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Decrease Cost or Increase Value: What's Your API Program Strategy?

 

By Rakshith Rao, CEO and Co-founder of APIwiz, a low-code platform that simplifies API lifecycle management

We know an application programming interface (API) can be a dramatic driver of value. But often, IT rationalization, both cost avoidance and cost savings, demands we justify the cost of an API program before allowing it to move forward. And there are many, many benefits to moving it forward. 

There are two ways your API strategy could develop, but first, you must establish how much your APIs are worth. Next, you can look at ways to cut the cost - or increase the value of your API program. Once you have established your strategy, you can embark on the measurable business value that APIs can bring to your digital organization.

How Much Are Your APIs Worth?

Before you can cut your costs, you need to clock the value of your APIs. McKinsey estimates as high as $1 trillion in potential global economic profit via the redistribution of revenues across sectors within API ecosystems. Of course, that's a big industry-wide estimate more useful to show the ripple effect of APIs than the cost of yours.

A good place to start to measure the impact of an API is by answering: 

  • What's the value of this API? 
  • Who's using this API?

You'd be surprised how rarely these questions are easily answerable. If you can't answer both for current APIs, then maybe you shouldn't be paying to run them anymore. Or perhaps, instead, you can save more money and keep focus by leveraging external APIs for your unique value offering. It's almost always better to build onto others' work than build your own API ecosystem from scratch - and certainly cheaper. 

Some APIs that earn or facilitate direct income, like a shopping cart or payment API, are relatively easy to measure. Sometimes you can even tie an API directly to your customer acquisition. In Spring 2020, API-first, medium-sized U.S. bank Customers Bank was not only able to quickly offer paycheck protection in the suddenly remote world, they were able to white-label that API and sell it to other banks.

Be mindful that just because you aren't directly monetizing your API by explicitly charging for its use doesn't mean it's not valuable. As McKinsey put it, APIs act as the connective tissue of the internet, linking systems, processes, people, and data. If an API enables your CI/CD pipeline or breaks down silos between departments, it increases organizational productivity. And that's providing value - it may just be harder to quantify to accounting at first. 

A great way to start uncovering the value of your internal API program is by speaking to its users, your colleagues. Time saved links to cost, and there are several ways to measure the impact of better API management on developer productivity.

Don't forget, if you work in industries like finance or healthcare, open banking and FHIR will require you to support an open API ecosystem. The value of your API program may start with a requirement to comply.

In general, even if your API isn't making money now, that doesn't mean it doesn't add value. And vice versa: Just because your API is making money, doesn't mean it's really adding value. Work with your teams and your customers to figure which group you fall under.

How Much Does Your API Cost?

Figuring out your API cost can be tricky, but it is likely tied to one or more business lines you can trace.

DreamFactory has a handy API calculator to begin calculating the average cost to build each API, although prices, particularly depending on programming language, may vary. This API calculator can help gauge your upfront costs, both developer costs from writing code and documentation, and development time for research, database design, prototyping, and MVP completion. 

DreamFactory estimates it's about $20,000 to build a simple API. That's just to make but doesn't factor in maintaining, monitoring, securing, updating, versioning, and supporting costs. And that's where many organizations fail at API strategy - they forget to budget for ongoing API maintenance and access control. 

APIs increase your connectivity which inherently increases your risks. And this is a serious concern as Gartner pegs APIs as 2022's biggest attack vector, which makes sense as Salt Security found 95% of enterprises reported at least one API attack last year. It's plausible that there are many other attacks and vulnerabilities that go undetected to this day.

It's important to remember that a security risk can create a cost - to reputation and in fines - that you cannot come back from.

Technical Ways to Cut API Costs

APIs simplify code and allow for faster releases, already cutting overall costs over legacy infrastructure. They also have direct business improvements like breaking down slows and simplifying data sharing. 

