- API platforms are becoming an essential part of any enterprise software system.
- Since API platform are driven by IT people, it can be challenging to determine the business value at the start of the project since business leaders may not see the value of the project.
- Identifying your business goals and defining KPIs with the participation of business teams at the start of the project creates business value.
APIs are the digital connectors that act as the interface between business data and consumers. In the modern world, data is money. APIs allow organizations to convert data into money through innovative ideas. API platforms are becoming a mandatory part of the IT ecosystem across many industries including financial services, healthcare, telecommunications, manufacturing, and many more. Building an API platform requires an investment from the organization. Business leaders care about the investments and their return on investment (ROI) more than anything else in most cases. They will see API platforms as an investment that must bring back the return at a given time period - sooner the better. They will ask questions such as:
- What will this project bring to our company?
- How will this project make us gain more business?
- What is the initial cost and recurring cost? (Opex vs Capex)
- How long will it take to reap the benefits of the program and return the investment?
- How the business is going to be profitable with this?
These questions are directly related to the success of the company and finding answers to them at the beginning of an API program is quite important. It is not an easy task to directly map the value that the API platform brings to the organization into monetary terms that business leaders like to see. But it is possible to do so if we define a set of API KPIs at the beginning of the program that directly or indirectly maps to the business goals of the company.
Many API initiatives are IT-driven than business-driven. This causes problems when it comes to funding and convincing business leadership. That is why it is essential to define a set of KPIs to measure the business value of APIs. Identifying KPIs that are related to business goals need to be done by partnering with business stakeholders. Most of the time, business analysts are given the responsibility of representing the business side of things in these conversations but that approach won’t work well in most cases since business analysts will not have the full picture of the business spectrum.
This article does not claim that there are no KPIs measured in existing API programs. But most of the KPIs that are monitored by existing programs are related to runtime and operational metrics such as:
- Number of applications
- Number of APIs
- Transactions Per Second (TPS)
- Number of users
These metrics help IT teams to keep the system running smoothly and scale up and down based on business demands. But it does not capture the business value of the platform. Here are some of the business metrics that business leaders would like to see:
- Cost savings through API reuse
- Number of partners using APIs
- New revenue generated through APIs
- Operational cost savings by moving to the cloud
To measure the above, we should define a set of metrics from the API platform itself to automatically generate reports out of these metrics.
Identifying the Business Goals
We should always start API projects by talking to the business leaders about the program and derive 5 main business goals that need to be achieved through this program. This can be different for each organization, but here are 5 of the generic business goals that we could think about:
- Revenue growth
- Cost reduction
- Data security
- Business expansion
- Citizen engagement
Once you identify the business goals, the next step is to set concrete plans to achieve these goals. Here are some of the concrete action items that can be used to reach the targets set by the above-mentioned business goals:
- Increase revenue from existing sources
- Add new revenue sources
- Acquire new customers
- Reduce operating expenses
- Reduce time to market
- Reduce the chance of security breaches
- Engage more partners
Now that we have identified a set of concrete actions to achieve business goals, let’s convert these action items to a set of KPIs that can be measured against the API platform.
Defining the KPIs of APIs
API platforms allow users to engage with the platform through different channels like mobile, web, and partner ecosystems. At the same time, there are different components in the API platform that helps the interaction between customers, developers, and many other stakeholders. The KPIs that we define need to capture these various aspects of API management while aligning with the business goals. Here's a sample list of KPIs that we can define based on the business goals that we have identified:
- New revenue gained through APIs
- Total sales executed through APIs
- Number of new partners integrated through APIs
- New customer sign-ups via API channel
- Cost reduction through automation via APIs
- Time to market improvements using APIs for integration
- Average time to build a new functionality
- Count of API related security incidents
- Direct revenue generated through monetization
This list can be expanded to many more KPIs based on the use case. But the idea of presenting this list is to show the type of KPIs that can be defined to measure the business performance of the API platform. In addition to the above mentioned KPIs, there can be higher-level KPIs to monitor the overall performance of the API platform as a whole such as:
- Upsell revenue gained through the API ecosystem
- Increased retention through API management
- The total cost of the API ecosystem (Opex + Capex)
- The profitability of the API ecosystem
Once KPIs are defined based on the business goals, the API platform should be able to provide the necessary tools and mechanisms to measure these KPIs in a direct or indirect manner. At the same time, not all the APIs will provide a direct monetary impact on the business. We can categorize the APIs into 3 main categories based on their impact level.
- Direct (Products): These are the APIs that generate direct business value. As an example, monetized APIs will contribute directly to the profits of the business.
- Indirect (Strategic): These APIs contributes indirectly to the revenue. As an example, a sales checkout API or partner interaction API can indirectly help to increase the profits of the business.
