Netflix beat Blockbuster using a smart API strategy--and more companies can now do the same to undermine rivals, said cloud experts at Structure 2011 conference.
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Getting well-designed and well-managed application programming interfaces into the marketplace for developers to use may be just as important as having a corporate website, agreed a panel at the cloud-oriented Structure 2011 show Thursday in San Francisco.
APIs are an asset to digitized content and services companies, such as Netflix, and old bricks-and-mortar companies, such as Sears, "which is interesting; they work in both the new economy and old economy," said Sam Ramji, VP of strategy at Apigee, a firm that hosts an API-delivery network and services.
An API is the precise set of instructions that lets one application connect to another and interact with it, extracting services. It sounds simple, but good, reliable APIs for different devices can be hard to build. The specific characteristics of each device must be recognized by the API designed for the applications running on it.
Netflix last year made an API for accessing its services available to 300 different device makers, which improved its ability to attract subscribers. Their subscriber population grew from 12 million to 20 million between January and December 31, 2010. During that period, a free iPhone application came into existence that took advantage of the API, as well as applications for the Xbox 360 and Wii game machines.
Netflix's main competitor, Blockbuster, filed for bankruptcy protection on Sept. 23. Netflix's aggressive use of APIs that extended its digitized film business model to new devices and new customers was cited as one cause by the panel, convened to discuss "The Instrument of Cloud Monetization: The API."
Netflix had already undertaken a commitment to digitize its movies and make them available as streamed downloads over the Internet. Anyone with an account and a PC could use the digital service. But the addition of popular consumer devices saw the number of Netflix subscribers rise by 37%, or five million, during the last quarter of 2010.
Century-old retailer Sears likewise made a mobile device API available for its consumer products, resulting in the Sears2go iPhone app. Another example of an API extending the company's business is one made available by the Disney Company to reach fans who are about to visit one of its theme parks. Consumers using iPhone or other device applications with an embedded Disney API can get a passport to a popular ride in the park, maps, and schedules, and afterward post their pictures to a shared visitor site.
Having an API today for your company's products and services is just as important as launching a website was in the year 2000. "The impact can be pretty huge," Ramji said, because developers will be able to use to extend the company's business to new customers in ways that even the company may not foresee.
But companies that hope to take advantage of the power of an API need to make it freely available to the developers, who will produce the application that connects a company service behind the API to some useful function for partners and customers.
Ramji made his comments at an afternoon panel at Structure 2011 in San Francisco, a cloud-oriented event sponsored by news and analyst group GigaOm. The panel was moderated by Bernard Golden, CEO of HyperStratus, a cloud computing consulting firm. Golden said a successful API strategy was something like a successful open source code project. It starts small and generates no revenue, then gains value in the marketplace through wide distribution.
Ramji, the former head of Microsoft Open Source Labs, said the analogy was apt.
Fellow panelist Randy Bias, CTO and co-founder of Cloudscaling, a private cloud design firm, warned that if the API is only available at a price, or tends to lead application users into a sales pitch or hidden fees, developers will shy away from it. "If the provider of the API is opaque about their intentions and their roadmap, there's hesitancy there (to use it)," he said.
Companies posting APIs for developers to consider can encourage their use by offering to pay developers for each transaction resulting from their application. The consumers using the application don't necessarily know the developer is being paid, but the results can be real revenue to the developer, Ramji added.
Apigee spokesmen say using APIs is like leveraging existing assets at minimal expense. One staffer drew an analogy in his blog to capitalizing on his house's plumbing when he added a sprinkler system for both fire suppression inside and lawn watering outside. Most of the system was the same old plumbing, but new forms of value had been added to it.
In the past, websites were able to extend a company's reach, provided prospective customers fired up a PC, opened a browser window, and showed up on its specific site. An API is a more active form of customer engagement. It extends the reach of the company by making services available, often one or more for free, that are an enticement for a consumer visit via his or her favorite mobile device. As the Netflix example shows, both approaches work. But depending solely on the website and PC browser is, oh, so 1999.
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