Moreover, Google Apigee argues that APIs' architectural layer in front of the integration tier uniquely positions them to reduce or even eliminate costs. Specifically, an API, when leveraged correctly, reduces security and governance costs as it acts as what the Apigee team calls a "facade layer." And, of course, APIs limit the need for backend teams to make changes, further cutting coding and maintenance costs.

But there are technically strategic ways to cut your API costs even further. 

An API-first strategy is a way to build from the ground up. This makes all code and data more composable and consumable, saving money in the long run.

Logically, anything you don't have to spend time and money building will save you costs. That's why it's essential to safely share your APIs across departments within an organization so you can leverage or build on other teams' work. 

However, it's important to remember, open-source software is not usually free - and can be more costly for enterprises to manage and use than proprietary alternatives. While open source communities are rich, they are also mostly voluntary. 

As IBM's Arnaud Le Hors and Alan Dickinson pointed out, while 90% of organizations use some open-source software, it becomes costly when things go wrong. You have to get on the community's backlog,  fix it yourself, or leverage a managed solution from the start to help keep that inevitable cost down. 

API Strategy #1: API Management to Increase API Value

A logical but not necessarily easy way to limit the cost of your APIs is to increase their value by directly or indirectly monetizing them.

Direct API monetization means charging for your product, including via subscription, API call or rate limit, or by charging for the data exposed via the API. Indirect monetization includes integrating into a much larger API ecosystem, like Hubspot, Zapier, or Salesforce. This way, you can attract customers in these giant marketplaces or increase customer stickiness by integrating into their existing workflows. 

Whether you are pursuing internal or external API monetization, there are some things that you should be measuring:

  • Total number of internal APIs - You'd be surprised by how few organizations know!
  • Total number of external APIs - This is important to understand what data is being exposed and to spot opportunities to monetize.
  • Time to market - How long does it take to get your APIs to their end-users? How much dev time is wasted?
  • Time to onboard - This affects developer experience but also ties to how many support calls you have.
  • Number of users - This measures how many accounts are using your API so you know interest, whether charging right now or not.
  • Number of API calls - This can help determine cost, usage, and make sure you're prepared to autoscale up or down in response. 
  • Direct revenue - Of course.

An API management platform with a developer portal enables you to measure and improve continuously. It lets you get direct feedback on user behavior and developer experience while giving you deep insights into your cross-organizational API program.

API Strategy #2: API Management to Cut Costs

One essential API value measurement enabled by better API management is cost reduction. The agile adage is you can't improve what you can't measure. Well, you can't measure what you don't know exists. 

You can't control the costs of your API program when you don't know what APIs your team or your organization are spending time and money on already. An API management platform should act as the control plane for your whole API program, both internal APIs and external ones that you partner and integrate with.

Development bottlenecks slow developer productivity by reducing information and documentation availability, as well as causing slow system access. Making APIs configurable and consumable can alleviate many of the IT costs generated by these inefficiencies. An API management platform can spot and ease these inefficiencies even before they occur by acting as a cross-organizational API directory and a one-stop shop for developer experience.

With better API discovery, your developers can leverage templates and reuse existing APIs, significantly cutting down on your time to value. This also cuts down on cognitive load, because developers don't have to learn new development languages and testing tools because they can more easily build on top of backend systems. This doesn't just decrease time-to-market. An API management tool also enforces standards and increases the quality of code, which is, in turn, more maintainable.

Another way an API management platform reduces costs is by creating a caching layer to validate traffic and route requests. As a result, this layer has the potential to greatly reduce invalid and unnecessary traffic to back-end systems, cutting down your overall cost to run.

Ultimately, a well-designed API management platform, built API-first with composability and censurability in mind, will allow for quick configurations to modify behavior, shape traffic, and implement policies and logic.

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ABOUT THE AUTHOR

Rakshith Rao is co-founder and CEO of API lifecycle management tool Apiwiz. Rak brings 17 years’ experience in enterprise technical sales leadership, including at Apigee and Google, DataStax, and HP.

Published Tuesday, July 05, 2022 9:50 AM by David Marshall
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