- Enabler (Platform): These APIs enable a whole set of systems and users to interact and integrate. As an example, an API that is exposed to build mobile applications to 3rd party organizations is an enabler that will contribute to the business in an indirect manner which is not easily measurable in monetary terms.
The below figure depicts the summary of the relationship between business goals, KPIs, and actions.
Figure: Business goals, KPIs, and actions in an API program
Now that we have identified the KPIs for APIs and different types of APIs that contribute to the business from different angles, let’s try to build a use case with a hypothetical company and how WSO2 API Manager can help increase the ROI based on these KPIs.
The ABC Company’s Approach
Let’s consider an organization ABC that has a plethora of business applications that hold different types of information. The applications are integrated with a point to point manner and bringing in a new application has become a major development effort since there are many systems to be integrated. Because of this reason, interoperability between applications has become a major challenge for the internal as well as external stakeholders.
CTO of the ABC company decides to start a new initiative to digitally transform the organization and follow an API first strategy to enable interoperability across systems and partner ecosystems. As the first step, he sets up an architecture review board comprises of business leaders, enterprise architects, and a few smart developers to identify the APIs that deliver the highest business value to the consumers and partners and expose them through an easy to access portal (marketplace).
The team has initially identified the business objectives of the ABC company and aligned the APIs to business needs. At the same time, they have introduced a set of metrics (KPIs) to measure the progress of building APIs and usage in business terms. One other major concept they adhered to is to treat every API as a product and give all the prominence to each API similar to any other product in the company. This ABC company is a manufacturing company that has experienced the value of an integrated supply chain throughout its business operations.
Using WSO2 API Manager to Increase the ROI Based on KPIs
The ABC company wanted to start the API initiative as a pilot project and wanted to begin the development efforts without spending a fortune of money on proprietary vendors. Because of this reason, the team looked for open source technology platforms that can be used to get things off the ground with a minimum cost while providing the full feature set during the development phases. They evaluated several open source platforms and decided to proceed with WSO2 due to the following reasons:
Once the platform selection is done, a small team of developers is grouped into an agile team and started working on the project. The user stories are already defined by this time and the team started off with a story that is most relevant to business goals.
As we mentioned earlier, the first user story is directly related to business operations and it is built to expose an API to the partner dealers who sell the products to consumers. Before this API, partners had to come to the ABC company office and get the details on the latest products, stocks, and warranty information. With the new API, partner dealers can now get this information instantly with their own applications by consuming the API. With this API, the number of new partners integrated into the system has increased in a short time and partner sales have increased significantly since they do not need to wait until the stocks have arrived at their doorsteps and they can send orders immediately.
With the success of this API, the team has started building new APIs to sell the products online through their website and allowed courier companies to integrate with the system to deliver products to homes. This was done through the API developer portal where delivery partners used the APIs to integrate with the sales process and get notifications on new sales orders that need to be delivered. WSO2 API Manager supports Websockets API to build event-based APIs to deliver notifications to the courier partners as soon as the order is ready.
The business leadership has now identified the value proposition of the API platform and an increasing number of APIs are built on to the platform. The CTO is still very much aligned with the business goals and wants to ensure that every API has a business value and the value proposition is measured through KPIs.
How WSO2 API Manager Helps to Increase ROI
Now is a good time to look at the KPIs that were defined previously and how WSO2 can help with improving these KPIs.
New revenue gained through APIs
With the introduction of online selling through the website, new revenue streams have been generated. At the same time, third party organizations such eBay, Amazon, and Walmart have been able to sell the products of ABC company by integrating through the APIs. The comprehensive API developer portal and the ability to support 1000s of transactions and concurrent users with a single server became handy in expanding the business to new customers.
Total sales executed through APIs
Through the expansion of selling through the APIs, brick-and-mortar stores were used as storage facilities since most of the people wanted to purchase products from the website directly or through partner dealers or other e-commerce platforms. It resulted in a considerable increase in sales through APIs and saved a lot of hours that were needed to sell a product before. API analytics available in the WSO2 API Manager helped the architecture team to measure the performance of each API and during the peak sales cycles, WSO2 API Microgateways were deployed to handle the volumes of a given API or APIs. Once the load was reduced, the microgateways were decommissioned without impacting the existing deployment.
Number of new partners integrated through APIs
Once the APIs were published to expose product details and stock availability, those were visible to all the partners via the developer portal, and more and more partners integrated through the APIs. These partners could be monitored and managed through the WSO2 API Manager analytics component and the Traffic Manager component with rate-limiting and throttling policies. The self sign-up capability of the developer portal with optional workflow support enabled the ABC company to on-board partners without much hassle. Partners could register by themselves with the relevant information and start using the APIs once the ABC company is approved the request.
