In 2014, the Nobel Prize for Economics was awarded to Jean Tirole of the Toulouse School of Economics for his ground breaking work on Multi-Sided Economic models. Multi-sided Economic models are driving the world’s most valuable companies (as measured by a multiple of revenue) such as Apple, Facebook, Google, Uber, and Airbnb.
Businesses that leverage this economic model become platforms that revolutionize their market segments by leveraging the ability of one side of the model to provide products and services to another side while the platform makes money on the transactions that occur. These businesses command enormous valuations multiples that drives shareholder value through the roof.
At the same time, the Internet of Things (IoT) moves us into a world rich in APIs. Manufacturers use developer portals to expose the API documentation and hence the things that they control to the market. In my latest white paper, I show how building up a full developer ecosystem will result in a multi-sided platform that could transform your business into a multi-sided economic model and drive your shareholder value through improvement in valuation multiples. I illustrate how having APIs attract developers, some of whom will be Independent Software Vendors (ISVs) and System Integrators (SIs). It is your ISVs and SIs who add value on top of your API that will attract new customers in new markets. If successful, your API becomes a platform and your platform is dragged along when your ecosystem ISVs and SIs sell their value-add. Because of the expertise of your ecosystem partners, they are the ones that attract new customers in verticals that you would never be able to reach by yourself. The developer ecosystem of “solution partners” brings more customers and greater market reach without a major investment of capital or headcount.
When you turn your APIs into a platform by building a solution partner ecosystem around it, you create a virtuous cycle in which you play matchmaker between customers and your value-adding ISVs and SIs. When your customers buy from your ISVs and SIs, you derive more revenue from your API and platform. This changes not only your market valuation due to increases in revenues, but because the nature of your business has changed to a multi-sided economic model, the market further rewards you with an increase in revenue-to-price multiples. Bottomline, your shareholder value increases dramatically.
In the white paper I introduce a simple to understand model that illustrates the key points in a developer ecosystem and the potential monetization points that you can exploit over time to build a strategy to build a multi-sided, developer ecosystem business model that can drive shareholder value.
If you would like a copy of the white paper, you can download it in PDF.
Original Article Published by Paul Nerger