APIs can be seen as the mysterious undercurrents of the digital economy, quietly powering apps, integrations, and entire ecosystems. If you’re building a marketplace startup, you’ve probably been tempted by their allure. But is an investment in an expensive API feature a golden ticket to growth, or just a time sink with a trendy name? Let’s unpack this in a way that doesn’t require a Masters in software engineering.
What is an API?
Let’s start with the basics. API stands for Application Programming Interface. It’s a way for two software systems to talk to each other without needing to learn each other’s native language. Think of an API as a translator facilitating a meeting between you and a foreign business partner. Just as a translator ensures both parties understand each other’s needs and expectations to ensure mutually beneficial outcomes, an API defines the rules of engagement: how data should be formatted, requested, and received.
APIs come in various flavours, depending on what you need them to do:
Web APIs facilitate communication over the web. Think integrations like Stripe for payments or Google Maps for geolocation.
Database APIs allow applications to interact with a database directly. The integration of supplier databases through APIs to automate product listings and synchronise inventory management in their marketplace stores is particularly useful.
Operating System APIs enable software to use system resources, like file storage or memory. Integration of Apple’s Push Notification Service (APNs) API is a good example. It enables marketplace applications on iOS devices to send real-time notifications to users, enhancing engagement and improving the overall user experience.
Remote APIs operate across a network, like cloud-based APIs for storage or machine learning models. The Amazon Product Advertising API allows external vendors to offer Amazon products on their own platforms. Purchases are processed via Amazon, and the vendor platform earns a commission through the affiliate program.
Public vs. Private APIs
Public APIs are open to external developers, often to foster an ecosystem or expand integrations, while Private APIs are accessible only to authorized users or used internally by a company to enhance its own products or services. Think of public APIs as opening your home to Airbnb guests: great for revenue, but fraught with challenges if not managed well. Private APIs, meanwhile, are more like inviting close friends over – safer and predictable.
Types of API protocols
APIs rely on protocols – rules for communication – to function effectively. Here are the most common ones:
REST (Representational State Transfer): The reigning champion, REST utilises HTTP verbs like GET, POST, PUT, and DELETE to interact with resources. It’s lightweight, flexible, and widely adopted by both startups and tech giants alike.
SOAP (Simple Object Access Protocol): Think of SOAP as a more formal protocol requiring specific formatting and XML messaging. It’s robust and secure, but more rigid and verbose than REST, therefore mostly used for complex transactions.
GraphQL: This relative newcomer allows for a more customised and succinct data retrieval experience, letting users specify precisely the data they need. In marketplaces, instead of querying separate endpoints for product details, user profiles, and reviews, a GraphQL query can fetch all the specified data in one request.
GraphQL also reduces network usage, which is especially beneficial for mobile apps with limited bandwidth. For marketplaces with intricate relationships (e.g., users, orders, products, reviews), GraphQL excels in fetching relational data without requiring multiple round-trips to the server. The downside is that it has quite a steep learning curve.
Most APIs communicate in languages like JSON (JavaScript Object Notation) or XML. Here’s an example of JSON data for a marketplace product from a RESTful API:
{
"id": 1,
"title": "Smartphone XYZ",
"description": "A high-end smartphone with a sleek design and powerful features.",
"price": 799.99,
"brand": "TechBrand",
"category": "electronics",
"stock": 25,
"rating": 4.5,
"images": [
"https://example.com/images/smartphone_xyz_front.jpg",
"https://example.com/images/smartphone_xyz_back.jpg"
]
}
Why RESTful is the most popular API format
RESTful APIs are like a well-organised library – easy to navigate and highly scalable. Characteristics that make them popular include:
- Statelessness: Each request is independent, making it easier to scale.
- Resource-based structure: Organized around resources, such as users or products.
- Flexible formats: Can deliver data in JSON, XML, or even plain text.
Benefits of APIs for online marketplaces
An online marketplace API allows third-party developers or partners to interact with your platform’s data and functionality. Essentially, it’s a way to open your doors to external innovation.
Expand marketplace reach to attract new users
An API can help your marketplace grow beyond its original boundaries. Shopify’s API enables developers to build apps that enhance the core platform, from inventory management to custom storefronts. This creates an ecosystem that benefits all stakeholders.
Enhance interoperability with third-party applications
Think of an API as the universal adapter of the tech world. It can connect your marketplace to:
- Payment services like Stripe.
- GPS services like Google Maps.
- Shipping providers like UPS.
- CRMs like Salesforce.
- Customer review platforms like Yotpo.
The easier it is to connect efficiently to third-party features the more value can be added to the user experience.