Cost reduction through automation via APIs
With the API based interaction with partners, most of the manual, paper-based registration processes were removed and the time it took to register a partner has improved significantly. The project was expanded into the manufacturing process and all the manual interactions with raw material providers, transportation, delivery, and distribution processes were moved into API based systems where information flows through automatically when there is a change in the system. WSO2's support for building an integrated API supply chain helped the ABC company to automate their physical supply chain with APIs. Production delays occurred due to a lack of raw materials, labor force, distribution delays, and most other delays were avoided with the automated API supply chain. It saved a lot of time and money indirectly.
Time to market improvements using APIs for integration
Products were introduced to the market at a rapid pace with the APIs since new product information is published to all the partners, dealers, and e-commerce platforms at once through the APIs. With the use of WebSockets APIs, new product details were immediately published to the consumer channels through WSO2 API Manager.
Average time to build a new functionality
Introducing new products and services and creating a new API became less time consuming with the API reusability capability offered through the developer portal of WSO2 API Manager. API developers could go through the existing APIs and find a matching API before creating APIs from scratch. Given that all the services are exposed through a standard REST/JSON interface, building client-side code was much easier once the initial code segment was written. New functionality could be introduced within a few days with this approach.
Count of API related security incidents
With the popularity of APIs and increased sales, there can be situations where some intruders and hackers try to break the system with various attacks. WSO2 API Manager comes with a comprehensive set of API security features starting with OAuth2, JWT, Basic Authentication, Certificate-based, and advanced security capabilities like bot-detection, AI-based API protection. These advanced security features allow the ABC company to protect its enterprise data against attacks and keep the system available without any system failures. This can significantly reduce the count of API related security incidents.
Direct revenue generated through monetization
This KPI is not directly related to the ABC company. But it can be applicable to many other organizations out there. WSO2 API Manager supports API monetization as an out of the box feature and allows users to integrate with existing billing systems like Stripe. The revenue generated through these APIs can be directly used as a KPI to measure the success of the program. In addition to the direct and strategic level KPIs that measures business value in monetary forms, there are certain KPIs that need to be considered at a wider platform level. Let’s consider these KPIs too and how WSO2 can help improve each of them.
Upsell revenue gained through the API ecosystem
Once the products are sold through online platforms, those platforms provide various AI-based suggestions to the users to upsell more products that would not have been possible with traditional selling methods. When partners and third parties build applications on top of the APIs, the WSO2 Developer portal provides AI-based recommendations to the users to use relevant APIs that can help in building platforms that upsell products.
Increased retention through API management
With the API based interaction with the vendor, customers can give feedback, get their questions answered, claim warranty without wasting their time on physical stores. This will increase the retention rates significantly since providing better service through the APIs and applications is much simpler than doing that via physical means. The WSO2 API Developer Portal allows users to provide feedback through comments, give ratings, share with other people, and generate SDKs for API that would ease the use of APIs by partners and other stakeholders.
The total cost of the API ecosystem (Opex + Capex)
The total cost of the API ecosystem needs to be calculated by considering various aspects such as:
- Implementation cost
- Software licensing cost (subscription)
- Maintenance cost
- Infrastructure cost
WSO2’s pricing model is designed so that users are only charged for the server runtimes deployed in the production environment. That includes 3 pre-production environments, analytics runtimes (on all environments including production), and spike protection for free. Depending on the choice of deployment model, infrastructure and maintenance costs will be included as part of the subscription in the case of public cloud (SaaS) or private cloud. If the deployment is an on-premise one, the infrastructure and maintenance cost needs to be calculated by the ABC company. The implementation cost is another key aspect since it can also be recurring if there are continuous development efforts. WSO2 API Manager provides a low code solution to implement use cases so that development effort and time are minimized.
The profitability of the API ecosystem
The final result of all the cost and benefit calculation is to derive the profitability of the API ecosystem. All the business benefits that we discussed in previous sections are added into the benefits side and the above mentioned total cost of the API ecosystem goes into the cost side. The profitability of the API ecosystem is not something that can be measured after a few months of production deployment. It needs to be calculated over a period of time (2–5 years) and all the direct and indirect KPIs need to be considered.
API platforms are becoming an essential part of any enterprise software system. But it comes with a cost and business leaders want to make sure that any investment they make brings back the return sooner rather than later. Most API programs are driven by IT people, making it harder to bring out the business value of the API platforms at the early stages of the project and that eventually causes budget issues since business leaders don’t see any value at the beginning. Identifying your business goals and defining KPIs that are aligned with these goals for the API program at the beginning itself with the participation from business teams makes it more relevant to business values. That makes it easier to get the budgets approved by business leaders since they already know the context and KPIs. Once the API KPIs are defined, it is essential to have the necessary tools to measure KPI metrics from the platform, review them at regular intervals, and take action to improve the performance of KPIs so that the overall ROI is improved. Learn more about WSO2 API Manager.