[This pulled from my comments and questions on Fred Wilson‘s posting Every Product Is A Platform on September 10, 2007]
My question to VCs and others is where you see value in having others build on an API. I can see some arguments – visibilty and branding, pushing maturity of the API, giving you an under-the-radar tap with which you can experiment with increasing traffic, maybe giving you ideas for products (if you’re the kind to take that route), finding (and then hiring) good hackers who love your product. These are all indirect benefits. I’m curious about why, from an investor’s POV, there’s value in having others build on the API. There are 250+ things built on the del.icio.us API. Were they of value? Did they increase revenue in any direct way? If you argue that there’s great direct value, can I therefore walk into your office, claim that thousands of people will write apps using my API and argue for a massive valuation? :-)
Do any of the companies offering an API have a strategy for monetizing it, or simply recouping costs for bandwidth, servers, etc.? Sure, the exposure is great. But, as I was once taught, you can die from over-exposure.
Here’s another way of looking at my question: if API traffic is 10x bigger than interactive web traffic, then just 1/11th of Twitter’s computing resources are being used to support their (arguably) most important customers. Maybe the site could have been many times faster if they had opened up API usage slower. I found the Twitter web interface unusably slow in the first 6 months after I heard about it – a feeling that many shared. Is that because they were actually using 90% of their resources supporting apps they didn’t write and didn’t benefit (directly, financially) from? That’s a very delicate line to choose to walk. At that level of diverting resources from normal users, there’s a huge risk blowing it. Hence my question about value. Sure, the 3rd party apps are cool and exciting – but are they so important that it makes sense to give you front-line customers a miserable time, making your service extremely slow.
To go to another extreme, imagine releasing an API that was so powerful that thousands of people wrote to it, but which had no user-facing component. How is that going to make you money unless you charge for it? E.g., Amazon’s S3. If you charge, like Amazon, I understand the model. If you don’t charge and the API is eating 90% of your resources, you may be shooting yourself in the foot rather severely.
It’s an interesting problem. As I said earlier, I agree with you that if you can do it, product should drive platform. Twitter could have followed that route, but apparently went the other way round. Or maybe things were just totally out of control and they unexpectedly found themselves in this 10:1 situation.
One thing’s for sure, if you’re using 10/11ths of your resources on your (non-paying) API customers, you should definitely make sure the rest of the world knows about it :-)