Create additional revenue streams
APIs can be monetised by giving users access to different data sets or functionalities such inventory management and trend forecasting. The API revenue model will depend on the usual suspects: product or service type, user segment, etc.
Travel marketplaces like Tripadvisor offer APIs that allow other businesses to access flight and hotel data, enabling them to build their own travel applications. These APIs are typically monetise through usage-based pricing.
A freemium model offers a basic level of API access for free, allowing developers to explore and integrate with the platform. This attracts a wider audience and encourages experimentation. Then, introduce premium tiers with increased usage limits, access to more advanced features, or higher data quotas.
Feature-based tiers use different subscription levels to unlock specific API functionalities. For example, a basic tier might allow access to product data, while higher tiers provide access to order management, inventory updates, or real-time pricing information.
A well-known example, Cdiscount, the French retail giant, offers API access as part of its premium seller subscriptions. This allows sellers to automate various tasks, such as product listings, inventory management, pricing optimisation and CRM synchronisation.
Attract and retain high-value users
User-segment-focused APIs can attract power users by enhancing their user experience. FanPass, a ticketing marketplace, created an API that allows high-volume sellers to automate the creation of their listings by syncing their internal systems with the marketplace. By saving them time and effort, FanPass strengthened their loyalty to the platform.
When is a custom API not a good idea?
If your marketplace hasn’t yet achieved product-market fit, focus on core functionalities first. Building and maintaining APIs can be resource-intensive, and a misplaced public API could be a distraction from your core value proposition.
Marketplace startups should also be careful not to waste effort and resources on APIs that don’t directly support their business model. Use frameworks like ICE (Impact, Confidence, Ease) to evaluate an API strategy’s benefits and impact.
Which type of marketplaces would benefit the most from a public API?
Some marketplace business models lend themselves more to an API strategy than others. If the marketplace’s target audience is mostly made up of corporate users (e.g. B2B marketplaces), an API that allows them to hook their platform or internal tools like CRMs to yours may be non-negotiable.
Aggregator platforms like event ticketing, property rentals, or online travel benefit greatly from APIs to expand their data-sets and functionality. FanPass increased its buyer pool substantially by linking with Ticket-Compare, a price comparison site for event tickets, and CJ Affiliate, an affiliate marketing network.
Mature marketplaces, having established a solid user base and a wealth of data, are well-positioned to leverage API features as a significant revenue stream. Popular data monetisation strategies include:
- Data as a Service (DaaS): Package aggregated and anonymised marketplace data into valuable datasets that can be accessed via APIs. This data can be used for market research, trend analysis, competitive intelligence, and more.
- Premium Data Feeds: Offer real-time data feeds or historical data archives through APIs, providing valuable insights to businesses and analysts.
Challenges with implementing marketplace APIs
Cost: Building and maintaining an API is expensive. Budget accordingly.
Double the product: Launching an API is like launching a second product in conjunction with your marketplace. You’ll need a dedicated team to manage it.
Complexity: APIs are technically challenging. You’ll need to provide clear documentation, a sandbox environment, regular updates, and troubleshooting support. Take inspiration from Etsy’s stellar API documentation.
Security: APIs can be a vector for attacks. Invest in robust security measures.
Access management: Vet your API users to prevent misuse. Another approach is to implement user segregation strategies to control access to sensitive endpoints.
Usage limits: Set clear boundaries for API requests to avoid system overload.
- Etsy, for instance, has certain requirements and limitations for API usage that effectively create a tiered system. High-volume sellers or those with specific integration needs may require higher API call limits or specialised support.
- Amazon’s Product Advertising API allows one request per second, which can be increased based on the revenue generated from items sold via Amazon. The more sellers sell, the more API access they get.
Database interactions: APIs are only as good as the databases behind them. Ensure therefore that your marketplace database is fit for purpose:
- A well-designed database allows the API to quickly and efficiently access, modify, and update large amounts of data, such as user profiles, product listings, transaction histories, and reviews.
- Scalable query performance is crucial for APIs to handle high request volumes. Databases should be optimised to handle complex queries, ensuring that the marketplace can return data like search results, pricing, and availability quickly, even during peak traffic.
- Controlled access to sensitive data like payment details, ensuring that only authorised API endpoints can access or modify certain data, should be included in the database design.
Public APIs can be a game-changer for marketplace startups, but they’re not a magic bullet. They require careful planning, significant resources, and ongoing maintenance. If you’re ready to expand your ecosystem, enhance user experience, or attract high-value users, APIs could be your ticket to success. But tread cautiously: the road to API glory is paved with technical debt and unmet expectations for those who dive in unprepared.