James’s Musings

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from an unrelentingly curious Silicon Valley entrepreneur

It’s the API, Stupid! How to Crowdsource Your App Ecosystem

APIs Are Cool.  Who Knew?

by James G. Beldock on May 6, 2012

In the ’90s, every­one knew that BizDev was the key to suc­cess in Silicon Valley. What will be this decade’s BizDev? The API. Twitter was pro­pelled to early suc­cess by lever­ag­ing a huge com­mu­nity of de­vel­op­ers vir­tu­ally none of whom were ac­tu­ally em­ployed at Twitter. How did they do that? They crowd­sourced. Twitter built a solid API and evan­ge­lized that API through­out the red-hot San Francisco con­sumer and so­cial me­dia de­vel­oper com­mu­nity. (For the unini­ti­ated, an API, or Application Programming Interface, al­lows other soft­ware to in­ter­act with your soft­ware, with­out hu­man in­ter­ven­tion.) Virtually overnight, the API sup­ported not just the ma­jor­ity of Twitter traf­fic, but within a year, fully 91% of Tweets came through the API. You would be jus­ti­fied in an­swer­ing “What is Twitter?” with “It’s the API, Stupid.”

Here’s why APIs mat­ter: you crowd­source your app ecosys­tem. Developers who like what you’re do­ing and have users who would ben­e­fit from mix­ing a lit­tle of you with a lit­tle of them will grab your API, mash it up with their app, and voilà, they’ve spawned new mem­bers of your ecosys­tem. Your suc­cess is now mul­ti­plied by their suc­cess. How mul­ti­plied? Well, in the case of Twitter it’s lit­er­ally thou­sands of Twitter-en­abled apps, in­clud­ing one or two you’ve no doubt heard of (the iPhone, for ex­am­ple: Twitter is built into iOS 5). If you’re my fa­vorite tool for read­ing things when I have time, Instapaper, you have 140 Instapaper-en­abled apps you can point to.

It’s not just that so­cial net­works have taken over the web. It’s that so­cial net­works have taken over soft­ware. Do it right, and as your plat­form goes vi­ral, you be­come the sin­gle repos­i­tory for your par­tic­u­lar con­tent and data, while si­mul­ta­ne­ously process of us­ing your con­tent and data is crowd­sourced by your ecosys­tem. Your value in­creases not just as your user base in­creases, but ex­po­nen­tially as your prod­uct is in­te­grated into those of oth­ers. (How much does it in­crease? I’m glad you asked. See The Math Part be­low.)

What hap­pens when we take an app or so­cial plat­form and give it an API that lets other apps or so­cial plat­forms lever­age that net­work? Nitrous. Each app that con­nects to your plat­form gives your plat­form ac­cess both to ad­di­tional users and to ad­di­tional data. Of course, these math­e­mat­ics (see The Math Part) fur­ther un­der­score why tech has be­come such a win­ner takes all world: there is lim­ited screen real es­tate in all those apps in the ecosys­tem. They will likely have room for only one pre­ferred provider of what­ever your plat­form is good at. That had bet­ter be you, or you miss out.

The win­ners have fig­ured this out. Google of­fers 96 APIs; Microsoft has more than 30; Yahoo has over 50. And the old world com­pa­nies? They’re get­ting it to. The New York Times of­fers 14; AT&T 9; Ericsson 16.1 Amazon.com’s Amazon Web Services takes their API supremely se­ri­ously, and there are en­tire com­pa­nies, like Eucapyptus, bet­ting on them to con­tinue do­ing so. Foursquare in­no­vates with their API reg­u­larly enough that you use the date you are writ­ing your code to ac­cess their API, to en­sure for­ward com­pat­i­bil­ity. Programmable Web thinks there will be 5,000 any day now:

Programmable Web API Growth Chart

So, if you’re start­ing a tech com­pany, lead with your API. Treat it like a prod­uct. Release it reg­u­larly. Advertise it. Promote it. Even build your com­pany around it. For it will ex­po­nen­ti­ate your value. 

The Math Part

OK, you asked for math. There are three laws of­ten used to de­scribe the value of a net­work: Metcalfe’s Law, Reed’s Law, and the some­what more com­pli­cated Beckstrom’s Law. 2 Metcalfe’s law is quite straight for­ward: it says that the value of a net­work of nodes is sim­ply n^2. Simple enough. One per­son with a fax ma­chine? Useless. 10 peo­ple with fax ma­chines? At least 100 times more use­ful. Reed takes Metcalf a step fur­ther and points out that it’s the con­nec­tions among users that are scal­ing, and there­fore that a mea­sure more like 2^n is more ap­pro­pri­ate, be­cause the com­bi­na­torics per­mit so many per­mu­ta­tions of con­nec­tions (e.g. of the users, two of the n might be in con­nec­tion for one pur­pose, three of the n, etc., and then a dif­fer­ent three of the n might be in con­nec­tion for a dif­fer­ent pur­pose). Beckstrom’s law is more com­pli­cated, so I’ll just quote it later and let you read his ex­pla­na­tion

How much value does this add? Certainly for a given ap­pli­ca­tion, that value is pro­por­tional to the size of the other application’s user base (let’s call that q for each other ap­pli­ca­tion). And let’s call the num­ber of other ap­pli­ca­tions that lever­age your plat­form p. Depending on whose net­work value law you like, I pro­pose that the value of the net­work in­creases by a fac­tor as­so­ci­ated with the num­ber of users of each of those other apps that lever­age your plat­form, which would be ex­pressed as c\sum_{i=1}^pq_i, where c is some scal­ing con­stant that likely changes dra­mat­i­cally de­pend­ing on whether your prod­uct is so­cial in na­ture or not. Here’s my pro­posal for mod­i­fy­ing the three laws:

Beldock’s Law
More prop­erly, Beldock’s Corollary to the Network Value Laws
Network Value Law API Impact on Network Value
Metcalfe’s Law n^2 \displaystyle \left(n^2\right) \cdot c\sum_{i=1}^pq_i
Reed’s Law 2^n \displaystyle \left(2^n\right) \cdot c\sum_{i=1}^pq_i
Beckstrom’s Law \displaystyle \sum_{i=1}^n\sum_{k=1}^m\frac{B_{i,j,k}-C_{i,j,k}}{(1+r_k )^{t_k}} \displaystyle \left(\sum_{i=1}^n\sum_{k=1}^m\frac{B_{i,j,k}-C_{i,j,k}}{(1+r_k )^{t_k}}\right) \cdot c\sum_{i=1}^pq_i

So there you have it. Treat your API nicely. It’s worth a cool c\sum_{i=1}^pq_i!

Photo Credit: Thomas Hawk, Sept. 14. 2006, li­censed un­der Creative Commons. Slightly mod­i­fied.

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  1. See the great 5,000 APIs post from Programmable Web. []
  2. Credit to friend, se­r­ial en­tre­pre­neur, RapLeaf CEO, and Founders Fund Venture Partner, Auren Hoffman, for first giv­ing me a copy of The Starfish and the Spider, which Rod Beckstrom co-wrote, for first get­ting me to think about the math­e­mat­ics of these phe­nom­ena. As usual, Auren was a step ahead in re­al­iz­ing how im­por­tant these scale equa­tions would be­come. []

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