Welcome to Module 4 in this course on digital business models. My name's Andreas Constantinou and I'm an adjunct professor at Lund University, teaching internet business models for the past eight years. I'm also the CEO and founder of SlashData, a leading research firm where we help the world understand developers and developers understand the world. In this module, we'll discuss how developers are the engine of digital business models and how companies from Amazon to Walgreens are working with developers to create, deliver, capture, and defend value. Today, access to developers has become a competitive advantage in almost every industry from games and media, to banking and agriculture. Forward-looking companies invest millions of dollars and their best minds to attract developers and have them build apps for their software platforms. We saw earlier that developers are traditionally the software innovators. That is, the code engineers who will develop software and apps running on anything from a door lock and smartphone to a banking system and a machine learning computer cluster. In many cases, developers are permissionless software innovators. What does that mean? To start developing on a new platform, developers can download a software development kit, what's known as an SDK, read the documentation and code samples and start producing software straightaway. They don't need to sign any long winded legal documents, review confidentiality agreements, or seek special permission from the platform owner. By making it frictionless and permissionless for developers to build apps on a new platform, companies like Apple, Amazon, and Salesforce have amassed millions of developers around their platforms. Contrast this to how closed partner ecosystems in the 1990 like Qualcomm Brew and Oracle worked. They required commercial agreements in place with all software partners and instead they attracted not millions but mere thousands of developers. Note that in the cases of B2B platforms, there are varied levels of permissions required by developers to publish their apps on a platform. Notably Intuit, a financial B2B service provider offers APIs for developers to build on its QuickBooks accounting platforms used by small and medium businesses. The company carefully selects which apps are published and available to its B2B users, so as to audit and guarantee, therefore the safety of its customers financial data. Similarly, Expedia, as we shall see in a case study later on in this module, requires developers to apply for membership as an official partner in order to access Expedia information. While Expedia does expose developers all the tools and API documentation, they will have to become approved as a partner to use any of the travel API services available. In this module, we'll see why developers are far more than permissionless software innovators. We argue that developers are the engine of digital business models and we'll show how developers can extend any business model. Although developers can create a business for you, you have to do all the hard work. We'll also discuss case studies of some of the prominent companies leading the way in championing developers to extend their business models. We'll next examine exactly how developers can boost all four stages of a company's business model. That is, value creation, value delivery, value capture, and value defense. We'll also provide examples for each stage. We'll close this module by diving into case studies of a diverse range of companies such as DJI, