Venture Capitalist at Theory

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2 minute read / May 14, 2013 /

Your Startup’s API Could be Its Disruptor

APIs are incredibly powerful tools for enabling partners, building ecosystems and engendering success among customers. For example, Salesforce’s Force ecosystem, which enables developers to build products atop customer Salesforce installations and increases the value customers derive from Salesforce selling more seats and retaining customers longer. Google’s Maps API enables developers to spread Google Maps, building the brand, increasing distribution and all the while improving ranking by sending back user feedback signals.

But for many startups, in particular proprietary data and network based businesses, APIs create one of the most effective ways to sap competitive advantage, enabling viable competitors to emerge.

Twitter released their API broadly to developers who built competing front-ends and was forced to revoke access lest developers disintermediate Twitter’s relationship with its users. Facebook’s API term evolve constantly in response to perceived threats like Path and MessageMe. LinkedIn’s API is much more restrictive to prevent conflicts of interest from arising.

In each of these five cases, the API provider has to consider the API’s balance of data trade: the net input of data vs net output: how much data value are you giving away compared to what you receive in return.

In Twitter’s case, Twitter provided developers a content stream that would grow developer user bases for clients. But, in the end, Twitter developers couldn’t provide enough value back to Twitter to build a case for the API.

Similarly, Facebook revokes access to developers with whom they perceive a negative balance of data. Facebook’s social graph is it’s most valuable asset - ceding it to others via API would be disastrous. But weaving themselves into the fabric of the web through oAuth and identity increases the net data into Facebook while allying partners across the Internet with Facebook.

LinkedIn’s restrictive API is essential because they are a data business. They sell data to interested recruiters. Too lax of an API might enable wily recruiters to skirt payment requirements and ultimately copy the relevant data for themselves.

APIs are great strategic tools. They can reinforce and grow businesses, partner ecosystems and customer value. But improperly deployed APIs can also undermine the business you’re building. Ensure your balance of data trade is always overwhelmingly positive before releasing your API.

h/t to David Hammer for helping me think through this post

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