Door Knocking 2.0: Web Services and APIs
How can a small start up that has no capacity to knock on doors sell to big companies? A possible
answer can be via a web service or an API. The model is applicable to a whole range of services – from data plays
like del.icio.us to messaging systems like Twitter to infrastructure like Amazon Web Services and semantic web services
like Open Calais from Reuters. The basic model is to have a web service which is accessible via API (application programming interface).
Clients sign up to use the service and have to agree to the terms in order to obtain a key. Using those keys, clients can use the
service programmatically to send and get data from it.
Some examples: the del.icio.us API, allows clients to access information about specific users (if the user permits that).
The Twitter API allows sending and receiving messages without using the Twitter web site. The Calais API is an example
of a web service which encapsulates an algorithm. In this particular case, the algorithm takes a document and extracts semantic
information from it. Unlike del.icio.us, which offers an interface to consumer data, Calais is a one shot deal algorithm.
And perhaps the most important example of a web service play comes from Amazon.
Taken collectively, the offered Amazon services is powerful infrastructure for building web-scale applications.
What is common between all these web services is the simple monetization strategy – pay per API call.
For each call into the web service, the callee has to pay based on the amount of the resources consumed by the call.
For example, Amazon has been charging for bandwidth, storage, and CPU time. The exact model does not matter as long
as a fraction of a cent is charged for each call. Remarkably, this is a business that has a huge potential to scale.
Each individual client is paying an affordable price, because each call into the web service is very cheap. However,
collectively clients might amount to big revenue for the service provider.
What is the most attractive about this business model is that it is completely forecastable.
By estimating the cost of scaling the business (mostly hardware, support and maintenance) and setting
the price per web service call and the number of clients, you can determine if the business will work or not. Of course to be
fair, we need to mention that just like in traditional
sales, there is number of clients hidden in every equation. Two fundamental risks exist in this model – clients will not
want to use the service and clients might not be able to figure out how to use it.
Still, the risks and costs of a web services based business are much less than the traditional enterprise approach.
There is no need for an expensive sales force and an army of consultants to implement the solution. We are yet to see
this model succeed in a major way, but because of their simplicity and straight revenue model the
API based businesses are looking attractive.