API’s as Open Innovation
Many web services publish an API, and much of the innovation on the web is a result of that. With an API (Application Programming Interface) a web service allows third parties to reuse some of their data and functionality. Many see this as a perfect example of open innovation as Henry Chesbrough defined it in his book. However, this is worth a closer look. Is it open innovation that rules the dynamics of the web, or is there a different underlying process at work?
The API, or application programming interface, is a way for outside parties to build on an existing service to provide new services or products. The term has been in use in the programming world for a long time, but the ‘social web’ variant exist since the early 2000s. Among others Amazon, eBay and Google pioneered this use of an API. API’s allow for quick mashup’s that can serve as prototypes for new services and (as shown in Kenia) tested in the field immediately. A web company can also try to publish an API for strategic reasons (some pointers and pitfalls). Nowadays everyone is pointing to Twitter when discussing API’s, since Twitter is the most lurid example of a company that has built an ecosystem of external service providers around its core functionality. This way, external parties, following their own interest, build value for Twitter as a company or web service. It is this strategic use of the API, which appears to be a form of open innovation.
However, strictly speaking, you cannot cast the act of publishing an API as having an open business process; the two are quite different. Chesbrough defines open business as a way of working where companies actively seek out to incorporate ideas from others in their own innovation processes and try to sell or license unused ideas to others. This is a bidirectional process: outbound as well as inbound. API’s, in contrast, are outbound only. Others can reuse functionality, and find new uses and markets for it (like in the nutsbread example of my previous open innovation post), but the API does not help the service provider with its own innovation process. It may be that seeing others find new uses for your product is inspiring, but this is more a side effect. Second, functionality or access to a service are much less pliant than ‘ideas’. API’s allow for creative reuse, but not so much of adaptation of functionality. Third, while the risks of other companies ‘stealing’ your idea’s is bigger if you are more open about them, the risk of others competing with you by offering the same possibilities, is smaller when you put those possibilities into your API. Fourth, while open innovation takes legal protection of IP as necessary precondition and starting point, publishing a software API is like stepping into a legal lions den. So to see whether companies that publish an API, practice open innovation, it is more worth wile to look at their community management than at the API itself.
In ‘Open Business Models’, Chessbrough offers a framework to see how companies deal with open innovation. He distinguishes 6 types of companies. Type 1 (undifferentiated) companies do not distinguish themselves from their competitors by innovation. A local barber would be type 1. Type 2 (differentiated) companies are ahead of competitors, for example trough inventing a new technology; however innovation is not a structural activity of the company. Type 3 (segmented) companies slice their markets in to segments (making different offers to each). For type 3 companies innovation is a structural activity. Type 4 (externally aware) companies try incorporate external ideas and technologies in their process. They will tell their suppliers and customers what their road maps for the future are. Type 5 (Integrated) integrate the open innovation process into their business model. They share their road maps, and suppliers and costumers share theirs in return. Type 5 companies focus on creating new markets. Type 6 (Platform Players) go even further and have external partners take part in the innovation process, even sharing financial risks. As Facebook and Twitter organize developers conferences where they share their road maps, they are in the higher ranks of this framework. At the same time both are still struggling to keep their developers communities cooperative, happy and funded.
So, publishing an API, is not the same as running an open innovation process, but the bigger players on the social web do practice open innovation. Still, I do not believe ‘open innovation’ explains the amount of innovation we have seen in social media the past couple of years. The practice of publishing API’s does something else on top of the strategic advantages open innovation offers. I am still struggling to pinpoint this, but it seems to be that API’s allow for a compartimentalised approach to innovation. I can pinpoint two innovation directions the API falicitates. First, by providing ready to building blocks for the functionality of your service, you allow others to innovate the user experience of it. An example would be how Tweetdeck (or other Twitter clients provide access to the twitter service, or slightly different, how services like Twitpic expand its functionality. A second type of innovation occurs when the adaptation of a service creates new needs. New services try to meet these needs, reusing the building blocks of the original API. For example in the way paper.li (see my last post) helps news sharing become more accessible, or Klout helps social media users to check their ‘influence’. In turn these services could create new needs, that can most easily be met by reusing the building blocks of their API’s. This works in a cooperative economic model, and is hard to do from the strategic and competitive framing that Chesbrough uses. In this sense, the way API’s help innovation, may be closer to the way open source works than to the ideas of open innovation.
This has been the third (and last) post of my ‘open business models’ series (about Chesbrough’s book with this title). In the first post I introduced the incentives to go for an open innovation process and the difficulties in selling or licensing ideas with external parties. In the second post I discussed the technology life cycle, its relation to intellectual property (IP) management and the application of these ideas to social media.
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Tags: API, Business Model, Chesbrough, community, Economy, Facebook, Innovation, Intelectual Property, Klout, Mashup, Open Business Models, Open Innovation, Open Source, paper.li, Tweetdeck, Twitpic, Twitter, User Experience