If you’re not Paying for the Product…

We’ve heard that adage in reference to using Facebook, Twitter, and a variety of others for quite a few years. While it absolutely does apply for general web users, in the API space, it takes on a more sinister tone.

When you’re working with an API, it’s usually because it makes a piece of your infrastructure easier, faster, cheaper, or gives you functionality you simply didn’t have before. For example, sending an email with code is trivial but by using something like SendGrid you get simple list management, deliverability reports, open rate information, click through tracking, and a number of other things for basically no extra effort.

API consumption as a Business Model

More importantly, this is where some API business models shine.

When you start using these APIs, you pay little to nothing. As you prove out your own business or application and your traffic grows, you do more traffic with them, and you pay progressively more. Keen.io, Twilio, and many other APIs follow the exact pattern. Therefore, it’s in their best interest to get you started painlessly, encourage you to use the platform, and help you be successful as quickly as possible. Their interests are aligned with yours.

And then there is another type of API: their business model is not based on consumption.

In fact, you probably don’t pay them at all.

So then what is their business model?

If you’re not paying, how do they make money from you using the API? It’s easy, they don’t. While it may still be in their interest to get you started quickly and use the platform as much as possible, their success is not tied to yours. And that is the problem.

For the most part, these APIs are built to collect data and usage patterns. Twitter has been great at this over the years. They opened their API to the world, let people experiment and build tools. As the tools proved successful, they bought certain ones – Summize for search, Tweetdeck for an app, Vine for video sharing, Gnip for firehose data, Twitpic for photo sharing, and dozens of others. These companies validated markets and then were acquired while Twitter shut down API access to competitors and let those wither away. From a business perspective, it was a great move over and over again.

Companies that host these APIs – like Google, LinkedIn, Facebook, and too many others – may still make a piece of your infrastructure easier, faster, cheaper, or give you new functionality, but they also introduce a huge risk:

These APIs can and will change regularly with little notice.

These APIs can and will be shut down with little notice.

These companies’ success is not tied to your success.

To be blunt: Do not build your businesses on these without careful consideration.

If you’re building and providing an API, understanding and being able to explain your business model is powerful. It will help your users evaluate the API and determine if they should trust it.

If you’re consuming an API, understanding your vendors’ business model will teach you which can be trusted and built upon and which should be carefully considered.