December 21, 2011
A few weeks ago I moderated a session at Defrag. As part of the session Sam Ramji from Apigee presented. The session got a little sideways due in part to some frayed nerves from a hectic travel schedule for a bunch of people and in part to a misunderstanding around a line of questioning. That said. some of the underlying issues of the session are exceptionally important, and something that vendors need to start thinking about.
Over on his blog Kin Lane has a good roundup of the issue that sparked the tension. Essentially it was a question that I posed around the commoditization of technology. In this case I was positing the view that the provision of an API and the services around that API is becoming something of a commoditized service. This is an important trend for a vendor like Apigee that is focused solely on providing the plumbing to facilitate API enablement. Obviously Ramji thought I was trying to pick an argument, nothing could in fact have been further from the truth, I was trying to hone in on a trend that has far broader impacts than just on the API space.
If we look at the cloud computing stack for example, we can see PaaS gaining significant momentum as organizations see the extra value that a platform has when compared to infrastructure services. If you buy into the vision that some of us commentators have, that PaaS will become the future of cloud services, then where does that leave vendors who provide infrastructure services in a largely undifferentiated way. While I’m sure IaaS providers would argue the multitude of reasons why their service is differentiated from just the provision of servers, the reality is that a significant part of the marketplace doesn’t see this distinction.
I reached out to Ramji to talk about our tete a tete and also to get his perspective on my commoditization question in a less charged environment. We had a long discussion in which Sam talked about the view of technology markets he holds after spending 30 years in the industry and seeing a number of cycles of innovation/competition/commoditization. As he said;
Commoditization only happens in mature markets where the needs are well understood, the technology is extremely similar, and there’s limited space for differentiation due to customers’ demand for standardization. There is competition in the API Infrastructure/Management space and it’s only just begun.
He reflected on TCP/IP, an area that clearly got commoditized, and reflected on what is different in the API management space. We talked about the state of the API market and the fact that, as yet, it is an early stage market with only nascent competition from a handful of tiny providers (Apigee, Mashery, 3Scale, Layer7) and no large scale plays from any of the traditional vendors, as such Ramji contends that any commoditization which may occur down the line, is a long ways off.
While Ramji agrees that some of the parts of what vendors like Apigee do may become commoditized over time, he’s adamant that the value that a highly focused API vendor brings to organizations provides sufficient areas within which to differentiate and hence avoid commoditization en masse. He drew on what Apigee is seeing as drivers to customer acquisition when he said that;
If it’s a commodity, the terms of the sale are either price or support. This is not the case right now at all, and won’t be for several years (at least 5). This is partly because it’s a new space, and partly because businesses are still discovering – and inventing – new ways to use APIs, which drives new features and demand new services.
To this point Ramji also anecdotally mentioned that the speed of competitive innovation from the businesses providing APIs themselves is even quicker than the rate at which website innovation happened, relying on a third party to enable that innovation is a small price to pay to keep ahead of the competition.
It’s a topic that I’ve spoken at length with Steve Wilmott, CEO of another API company, 3Scale about. Steve was at the session at Defrag and, while of the view that the question around commoditization was a valid one, is also confident that there are opportunities for vendors to differentiate their services, despite the trend towards commoditization of at least parts of those services. In 3Scale’s case, they’ve spent a lot of time building out an approach that gives the ability for third parties to plug-in additional functionality to the API platform, and are introducing services such as analytics and open billing to give themselves an edge.
Similarly positive is Andy Raskin from another API vendor, Mashery. In discussing this issue Raskin asserted that;
A commoditized market is one in which all the offerings are the same — no differentiation, no innovation. You can spot a commoditized market a mile away because the buying decision is all about price.
In the API space, that’s not what we’re seeing. Because so many businesses are just waking up to what’s possible with APIs, there are always new features to add, new ways to make our customers’ API programs more effective or easier to manage. And then there are services around the API — strategic planning (opening up data often requires a shift in culture and strategy) and developer outreach services — that for many companies are key to the success of their APIs. As a result, the buying decision in our market rarely comes down to price alone, but rather to which bundle of features and services is the best fit.
All valid comments, but I still hold my view that commoditization in this space is coming – at least in parts. As more and more vendors move into providing competing services to enable businesses to do stuff, and as the accelerating trend towards the commoditization of IT begins to chip into those companies points of differentiation, I’m interested to see how vendors will respond. While getting defensive and claiming one’s product is a platform immune to democratization might make a good sound bite, it’s not an overly effective strategy for avoiding competitive and market threats. That said, I will accept that we’re in the incredibly early stages of the API market and commoditization is a threat that is still far in the distance.