Is open source the answer?
LONDON - Tesco, the world's biggest online grocery seller, has opened up its website's API to developers, but the strategy relies as much on a brand's USP as it does on a spirit of openness.
Tesco has opened up its API
Described by one Twitterer as ‘evil... nasty... dirty', and by a blogger as ‘history in the making', Tesco's decision to open its site's API (application programming interface) has provoked controversy among developers. Here was a supermarket not only inviting other retailers to sell its goods, but offering to pay them for it, too. Whether foolish or brave, the decision is certainly not one the world's biggest online grocery seller took lightly.
"We know of at least 70 different ways of shopping online, but we've reached the point where we can't afford the time, resources or support to create 70 different apps," says Nick Lansley, head of R&D at tesco.com. "So we've turned the issue on its head: rather than support them all, we have created a foundation layer - an API - that lets third-party developers create great apps that do a particular job very well."
The exciting part is not the API itself. Of core interest to developers is the access the API gives them to product information stored on Tesco's database; by incorporating this into their apps, they can make money whenever a customer shops at Tesco. Eventually, Lansley wants to make marketing information - such as a customer's ‘favourites' - available, too, and open up sites including Tesco Direct.
Of course, Tesco is not the first company to have opened up its API. Facebook, Twitter, Amazon, eBay, Betfair and 7Digital are just a few to have embraced openness, and all have seen their businesses expand in unexpected and profitable directions.
"For us, the first app to appear was a mash-up with Google Maps showing, in real time, who was reviewing what and where," says Rob Hinchcliffe, community manager of reviews site qype.co.uk, which opened up its API in January. It is a way for Qype to build its brand name and grow quickly without doing the coding and development itself. "We are a small team, so we don't have time to sit around and play with this stuff," says Hinchcliffe.
In Google's wake
Google has been the leading advocator of the open web, with a record 56 APIs available at last count, including services from Google Maps to AdWords and Google Docs. Digital marketing agency Essence recently built a smart gadget for the search giant called Google Export Advice (google.com/exportadvice), which helps manufacturers estimate the export opportunities in internat-ional markets. "I find it extraordinary that an app that powerful, with such rich data, is available by combining four or five different APIs," says Andrew Shebbeare, a founding partner at Essence.
Chewy Trewhella, developer advocate for Europe at Google, says the company had several reasons for opening up its API. "We don't advertise our products; by allowing others to put our products on their websites, it makes people aware of some of the cool features we have beyond search," he says.
"One of our goals is to get more people spending more time on the web, so by opening up our APIs and getting others to make our products better, we get people to spend longer on the web and make more searches on Google," Trewhella adds. The more searches that are made, the more revenue Google earns from advertisers. Some APIs - such as those for AdWords, AdSense and its commercial version of Google Maps - also directly generate revenue for the business.
For The Guardian, giving access to all its articles has direct moneymaking opportunities through new syndication deals (see Casebook). Matt McAlister, head of the Guardian Developer Network, says its open approach also extends the reach of the newspaper brand in ways that would not otherwise be possible. "People are using The Guardian to create new experiences and reach into markets we might not have been able to access before," he says.
Let's not forget that opening APIs has benefits for customers, too, especially those belonging to niche and under-represented groups. Tesco has already had an enquiry from a disability charity; it wants to use the supermarket's API to build an easy-access website for people with missing limbs. "If they wrote the app, they could make affiliate money as well," says Lansley.
The supermarket has agreed to pay a fee to any developers that bring in new customers or spend over a certain amount. Matt Bailey, head of affiliates at i-level, believes this could have huge repercussions for the affiliate sector. "This will lead to the creation of ‘developer affiliates', as it makes a hell of a lot of sense for Tesco to pay those using its API on a CPA (cost per action) basis," he says.
At the very least, the open API gives developers more flexibility than the current product feed in terms of how they market and sell Tesco's products. "It's incredibly exciting," adds Bailey.
Pros and cons
Perhaps even more exciting are the new opportunities for brand advertising. "It could change the nature of online advertising," says Paul Dawson, experience director at EMC Consulting, which works with Tesco. "The future is all about branded utilities, whereby brands invest in something useful, such as a ‘festival planner', rather than in communicating a message."
Open APIs also mean that partnerships between brands can be built faster than before. 7Digital's commercial director, Stephen Sommerville, believes its open API directly helped the music site strike a recent advertising partnership with a confectionery brand. "It enabled the deal to get done," he says. The music service has also been used in unexpected ways, including in digital jukeboxes in bars.
With so many benefits in opening up their API, why haven't more companies leapt to embrace the spirit of the open web?
Online retailer Ocado achieved a first when it launched its online shopping app for the iPhone. However, Jon Rudoe, the supermarket's head of retail, says it is in no rush to open up its API, preferring to keep its technology in-house. "We're a retailer with a heavy technology component, especially given that we run a sophisticated, automated warehouse," he says. "We know how to handle our technology."
Craig Whiston, client services manager at Coremetrics, does not recommend retailers open up their APIs, claiming it could cannibalise existing sales. "Other retailers will wait and see if the Tesco apps simply target people who go to its website anyway, or if they generate incremental sales," he says.
Simon Morrissey, a partner at law firm Lewis Silkin, also warns that intellectual property infringement could be a problem, especially if third-party developers are creating apps that blend Tesco's API with other services. "Just because you're a platform owner, it doesn't mean you cannot be liable," he says. He cites the case of a US developer that attempted to sue Carling and Beattie McGuinness Bungay on the grounds that their iPint app copied his virtual pint, iBeer.
There are also security vulnerabilities, says Ben Jones, head of technology at AKQA. "When an API is opened up it becomes a perfect point of attack," he says. "Therefore a brand needs to think about how it authenticates and authorises API calls. Additionally, the API needs to be abstracted so third parties can't fully understand how the underlying systems work."
Terms and conditions partly address concerns about protecting the brand or a site's service levels; and as each developer has to request a key to access the API (in some cases, at least) there is a way for brands to check what it is being used for.
Opening up a site's API is not simply a cheap option for brands to get free coding; there are costs involved in monitoring use, refreshing the technology and supporting developers. It is also a dud option for brands that are unexciting to developers. "You've got to have something worth tapping into. Tesco.com is used by millions of people every week. But if there's nothing that marks you out, opening up your API won't attract interest," says EMC's Dawson.
This article was first published on marketingmagazine.co.uk
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