If you list some of the most popular and important companies on the
internet today, you’ll notice that most have one thing in common: they
offer an API. And, in most cases, for good reason. APIs can be a
valuable asset for an internet business.
But is an API a business development asset, and over time, should it cannibalize business development?
Shaival Shah, who is VP of Business Development at Hunch, thinks so. In a post on his blog, he writes:
When I joined Hunch, Chris Dixon asked me what my goal would be and more importantly, how I would know if I achieved success. My response was to cannabilize my own function by popularizing the Hunch API into the wild. It was a simple lesson that I learned from Alan Spoon, former President of the Washington Post Company and Managing Partner at Polaris Venture Partners, who once told me that companies don’t move aggressively enough to cannabilize their business, but rather spend too much time trying to defend it.
Shah offers up some really good advice about growing an API’s presence in the market. For instance, he suggests that, at least in the beginning, a self-service API will still realistically require some one-one-one deals. He also recommends a “Bowling Pin Strategy” in which outreach is targeted at a “neighborhood of companies within an ecosystem.” The goal there: by targeting a vertical, it’s easier to build a brand. Finally, Shah reminds companies of the importance of knowing the metrics your API is designed to boost.
But some of Shah’s advice is, in my opinion, a bit off the mark. Most notably, Shah that “validation, PR and analytics” trump revenue. “Revenue will follow if you solve for those three missing variables,” he writes. That’s not, however, necessarily true. Here’s why:
- Validation means different things to different people. But ‘validating‘ the market for an API is different from ‘validating‘ a business model. There are plenty of popular APIs offered up by companies that have failed to validate that they have what it takes to make it as real businesses. Twitter, anyone? Unfortunately, far too many new businesses fail to recognize the importance of testing out business models and determining if there’s real market support for them as early as possible in the company’s lifecycle.
- PR is no doubt important for companies, but it hardly guarantees revenue. Plenty of startups have received boatloads of press attention but still failed to generate substantial revenue. And for good reason: popularity without a viable business model is just, well, popularity. Driving a million people to your website certainly won’t be profitable if there’s no business model in place to take advantage of the popularity.
- Many companies collect lots and lots of analytics data, but they either don’t know what to do with it, or they focus in on the wrong data points. Analytics can help companies better understand how their users are using their products, which can help them build better business models, but again, the business model is the key. Analytics for analytic’s sake isn’t helpful.
At the end of the day, I think most startups should draw a distinction between true business development and their APIs. The goal of business development is, by definition, to help develop business. If a startup, however, really isn’t yet a business (eg. an entity that has revenue or a model for potentially generating revenue), an API designed to deliver “validation, PR and analytics” isn’t likely to constitute a business development asset, at least in the near term. In other words, a company without a business model isn’t likely to magically to morph into a going concern simply thanks to a cool API. Thus, promoting the API is more accurately described as a marketing or product development activity at this stage of the game.
Of course, a company might focus on building up a wildly-popular API that itself could one day drive revenue through some unknown business model, but that’s sort of like opening a jumping off a diving board blindfolded and hoping that there’s water in the pool.