Platform businesses aren’t new. Airbnb, eBay, Fiverr, and Uber are good examples of platform businesses. What’s common among platform businesses is that they all have participants, a value unit, and a search or matchmaking mechanism. Airbnb’s participants, for instance, are property owners and renters. Its value unit is the property being rented. And it offers a way for renters to find the property they’re interested in. The mechanics are simple. The more value units there are, the more the platform is interesting to participants. And the more participants there are, the more the platform transfers value from one side to the other. You can also create API platform businesses. On one side, you have API owners, and on the other side, consumers. What are the other elements, and how do they interact with each other? Keep reading.
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A platform business is “a model that uses technology to connect people, organizations, and resources in an interactive ecosystem.”1 This isn’t a theoretical model. It’s something that a reasonable share of the economy is actually using to generate revenue. Perhaps among the best examples of what a platform business can be is Airbnb, the popular property rental business. It started in 2008 with the simple idea that anyone should be able to rent a spare room. It’s considered one of the early examples of platform business success because it managed to leverage network effects to grow exponentially over the years. In this case, the platform connects property owners with renters to exchange rooms for a particular amount of money. Everyone wins in the end. Owners get paid for their spare rooms or entire houses. Renters get a good price for interesting properties. And Airbnb itself gets a cut of every transaction. If this model is so interesting, what are the ingredients to translate it to the API space?
Creating an API platform business doesn’t have to be hard. But first, before we explore how it’s done, let’s understand what an API platform business is. As you’ve seen before, a platform business has four elements: two types of participants, a value unit, and a way to capture value from each transaction. Let’s then see how each element maps into the API space. The two types of participants are clearly API owners and consumers. API owners create and maintain their APIs so that consumers can use them to solve their needs. I think there is no question about this. But what about the value unit? Should it be the whole API? This is where I have my doubts. Before debating, let’s first see what a good value unit looks like.
Value units are the core elements of exchange between participants on a platform. Producers create and share them, consumers use them, and the platform enables their exchange. Ideally, value units should have a high frequency of interaction, meaning they offer very low friction to consumers. They should also have all the information necessary to enable easy discovery, filtering, and trust. The platform should help consumers find the value units they’re interested in and provide tools like reviews and quality scores that help to foster trust. In other words, value units are the smallest possible actions that create value for the platform participants.
Back to the point I was trying to make. After seeing what a good value unit is, I feel an API is not a good candidate. To me, a good API platform value unit is an operation. Yes, an individual API operation. If each operation offers a capability that makes sense from a consumer perspective, then it’s the perfect candidate for the value unit. API operations can be repeatedly consumed and even mixed with other operations. They’re also easier to understand than full APIs and, because of that, they’re easier to discover and to onboard.
So, now that we know what our value unit is, let’s see what other things we need to put together an API platform business. It’s clear that we need to set up a Web application to let users sign up and participate as producers or consumers. We’ll also need a way to register our value units, the API operations. A good flow would be to let a producer upload a whole OpenAPI document and then show the list of all operations. From there, producers can easily choose what operations they want to make available on the platform. Since all the operations from the same API follow the same setup instructions (they should, at least), it should be simple to show consumers how they can start using each operation. There are some software solutions in the market that implement some parts of what we’re covering here. The most important components are a user registration and authentication system, an API catalog centered on operations, a powerful discovery system, possibly based on AI search, an API gateway, and integration with a payments system.
To build a full API platform business, you’d need to either adapt existing solutions or build everything from scratch. In any case, it’s a project with considerable risks that would need a proportionate investment. Using operations as the value units instead of whole APIs helps you to reduce those risks, though. In the end, it’s up to you to decide if you should embark on the journey of building an API platform business. There’s risk, but the opportunity is interesting.
Sangeet Paul Choudary, Marshall W. Van Alstyne, and Geoffrey G. Parker. 2016. Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You (1st ed.). W. W. Norton & Company.
