Understanding What Growth Means for APIs

APIs not only serve as a way for a company to offer a capability to external customers, but are also a big part of its internal infrastructure. Internal APIs allow teams to build infrastructure capabilities that other groups within an organization can use. Consequently, most APIs are made to be internal or for partner usage only and are not public-facing.

The definition of growth for an API product is deeply aligned with whether the APIs are for internal, private, or for public usage, as this will determine who the customer is and the tools they have available to discover and start using a given API.

Internal APIs

For internal APIs, the internal tooling makes APIs readily available to other teams. Usually, an API architecture or governance team establishs best practices for how APIs are built and published across an organization. Some tools, such as Postman, are utilized to share an API in the form of collections to help developers get started with APIs quickly. Postman allows a GUI-based interface where users can easily plug in their API credentials and get started. Tools such as Postman can often generate API reference documentation from API specifications to aid the adoption of APIs.

The potential for growth of internal APIs is limited by the size of an organization because that is the size of the user base that can potentially use this API.

An example of an internal API is an e-commerce company’s API for tracking shipments. This API can be helpful for building functionality, such as sending users shipment notifications as their order is shipped. This could be through emails or SMS alerts. Such functionality also needs to be surfaced to customer support teams so that support teams can answer questions about shipment delivery when customers reach out. If the team building the API doesn’t make it known that such functionality already exists, then other teams will build their own separate version, which results in duplication of work, a waste of engineering effort, and a loss in terms of delay. To avoid this scenario, internal processes are created to aid in the discovery and documentation of internal APIs.

Internal APIs, although used within an organization, must be treated like products in their own right and marketed effectively to raise awareness and adoption within the organization. As internal APIs get consumed widely within the organization, it shares the cost of development and operation, ultimately reducing redundancies.

Partner APIs

A partner API is a type of external-facing API that is usually made for a specific customer or partner. Because of the close collaboration with the customer, there is more specificity to how these APIs are built.

We can go from an MVP to a more mature partner API reasonably quickly because the customer is closely engaged and driving the requirements. In terms of growth, partner APIs will grow in their usage, as the partner could increase usage on their platform and among their customer base. The partner’s growth sets the limits for the growth in the usage of partner APIs.

Partner APIs often drive a sizable portion of business, and investing in the quality of these APIs can help us get additional partners in the future.

Public APIs

Public APIs are made available to anyone and everyone, and the market for such APIs is often global, depending on the nature of the functionality being offered. The growth of public APIs is based on how easy it is to discover them and integrate with them. However, the means to make it easier for customers to discover and integrate with public APIs tend to be more numerous. A good example of public APIs is SendGrid’s email APIs, which enable a vast set of email interactions using APIs. Complex marketing and customer support operations are built using these APIs, and products such as Shopify and Klaviyo use SendGrid APIs to offer advanced email functionality for their users.

Public APIs are designed for a B2B audience, and the ideal customers will be using these APIs at scale. Growth for a public API is very focused on large-scale customers and their ability to provide a reliable, robust, and scalable experience.

We are now aware of the types of APIs based on their usage and how to assess their growth potential. We were also introduced to the target audience for each API type. In the following section, we'll learn about the methodologies behind identifying target audiences.

Identifying the target audience

Finding the right target audience for our product is a crucial step in the product development process, as it helps to ensure that our product or service is well-aligned with the needs and wants of our customers. Here are a few ways to identify our target audience:

  • Conduct market research: Conduct surveys and interviews with potential customers to understand their needs and pain points. For example, we might ask developers about the types of data and functionality they need from an API.

  • Analyze our competition: Look at the target audience of similar API products and consider whether those audiences align with our own. For example, we might find that our competitors’ APIs are geared toward small businesses while our API is intended for larger enterprises.

  • Use demographic data: Look at data such as the industries and company sizes of potential customers to understand our target audience better. For example, we might find that our API is most relevant for customers in the finance and healthcare industries.

  • Define our ideal customer: Create a detailed profile of our ideal customer, including their job role, industry, company size, and pain points. For example, our ideal customer might be a senior developer at a large enterprise with a need for data security and privacy.

  • Test our product or service with a small group of potential customers: Reach out to a small group of developers and ask them to test the API. Collect feedback on the functionality and ease of use of the API to help identify any issues that need to be addressed.

  • Use social media listening and analytics tools: Use tools such as Google Alerts, SocialMention, and Hootsuite Insights to understand what developers are talking about in relation to our API.

  • Consider the customer journey: Map out the journey of a developer from the discovery of the API to the integration and maintenance of it, and identify the pain points and areas where the developer needs help.

  • Use segmentation, personas, and journey mapping: Segment customers based on their industry, company size, job role, and so on. Create personas that represent each segment and map the journey of each persona to understand their needs and pain points.

By using a combination of these methods, we can gain a better understanding of our target audience and ensure that our product or service is well-aligned with their needs and wants. Additionally, regularly monitoring our target audience can help us adapt our product or service to changing market trends and customer needs.

Once we have our target audience identified, we can find a way to understand the potential market size for the product. To establish the market size for which a product is targeted, we use the methodology of calculating the total addressable market for the product. The Total Addressable Market (TAM), sometimes called the total available market, is the total amount of money that a product or service could make if it had 100% of the market. It helps a person or company decide how much time and money they should put into a new business line.

In most large organizations, the market research teams help with the calculation of TAM. However, in smaller organizations, we might have to establish TAM on our own to be able to make product decisions. For example, if we are building a shopping app specifically for senior citizens, we would calculate TAM based on the number of seniors using smartphones, how much they are spending on online shopping, which geographies this app would work in, and so on. Thus, the total market size is given as a dollar amount that shows how much money this shopping app could make. This paints a somewhat high-level picture of TAM, but there are some methods involved in calculating it in a professional context. There are three primary methods for calculating TAM:

  • Top-down

  • Bottom-up

  • The theory of value

Let’s look at each of them in detail below.

Methods to calculate TAM

Let's go over each of the methods to calculate TAM.

The top-down TAM model

The top-down approach to calculating TAM involves starting with the overall size of the market and then segmenting it to determine the market share we can address. Most of the time, we can find the top-down calculation in research publications by third parties that give industry insights. The top-down TAM model is used to gain a high-level evaluation of the market so that we can evaluate whether the market opportunity is worth entering.

The following diagram shows an example of a calculation for the data backup market in North America, using a top-down approach.

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