eBay has decided to give access to their developer network and traffic thru their web APIs away for free. That’s almost two distinct decisions.

According to News.com, up until today developers paid eBay between $1.25 to $2.90 per 1,000 items listed and an annual fee of $500. (*)

They are leaving a lot of money on the table, an that doesn’t happen easily, so I’m always interested by firms that decide to give away their developer networks and or their APIs because internally it makes the developer network group dependent on internal politics for their funding. Which means that the firm must have a strong model for what value they get back from these activities. It doesn’t matter what you call them: open APIs, developer networks, etc. etc. the problem remains. Most firms won’t build these if they can’t clearly comprehend why.

Here’s a start at a list of why firms give this stuff away.

The simplest case to make arises you can draw a clear line from the usage of the open API to revenue in the heart of the firm’s business.

• for example eBay or Amazon can give away open API access if drives more transactions thru their marketplace,
• for example a programable logic array vendor can give away designs tools if that leads to increased component sales,
• for example Google can give away a mapping widget if they are confident of their ablity to float ads or capture traffic from it, or
• for example they can give away website analytics if it tends leads to increased add revenue.

You might do it to solve a search problem. Firms typically have lots of options for what to do with the stuff in their portfolio. Searching for
the best things to do is hard and risk.

• Part of what makes it hard is that firms are don’t know what problems customers have, only customers knowthat. So a toolkit given to customers who are close to real problems can overcome that problem. How was google to know that people needed a mapping widget to display cheap airline fares?
• Developers will take risks that firms won’t. For example a large firm will insist on creating a web site that is scalable, internationalized, etc. A small firm will defer that; and thus learn faster. Small firms are less regulated than large ones.
• All firms have cultures the define what they consider to be important. One firm may care about safety. Another about ad dollars. Another about cool user interface. These core values make it impossible for the firm to discover innovations that involve a different mix of core values.

You might do it to create a network of complements around your offering.

• Complements raise the percieved value of your offering. This is why people sometime switch from the more robust FreeBSD to the more richly complemented Linux.
• Complments can drive upgrade from version to version (if that’s your revenue model). For example there comes a time when I must upgrade my Mac’s OS to gain access to current versions of other software I use.
• Complements make your offering much more sticky because when the customer wants to switch you have to coordinate switching all the complementary products you use.

It can be a useful part of your pricing strategy:

• As a kind of free sample.
• As a kind of lead generator. Developers who adopt your open APIs are likely cantidates for adopting more pricy offerings.
• As a way to get the long tail of users unwilling to pay drawn into your network. This is particularly key if gain some positive value for your network from every participant.

Then there are the reasons that arise from a firms desire to shape the market dynamics around it.

• An open API can be used to set a standard, and having the industry standard flow from your firm maybe in your best interest.
• An open API can draw in a large number of smaller players, who’s cost of sale you couldn’t reasonably bear, and temper the power of the large players who’s cost of sale you can afford.

It maybe in your interest to commoditize an adjacent market so your core offering remains were the money is made in the value chain. For example one model of open source is that software developers would prefer to be paid for their work and eroding the power of IP rights holders to charge pushes the money away from them and toward the coders.

The motivation for any particular developer network is probably an 80/20 mix. With 80% of the motivation coming from just a few of these, and the remaining 20% comming from the rest. I suspect that over time the motivations shift. I’ll leave it to the reader to puzzle about what shifting motivations drove the eBay change in pricing.