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Comment Yields Multi-Million Dollar Revenue Opportunity from its Free API

edmundsAPIs, which stand for Application Programming Interfaces, are all the rage these days. APIs, which can be described as online back doors into your database, allow programmers to seamlessly integrate your data into their products, particularly, but not necessarily, mobile apps. Increasingly, customers are asking companies selling subscription data products for “API access” to their data. The reason for this is that these companies want to integrate commercial datasets into their own internal software applications. So you’ve got application developers looking for API access to your data in order to build it into software products for resale. You’ve also got companies that want API access to your data to power their own internal software. If you are charging a high enough price for your data that reflects the convenience and power of API access, as well as the expanded audiences your data will reach, APIs are nothing but great news for data publishers. But can you also make money giving away API access to your data for free? A growing number of companies think so. We recently spoke with Ismail Elshareef, Senior Director, Open Platform Initiatives for Edmunds makes its data available via API for free, and can directly attribute millions of dollars in recurring revenue to this initiative.

According to Ismail, launched its API about two years ago, primarily as a way to get more exposure for the brand. The second objective was one we often hear from those with open APIs: a desire to encourage innovation. As Ismail puts it, “We can’t hire all the smart people out there.” The goal is to put Edmunds data in the hands of a broad array of talented developers and see what they can do with it – whether it’s new applications software to leverage the data, or even entirely new and unintuitive uses for the data itself.

The additional brand exposure for Edmunds worked exactly as planned, according to Ismail, who said it has become “a huge differentiator.” Edmunds displaced a number of competitors who were charging money for equivalent data, and with the “powered by Edmunds” attribution on so many different products, Edmunds saw immediate brand benefit, not the least of which was more advertisers specifically acknowledging the reach of Edmunds in sales meetings.

Overall, Edmunds has found a number of partner deals came together more quickly as well, “because using the API, they can get comfortable with our data first.” A great example of this is a major deal Edmunds put together with eBay. Ismail emphasized the growing popularity of this “try before you buy” approach to data content, and that publishers need to respond to this growing preference among data buyers.

Ismail is careful to note that Edmunds wasn’t seeking to actively disrupt paid data providers in its vertical; the free data it offers simply reflects lower barriers to entry, and to an extent, the increasing commoditization of much of data it offers for free.

And while additional market exposure is clearly beneficial, as Edmunds saw it, the big upside opportunity was to see what dozens or even hundreds of talented, motivated independent developers would do with the data. And that’s exactly where Edmunds found gold. Acknowledging that of the apps developed around its data, “only 1 in a 100 is really interesting,” Ismail noted that one really interesting application emerged after only seven months of offering the free API. An independent software provider in the Northeast built a cutting-edge application for automobile dealerships. But while they had a great solution, they didn’t have a sales force to market it to dealers. Edmunds contacted the CEO of the software company, struck a partnership deal, and already the product generates millions of dollar in annual revenues.

One of the keys to Edmunds’ success is that while its data is free, it isn’t free for the taking. Every developer who wants to use Edmunds data has to adhere to a terms of service agreement, which specifies the attribution that Edmunds is to receive, as well as reserving the right for Edmunds to cut off data delivery to anyone who acts irresponsibly, though Ismail notes that most developers are very responsible and “know what’s cool and what’s not.” Also important to the Edmund’s model is that it initially only provides enough free data to developers for testing purposes. Before raising a developer’s API quota, Edmunds looks at each application to make sure attribution and back-links are correct, and that the application overall is using the data correctly (not incorrectly labeling data elements or incorrect calculations) and that the application is a quality product that Edmunds is comfortable being associated with.

As guidance to other data publishers interested in pursuing an open API, Ismail feels it is essential to use a service that provides an API management layer. After extensive research, Edmunds went with Mashery, which stood out to Ismail in particular because “Mashery already works with major publishers like the New York Times and USA Today, so they know the issues that are specific to publishers. They also have a huge developer outreach program, now over 100,000+ developers, which made it easy for us to get the word out in the developer community.”

Internally, Ismail notes that the Edmunds API was initially a tough sell. Not everyone believed in the concept, so executive support was a huge factor. It was only because the company’s chairman was such a believer that the API became a reality. As Ismail notes, “ultimately a free API is a leap of faith.” Ismail also noted the difficulties in getting the concept cleared by the company’s lawyers, who simply weren't initially comfortable with exposing our data to everyone." Executive sponsorship was key to ultimately clearing these legal impediments as well.

Launching the API involved “a lot of small steps in the beginning.” Initially, Ismail worked by himself on the API program. Now, his team consists of four engineers and a designer. And just yesterday, the Edmunds API has been certified for “Best Developer Experience” by Mashery – more evidence of how far Edmunds has come so quickly.



Perfectly Measurable

An interesting new study produced in cooperation with eBay and sporting the weighty title “Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment,” raises some interesting new questions about search engine marketing (SEM) effectiveness. The study involved eBay actually suspending various types of SEM on specific search engines, and then closely monitoring the results. The first big finding was that, at least for large companies, brand advertising via SEM (e.g. eBay buying the keyword “eBay”) was a waste of money. While it’s always good to see hard proof, at the same time, this finding strikes me as intuitively obvious. I see it all the time with big companies with strong brands: their paid ads appears directly above their organic listings. Drawn to the bold type and high positioning, consumers will often click on the paid click, enriching the search engines and yielding the advertiser a click they would have gotten anyway for free.

The second (and more controversial) finding is that SEM for non-branded keywords (i.e., products or services as opposed to company names) is also largely ineffective, because it tends to draw in far more existing customers than new customers, making SEM more of an alternate form of navigation than a true discovery mechanism. Indeed, the authors of the study go so far as to say, “Bluntly, search advertising only works if the consumer has no idea that the firm has the desired product.” In short, SEM only really works when you bring a user new information, such as the fact you sell a specific product, and the user didn’t know that information in advance.

The study is careful to limit its conclusions to large companies with big brands. And this notion of having to provide new information for SEM to prove effective would seem to be a perfect opportunity for smaller and less-known companies. Or would it?

While far less scientific, I have spoken with dozens of small B2B data publishers who have tried SEM and pronounced it a waste of money. While SEM reliably yields traffic (great if you are advertising-based), it doesn’t seem to dependably yield purchases (not so great if you are subscription-based). Yes, I know B2B is different, and site visitors often don’t purchase on their first visit. But my informal survey was of small publishers, who though they often lack sophisticated analytics, generally have a very good seat-of-the-pants sense of where their business is coming from. And for these publishers, they believe their business isn’t coming from paid search.

There’s no definitive answer here, but it does suggest we all take a much harder look at paid search efficacy, and consider the possibility we may be paying handsomely for clicks we would have gotten for free anyway.



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