Enterprise API Strategy

Are you ready for the Digital Service Marketplace (DSM)?

Ready for the Digital Service Marketplace (DSM)?

New integration and interoperability technologies, starting with APIs, are supporting the transformation of traditional businesses, but they’re also allowing surprising disruptive evolutions.  Some companies have already anticipated – or even concretely committed to – the next step, by transforming “platform companies” into a Digital Service Marketplace (DSM).

Découvrez une version française de cet article sur ZDnet. – Discover a French version of this article here. 

This new acronym, if it is not (yet) used by analyst firms, nevertheless speaks to customers and prospects who are wondering about the ROI of their platform. Let’s take a closer look at the concept of a DSM.

What is a Digital Service Marketplace?

Contrary to what its name might suggest, the DSM has only a distant relationship with the “product marketplace” (which, like Amazon, offers the exposure of many distributors in a single e-commerce showcase that is widely stocked). Indeed, traditional product marketplaces support B2C exchanges, which bring their own share of innovations and requirements, a large part of which we will find in DSMs.

But a Digital Service Marketplace does not expose services that can be used directly by an end customer, which is, in my view, the main difference. DSMs offer technical building blocks in the form of digital products consumed by developers to manufacture a new product (application) for the end customer. This moves from B2C to B2B2C. And above all, we integrate into the value chain a new, key player in the ecosystem: the external developer.

A way to make your investments profitable

DSMs are mainly born from companies’ desire to make their investments and openings profitable thanks to APIs. It is estimated, for example, that for large banking institutions, these investments could be worth some thirty million dollars.

Those are significant investments for a company, and they were motivated by several goals:

  • The need to respond to regulations requiring the opening of data (PSD2 for European banks, regulation in transportation, etc.)
  • The need to engage an ecosystem to foster innovation, opening up services to innovative startups in order to bring new value to the company’s historical customers.
  • The need to achieve an operational optimization of information systems, whether to accelerate the integration of new partners (in this case it might be a simple technical evolution from EDI exchanges to APIs), or to intelligently articulate different building blocks of the IS.

With these sorts of investments, of course, comes the relentless question of ROI. How do you make what you’ve just implemented profitable? Launching a Digital Service Marketplace is often the answer to this question.

By offering a new digital space where different digital service providers can expose and sell their assets to many partners who are developing innovative solutions, the company is able to quickly make its investments in the “APIfication” of its systems profitable. The operator of the platform monetizes its own services and recovers commissions on the monetization of other services in its ecosystem.

The conditions for success of this new endeavor are often the same as for product marketplaces like Amazon, namely:

  • Create a world of digital trust (security, customer service, impeccable logistics).
  • Offer your partners a large base of directly addressable customers.
  • Rely on a strong and verified digital identity, much like Amazon, Alphabet, or Apple (or even Meta).
  • Establish and engage with an ecosystem of supplier and developer partners.
  • Have the know-how to offer a simple model for remuneration/invoicing/payments.

Examples of Digital Service Marketplace use cases

To illustrate my point, let’s analyze two relevant examples of customer cases.

A major European bank invested several million euros to expose its services to meet PSD2 regulations. This bank claims some 25 million customers and has the ability to charge. It also has a very good digital identity and enjoys a reputation for a secure information system.

It has implemented a DSM to expose and market its own banking services to Fintechs who need, for example, account access or factoring. To take it a step further, it opened its DSM to other service providers who didn’t originally enjoy the same level of trust as the larger bank and who can now market complementary building blocks to serve this Fintech ecosystem on the same platform.

This win-win model will allow the creation of innovative applications to meet the needs of individual, professional, and corporate customers.

The transportation regulator of a major European city has carried out the APIfication of its information system to meet the demands of an ecosystem of startups operating in urban transportation (Citymapper, Moovit, etc.).

Beyond the monetization of information shared with the associated application ecosystem (external and independent developers), the regulator plans to use its assets (5 million customers, identity via passes, etc.) to market the complementary and/or alternative services of many mobility players (Lime, Uber, etc.) on this DSM.

Treat your APIs like products with a Digital Service Marketplace

These two examples perfectly illustrate how the transition from a platform company to a DSM is a unique opportunity to profoundly transform your business model and take advantage of all the levers offered by the laws of digital technology (in particular Moore’s law and Metcalfe’s law).

While this change is not particularly costly for platform companies that typically already have many essential building blocks in production, it is nevertheless important not to minimize the organizational effort it takes to transition from a simple digital asset (APIs) to a real digital product.

A recent Axway survey demonstrates how the value of APIs is not in their existence alone, but in their consumption: 71% of IT and business decision-makers say they didn’t experience the business results they had hoped for with their APIs – but 69% of them expect return on APIs to increase if developers could more easily discover, subscribe to, or use their APIs.

Ultimately, there is a significant difference between a technical API and a digital product that requires its own marketing, just as there is a difference between peas harvested in a field and sold as-is, and a tin can with a label, specific packaging, a price, and an endcap display.

So, ready to consider a new business model for your APIs?

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