How APIs can increase profit

Application programming interfaces (APIs) are the foundation of digital ecosystems, powering enterprises such as Google Maps, eBay, Amazon, and Twitter. Sarah Wray looks at the ‘shocking’ impact APIs could have on telcos’ bottom lines.

Companies that adopt APIs see increases in sales, net income and market capitalization – that was the conclusion of a research paper, The Role of APIs in Firm Performance, from the University of Boston, published late last year.

Data from tens of millions of API calls was married to financial data from public companies. The researchers analyzed the differences in financial performance before and after the API calls and compared the data against firms that don’t use APIs.

The researchers say it’s the first time the impact of APIs on firms’ productivity and growth has been studied. Marshall Van Alstyne, Professor at Boston University, who led the research, told us, “The biggest finding is in our view a rather shocking one. Of the 200 firms we examined that opened APIs, there has been a 4 to 10 percent increase in market capitalization. We see the results as very large and statistically significant.”

He noted that the positive effects of using APIs were evident in both the short and long term and they improve as the amount of data passing across the API increases. Van Alsytne and his team are looking more deeply to find out exactly why APIs have this effect so that these factors can be harnessed even more effectively.

Van Alstyne has some ideas about what the causes might be and suggests one or a combination of these factors:

  • Capturing the value of external innovation
  • Labor substitution (for example, developers for operations/internal supply chain staff)
  • Internal operational efficiencies
  • ‘Business stealing’ effects, whereby firms with open APIs are able to capture market share from their ‘closed’ competitors, who represent higher transaction costs.

Full steam ahead

In the meantime he says, companies “who have an idea of what they’re doing should proceed full steam ahead” with APIs. He advises:

  • Have a strategy for platform evangelism –  have a very specific strategy for how it is you’re going to recruit outsiders to build upon your ecosystem. How will you get developers or customers to your ecosystem? For example, Walgreen’s [the US pharmacy chain]opened its APIs to printers and photography apps. This not only drove consumption of photography services at Walgreen’s, it increased footfall too as people went to the store to pick up the printing. “You need strategies and clear benefits for outsiders to attach to your system,” Van Alstyne said.
  • Modularize your business – what business architecture can you provide access to, whether cloud or print services, retail or customer tracking services? “Making those modular so that they can be mixed and matched is also very helpful,” he said.
  • Foster experimentation – don’t charge too much for initial access to your APIs because you don’t want to discourage traffic. Only consider charging for API access once you have high volume. In general you might really want to subsidize access, he said, as that will drive network effects.

APIs in action

TM Forum is focused on helping its members tap into the API economy. Our suite of REST-based Open APIs is a key part of this. They are backed by nine of the world’s largest communications service providers (CSPs) as well as 11 leading technology  suppliers and they have been collaboratively developed and proven through a series of Open Hacks and Catalyst proof-of-concept projects.

Previous Open Hack winners have included an application to protect people and property from forest fires; a solution to connect people who have a garden to share and those who’d like use of one, creating new ways to grow food and collectively care for plants; and an integrated, automatized cleaning solution for public spaces.

In our proof-of-concept Catalyst projects, we are seeing APIs demonstrated as part of the solution for orchestrating hybrid networksenabling independent living through remote healthcare monitoringunlocking the value of data in smart cities and complying with forthcoming GDPR regulation.

Winning with APIs

These Open APIs are unlocking a range of growth opportunities, including:

Monetizing significant assets – Sam Ramji, Vice President of Strategy, Apigee, explained in a recent interview with PwC, “The winners in the API game overall are going to be the smartest legacy businesses, because they have an unfair advantage of decades of transaction data as well as other information and data assets.”

This puts telcos in a very strong position, although they need to overcome geographic restrictions to be more attractive to partners and developers – open APIs enable them to combine their assets and geographic coverage for services such as M2M, IoT, enterprise mobile services and many more.

Dramatically improving business and IT agility – this repeatedly comes up as a top priority for network providers. Open APIs help by supporting an open modular platform architecture that hides the underlying complexity to offer capabilities to partners.

Vodafone, for example, is using TM Forum Open APIs to adopt a platform model across all its operating models in all its operating companies around the world, and in all its group functions. Anything within the BSS or OSS scope uses this platform model where each one exposes TM Forum’s Open APIs.

Dr. Lester Thomas, Chief Systems Architect, Vodafone Group, comments, “In the markets that have adopted this most strongly, we’ve seen fantastic benefits: One of the metrics we use is demand-driven reuse. So when that market has a new demand, what proportion of the time can they meet that demand through existing APIs. So that’s a huge agility [we’ve gained], a huge time saving and cost saving as well.”

Reducing the cost and complexity of operations – this is particularly important for organizations with subsidiaries in many countries and territories as they need to reduce costs, simplify operations and create harmony across geographic regions, and deploy new services and products globally.

For example, BT has used TM Forum’s Open APIs to streamline its operations and reduce costs: George Glass, Chief Systems Architect, BT, says, “Behind each API there is a set of systems that provide systems, data, process and business functionality. When we started the journey, we had over 4,500 systems. Last April – we benchmark it each April – we had fewer than 1,800 systems. So that’s been a big cost transformation for our business.”

Enabling a global ecosystem for wholesale connectivity – today wholesale capacity is provided inefficiently, involving many manual processes, which are slow and expensive. Communications networks are increasingly controlled by software, through technologies such as network functions virtualization (NFV) and software-defined networking (SDN).

By using the Open APIs, operators can radically improve and simplify the provisioning, flexibility and scalability of wholesale services. Working together, using the same open APIs, operators can collectively scale to provide a global connectivity ecosystem.

MEF and TM Forum recently announced that they are collaborating with major service providers to standardize Lifecycle Services Orchestration (LSO) APIs. They will be used to orchestrate connectivity services across multiple networks worldwide.

AT&T, Orange, Colt Technology Services, Comcast, Level 3, PCCW Global, Sparkle, Verizon, and CableLabs and Kyrio are leading the effort to develop a complete suite of inter-provider LSO APIs that use the MEF LSO Framework and the TM Forum Open API framework.

Service providers will be able to use the standardized APIs to work with each other’s SDN architectures in near-real time. This is an important step toward enabling orchestrated, on-demand services over more automated and interconnected networks.

Allan Langfield, Executive Director, Product Development, Comcast Business Services, said, “The shift to a service lifecycle supported by standards-based, real-time API-driven automation is tremendously compelling It provides significant operational efficiencies, a greatly enhanced customer experience, and opportunities for more rapid revenue realization.”

Keep up with TM Forum’s Open APIs here.

This article appears in Perspectives 2017: Digital transformation opens new markets. Download the full report free here.


    About The Author


    Sarah is a freelance writer and editor with an interest in new technologies and how they impact our everyday lives.

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