api economy

Recommended

Recommended

More Related Content

Recently uploaded

Recently uploaded (20)

Featured

Featured (20)

Embracing the api economy