What do you think is the role of APIs in a platform business?

APIs are essential to building a successful platform business today, for three reasons.

First, network effects are the “platform advantage.” No network effects, no competitive advantage. Put simply, network effects mean “the more users, the better a product or service gets.” Platforms generate this flywheel effect by harnessing value from third parties. (A deck that provides a great explanation of how.)

You can pursue platform strategy free of modern digital technology. If you think of Las Vegas’ casinos as a platform, bootstrapping investments in attracting top performers (one type of “users”) began a virtuous cycle of making Vegas a global destination for people who liked what we now all know as Vegas-style shows (another type of “user”). This in turn made more it compelling as a venue to more performers. This strategy pre-dated digital as we know it today by a long time.

But the first point is that today it would be madness not to make the most of apps, machine learning, and cloud as part of any platform business strategy today. So the first point is: APIs are how compelling digital experiences are delivered at the pace, quality, and scale the market demands. You’ll need to be competitive to win adoption and scale that a platform needs—and digital opens up new opportunities as well. (An article that provides a great explanation of why.)

This brings us to the second point: if you are going to have a digital layer across your business, then APIs are the way to enable frictionless, permission-less innovation with your “platform assets.” One way or another, you’ll need to attract an ecosystem that is generating value. This will involve things like building on your platform (e.g., app developers), transacting across your platform (e.g., marketplace) consuming data from your platform, or contributing data to your platform (or all of the above).You want the lowest possible barriers to entry and the richest field of mash-ups or complements to look across to discover innovation you might not have thought of (--and that goes for internal or partner hackathons as well as external APIs).

Which brings us to the third point: APIs provide optionality. Being able to experiment, deploy minimum viable products, and “fail or scale” quickly is a great position to be in. Platforms put the value of these capabilities on steroids: on the one hand, by definition you won’t be able to exercise “command and control” over third parties. So you must be able to evolve with your ecosystem. On the other, if you’ve bootstrapped scale with great digital experiences and opened up to frictionless innovation, you are in a great position to discover new opportunities and hone what you offer based on experimentation and data rather than guesswork. APIs help make your platform and your ecosystem an innovation sandbox—that in itself can be a powerful flywheel to uncover and add valuable capabilities.