Tapping a Legion of Smart Programmersby
Apple (AAPL), Facebook, and Twitter are among the bleeding-edge tech players generating buzz—and a buck—by enlisting the aid of legions of independent software developers.
The idea is catching on. Now companies from such industries as retail and media—as well as tech—are rushing to give outside programmers an incentive to build new products and services for them. To do that, they're turning to a San Francisco startup called Mashery.
Founded in 2006 by Oren Michels, Mashery is helping about 70 companies share their inner software workings with outside developers, who in turn can use that information to build tools and products more quickly and cheaply than the companies could on their own. "Most companies don't have as their core competence running a Web site or developing user experience," says Michels, whose clients include the New York Times (NYT), Netflix (NFLX), Best Buy (BBY), and Nielsen-owned Billboard magazine.
A Boom in Open Web Platforms Open platforms, pioneered by such Silicon Valley giants as Amazon (AMZN), eBay (EBAY), and Salesforce.com (CRM), have been around for years. But the number of open Web platforms, called "application programming interfaces" or APIs, rose to 1,400 in August, from just 55 in 2004, according to the site ProgrammableWeb. Part of the impetus comes from companies eager to reach more Internet users in more ways, says ProgrammableWeb founder John Musser. "The future of the Web is all about decentralization—people don't always come to you," he says.
That realization led Best Buy in January to launch Remix, a platform for outsiders to grab real-time information about the retailer's pricing and inventory integrate it into other sites. Now, customers find Best Buy products on sites across the Web, such as Camel Buy, which sends alerts to thrifty customers when certain products get marked down.
At a time when C-suite executives are tightening research and development budgets, the prospect of motivating an army of engineers to work for next to nothing holds particular appeal. "We have a finite number of resources internally," says Netflix spokesman Steve Swasey. Netflix in 2008 opted to share with developers information about movies and users' queues. The move resulted in dozens of applications that Netflix may not have had the wherewithal to develop on its own, including several movie-browsing iPhone applications that popped up the very first day. "Netflix wins because their business model isn't driving traffic to their Web site or selling mobile apps," says Mashery's Michels. "Their business model is selling movies."
What's in it for the programmers? Some are motivated by the prospect of bragging rights to a widely used application. In many cases, there's a financial incentive, too. Camel Buy generates revenue by collecting fees each time it refers visitors to Best Buy and other retailers. Apple shares with developers part of the revenue generated by games and tools it sells through the iTunes App Store. "Geeks can be motivated by money or respect—you have to know which geeks you're dealing with," says Michels. He points to Google (GOOG) Maps, which opened to developers in 2005, as an early example of a platform that appealed to developers looking for fame, such as Paul Rademacher, who combined real estate listings from Craigslist with the map application to create the site HousingMaps.com.
Michels created Mashery after he grew frustrated in a business development role at Internet startup Feedster. The process of forming partnerships was too time-consuming, he remembers. "Every time we sold these deals we had our geeks talk to their geeks and do integration," he says.
In 2005 he pitched the idea to First Round Capital co-founder Josh Kopelman, who had noticed a similar trend with the startups he was investing in. "Business development executives are constrained not by their ability to close deals but by their company's abilities to execute or implement the deals they close," Kopelman says. First Round became one of the first investors in Mashery.
To make money, Mashery charges customers from $40,000 to more than $100,000 a year based on the activity their developers generate. The company has more than $1 million in annual sales and expects to be profitable in early 2010.
Attracting Developers Mashery's work is in helping companies balance control of their proprietary data while providing enough incentives to attract smart developers. Supporting the development community is also a must. When Twitter went down for several hours on Aug. 6, a number of applications that rely on its platform went down as well. "Because you're not controlling some aspects of the service, you are at their mercy," says Barg Upender, who developed Traffic Tweet, a traffic alert service which combines messages on the microblogging site with traffic data from Yahoo! (YHOO).
Although many garage developers are likely to sign up, open platforms also serve as an easy way to form new partnerships with larger companies. In July, Netflix's platform allowed Microsoft's (MSFT) Xbox team to easily integrate its content guides into the streaming movie application on its video game software.
Despite the success stories, many companies encounter resistance from within when exploring the possibility of opening their platforms. "It's easy for marketing managers to put their heads down and say 'I don't want to have to branch out and worry about what third-party developers might be doing to perturb this marketplace,'" says Jeffrey McManus, whose Platform Associates also advises companies opening APIs.
Those objections were once common at McManus' former employer, eBay (EBAY), before the company opened its platform to all third-party developers in 2003. Now outside applications make up for 60% of all listings on the site.