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APIs, Transaction Costs, and Removing Friction to Grow Fast

Everyone loves APIs. The often discussed things that need to be said, have been said, and I do not want to spend a lot of time saying again are what everyone in technology knows: Owning the platform is big. If you establish a service and have ISVs using your APIs, now your ISVs will sell on your behalf and drive your platform into organizations.

I was on a sales call recently where our sales guy was explaining to an advertiser the need for Doubleclick’s Floodlight tags. The point of the conversation was that, to work with us in some very specific ways, they really needed to buy DoubleClick’s products. I thought “what a business, our sales guys are doing all the heavy lifting for them!”

What we are seeing online is another contribution that APIs bring to organizations. As Josh Kopelman explained when Facebook announced F8, they are outsourcing R&D. Microsoft did this all the time. ISVs can now use the APIs to build on the platform, and the best application can be acquired or built into the platform. All of the trial and error of successful product development is being outsourced.

This is another instance where it is secretly all about transaction costs. In most organizations, R&D is in-house because disconnecting new applications and features from the platform is a high-friction event. APIs take the friction out of this activity and allow R&D to be easily off-loaded to the innovative user community.

In a Web 2.0 world, this allows a company to more rapidly scale by off-loading development work for free.

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