Distilling market noise into market sense

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5 ways developers can extend your business model

Developer programs and third party software developers used to be important only for companies making computer operating systems like Microsoft, IBM or Apple.

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Many people still remember how Steve Ballmer, CEO of Microsoft, rallied his troops chanting the word “developers” 16 times.

Ballmer was right – Microsoft won the battle for dominance of personal computing by winning developers. 20 years later, however, Microsoft lost the battle for dominance of mobile to Google and Apple; by losing the support of developers.

Today access to developers has become a competitive advantage in almost every industry, from games and media to banking and agriculture. Forward-looking companies invest millions of dollars, and their best minds, to create APIs and developer programs. No matter how a company runs its business, developers can extend the company’s business model in five major ways. How? Let me explain.

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A successful developer program can boost all 3 aspects of a company’s business model: value creation, value delivery and value capture.

1. Developers as customers

The most obvious way of thinking about how 3rd party developers can make you money is to see developers as paying customers, i.e. capture value by selling to developers. For example, Amazon Web Services, Microsoft Azure, Google Compute Engine or Salesforce App Cloud.

There are also many companies for which selling services and tools to developers is the only business. For example Twilio, a startup company that has created an API on top of standard telecom services, has built a $100million-a-year recurring business (2014 figures) by providing tools for developers to integrate SMS and telephony into their apps.

2. Developers as product extenders

Developers can also boost your business by adding new features you never designed or even thought of – thus making your product more valuable to your paying customers.

The most obvious example is the Apple iPhone. Apple’s developer program led to the creation of over one million apps for the Apple App Store. These apps are 1+ million features that make the iPhone more valuable for the users. Often the value is added through new functionality provided by the app, but sometimes it’s just about constant supply of cool new things. Essentially the iPhone is not a phone, but a computing platform allowing 3rd party developers to extend it beyond anyone’s imagination.

There is an ever-growing list of companies which work with developers to extend their products making them more useful: From SmartThings (recently acquired by Samsung) in smart home, to Automatic and Ford in connected cars, and DJI in drones.

Developers can extend products through informal partnerships; consider how someone using IFTTT can get a Nest thermostat to talk to a Philips light bulb or Amazon’s Echo smart home hub. All without the need for closed-room partnerships, consortia meeting in exotic locations, or even NDAs.

3. Developers as data harvesters

Google and Facebook, both data-driven advertising companies, turn to developers to make their their ads more effective for advertisers. Android, Google’s mobile operating system, helps the company to harvest data about mobile users. Developers make Android more valuable to users through 1.6 million apps available on the platform. More Android users means more data for Google making Google ads on the desktop more effective, and therefore more valuable for advertisers.

Facebook works with developers to integrate their identity services into as many apps as possible. The reason is simple: the more apps use Facebook’s login system to identify the user, the more Facebook will know about their users. Similar to Google; developers help Facebook to harvest user data to make their ads more effective and make more money.

4. Developers as distributors

Developers can help deliver your product to new markets and new users by being a distribution channel for your business.

For example, Uber works with developers to integrate the company’s on-demand transportation services into new apps and services. The company works with large partners (United Airlines, Hyatt), successful Internet companies (OpenTable, TripAdvisor) as well as young startups (Momento, Tempo) to make Uber’s “take me from A to B” services accessible in wide array of use cases.

Developers also help Uber to sign up new users. The company’s affiliate program rewards developers for each valid first trip in the U.S. by a new user whose trip request originated through their app.

5. Developers as resellers

Developers can also help resell your product by being a sales channel for your business.

Amazon works with developers to boost sales of physical and digital products. Amazon Mobile Associates program allows developers to earn up to 6% as revenue share on purchases made through their apps and games. Amazon Replenishment Service enables connected devices to order physical goods from Amazon when supplies are running low.

Seeing developers as a sales channel is not limited to the realm of Internet companies. Wallgreens, the largest drug retailing chain in the United States, also works with developers to boost sales of its digital print services. The Walgreens Photo Prints API allows users of mobile apps to print photos to any of the 8,000+ Walgreens locations in the US. The mobile app developers earn a revenue-share commission with every photo order that’s placed through their app.

Building a developer program and an ecosystem quickly becomes the norm and the baseline for competition in almost any industry. In fact, checking whether a company has a developer portal (typically at developer.company.com) is a leading indicator of how well the company is prepared for the future.

— Michael

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