API vs. platform strategy
The Wall Street Journal famously published that “Software is eating the world.” The world of APIs is one of the indicators that software is very much “eating the world.” Watching the API market evolve over the past seven years has been interesting. During these years, we’ve seen a massive, almost exponential, increase in the number of public APIs, and the overall trend continues.
I want to focus on the notion of products versus platform, and how the world of APIs was the beginning of this story of platform strategies. Ultimately, simply having an API isn’t enough. There are not enough developers in the world to oversee the number of APIs that exists today. And an API strategy alone isn’t enough for your company to consider yourselves a platform, or to say that you have developed a platform strategy.
We’ve seen very well-known, large service providers that offer APIs today have limited to no adoption. For the smaller, lesser know product companies, driving adoption and awareness is an even greater challenge.
Why are platforms the key to the future?
The combination of your company’s product and somebody else’s product working together creates a platform. A digital platform enables other businesses to integrate with your business and derive value.
This answers the “what,” but the “why” of platforms is more important to understand. Platforms ultimately deliver far more value and utility than a standalone product. You want to be able to enable business users by providing the integration fabric, the enabling layer, that brings them together.
It’s also important to think beyond the world of developers. Platforms allow us to deliver a different way of doing business. Fundamentally, platforms are useful because they democratize the world of integrations.
We’re moving past this notion of a single-sided business model with constrained limits on a company’s growth. We now need to think in broader terms. Not in single-sided business models, but in multi-sided business models.
The three key sides to a multi-sided business model include:
- Enabling other businesses to build products on your technology
- Using third-party integration to create adhesion between your product, your customers and the products they use
- Making sure that you continue to deliver direct value
Slack, is one example. As one of the most commonly used platforms, Slack stands out as “best in class” because they have made it as easy as possible to integrate. Slack falls into that notion I mentioned earlier, of democratizing the world of integration. They think beyond just “having an API.” For other examples, look at Salesforce, Intercom and Twilio. Twilio built their platform strategy on top of their API, as the foundation of their business.
Understanding the four platform superpowers
Why then is this platform strategy appealing? Its appeal stems from the four superpowers.
Magnetism is what we think of when we talk about integration: making it easier for things to come together and stay together. This is where you take your organization’s existing data, business logic, capabilities, features and values and leverage them into something others can use for your mutual benefit.
If you think about how this works in a standard economy, companies basically take a single input and have a single output. In a network economy you have the ability to take every one of those discrete units of value and redistribute them so that both producers and consumers can come together and leverage it into something larger. This is the fundamental foundation of why a platform strategy in the network economy is beneficial.
That brings me to infinite. Being infinite requires removing the limitations of the single-sided business model, and evolving into a platform strategy. Being infinite is where the value exists. It’s also important to know your own limits, and where the power of the network can derive more value than the power of you, individually.
Knowing the benefits of your partners and again, leveraging the expertise of those around you is key. We know that in a standard economy growth is constrained by the capacity and marginal cost of production. In a network economy, a company can serve additional customers in new markets or engage in new ways at virtually no additional cost. This again requires understanding where you’re value stops and your partner’s value begins.
The third area, real-time, is about reacting to change. It’s how you react to that change as the ecosystem as your and your customers’ needs continue to evolve or fluctuate.
In a real-time world, there’s a difference between the standard economy and a networked economy. In the standard economy companies produce products for the markets maybe once or twice a year. But in a network economy, companies have learned to leverage the binding forces and innovate all the time.
This may be the most important of the four superpowers of platforms. Ultimately in a networked economy, intimate organizations are about adapting and personalizing their service to different personas. What we’ve seen is that differentiation exists where you can deliver a more personalized experience to customers. Being able to reach as many different segments of customers or individuals as possible gives you a competitive advantage.
Take standard companies versus network-economy companies. Companies in this standard world produce and sell identical products to everybody. Network-economy companies offer more tailored products and customization. This creates a longer lasting relationship with customers. Longevity is certainly one of the driving business concerns today.
Building flexibility, longevity and integration into your platform
So how do we create this Network Effect? Kevin Kelly said it best, when he stated that “Openness is the foundation.” Hermetically sealed environments can’t survive. You have to be more open to thinking about how other people can interact with you in new ways. This, for me, has been the foundation of platform strategy.
APIs have helped change the world, but one API on its own is not enough. While openness is the beginning, it evolves from here. The book Platform Revolution defines eight ways to start and run a successful platform business. I’ll focus on flexibility, longevity and integration.
Flexibility allows a multitude of companies to leverage the platform in different ways. Flexibility opens the door to a wider market and allows people to do new things with your platform that you never imagined.
It requires thinking about how customers engage with your business today, if your API gives them everything they need from it, and how we react to those needs.
It’s also important to consider your internal product team, and if they too are getting everything they need from the API that you offer. Ask yourself:
- Could you do better?
- Is it well documented?
- What level of burden are you putting on the customer or the user of your product or business before they see value?
- Is there more that you can do?
It’s important not to assume that your API offers all the utility that every possible persona could be asking for. There might be ways we need to personalize and adapt the API to engage people and build your platform. Should you have pre-built things for developers or pre-built integrations for non-technical users? The answer is yes. Businesses need to serve the broader ecosystem. Technology is just one part.
While technology is important, you have to consider what success will look like for users of your platform. Go beyond the basics of just making great technology for technology’s sake. Consider how customers and partners are going to use it, the value they’re going to derive from it, and how you equally can benefit from the power of the network around you.
We live in a world where a product solves a problem, customers use that product for some specific task for a period of time, then discard it and never come back.
This is perhaps the opposite of a platform strategy. The narrower the focus, the less likely you are able to keep customers for the long term. Platforms are deeply integrated and can span into other business processes.
Of course I’m not suggesting that we just stop moving. Longevity does not equal stop. It means thinking about moving forward and responding to market forces. It also means thinking of the marketing applications and graphics that show all the MarTech companies in the ecosystem right now. It’s a great opportunity for those organizations to collaborate and cross-pollinate. The same goes for FinTech.
But we need to keep thinking about delivering ongoing value. Constellation Research data states that since the year 2000, 52% of the Fortune 500 companies have merged, been acquired, gone bankrupt or simply fallen off the list. This continuing trend demonstrates that digital disruption is real. But it also shows that we have to think about value. Not just value in new technology, but how new business models can arise through this platform of network effects.
The third is integration, and ultimately the foundation of what will make your platform strategy work or not work. Answer these questions:
- Can one or more integrated products reduce churn, for example?
- Can you charge more?
- Can you derive more value for your product if you have integration as a capability?
- Does it open up new ways of doing business?
- Are you activating that multi-sided business model if you offer integration?
- Does it make it easier to do business with you?
We need to lean into the notion that there is power and usefulness in having customers, partners and the broader ecosystem engage with you. It means making it as easy as possible for them to do business with you.
Finally, it’s important to remember that platforms are not just for developers. In the SaaS space, platforms are seen as something developers build something on. Instead, platforms should be seen as a good approach to expanding your business. That is the foundation of a platform strategy.
The lasting value of a platform strategy
Ultimately there is one fundamental reason why a platform strategy is important and, quite simply, its growth.
Classic growth versus the growth opportunity of a network business, of a platform, is why individuals create a platform strategy. At the company I work for, Cloud Elements we’ve seen it in the increase of our customer base. We’ve seen as much as a 60% reduction or potential reduction in churn for organizations that offer “out of the box” integration. If companies provide capability for customers, partners and other users to integrate around them, they can see that reduction as well.