April 1st, 2013

Apigee Announced an API Exchange Friday – Somewhere a UN Agency Shed a Tear

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Apigee API ExchangeA decade ago, during the first wave of Internet innovation, countless business plans began with the breathless promise of becoming the UN of this or that information exchange. ECommerce and communications would be transformed through the mediation of a neutral “man in the middle”. Here’s what happened: the communitarian exchanges failed; businesses that went direct to consumers succeeded; the hope for communal mediation was left to overreaching consortia grasping after fading relevance.

Why did  the “disintermediated” direct-to-buyer model win? Simple: it was simplicity. The problem with multilateral exchanges is complexity. They require members to buy in completely and never hedge with alternative paths to consumers; they require the exchanges to always be subservient to the members; and they require 100% participation and 100% consensus. That’s why they keep failing despite the best efforts of organizations like GSMA, the UN, OASIS and others. They require a rigid web of multilateral agreements, subjugation of individual corporate needs to ephemeral collective goals and universality. Just because the broker is a for-profit entity like Apigee doesn’t change anything so long as success or failure depends on universal cooperation and comity. To repeat an oft-used metaphor: putting lipstick on failed efforts like WAC and OneAPI won’t make them any more attractive. They will never have the agility and directness of an over-the-top direct-to-buyer/consumer/developer service. That’s why giant operators keep getting beat by three-person Y Combinator start-ups.

Does this mean aggregation is dead? Of course not! Aggregation models can work but only if the “broker” has the independence and freedom to go off and negotiate unilateral agreements as needed. The aggregator must have the freedom to be run like a self-interested business where the wishes and hopes of the underlying providers don’t factor in. As evidence look at the growing disparity between Netflix and Hulu. The latter emerged as a deliberately-crippled response to the growing power of Netflix. However, the need to accommodate multilateral interests has made it irrelevant. ISIS is fairing no better in the payments arena.

For operators, there is a similar lesson. Be the broker or sell to the broker. Each model has clear economics and places success or failure in the hands of the operator. If an operator wants to offer non-geo-specific services to buyers, it should partner with over-the-top providers or get the capacity from other operators one-to-one. If an operator would rather wholesale its services, be promiscuous and enable every broker/aggregator to consume its services, fine. Then let them be your buyers. The beauty of both models is that they are non-exclusive and don’t require consensus, universality or other impracticalities.

I give Apigee credit, the API Exchange is an improvement over the failed WAC. However the problem was never just technology. Some business models just don’t work in practice.

1 Comment »

  1. [...] backing this opinion up, came a great piece from Layer 7 Technologieson the failure of the exchange model back in the dot com days.  History does have a habit of [...]

    Pingback by Fun Times in Telecom APIs | Alan Quayle Business and Service Development — April 5, 2013 @ 7:15 am

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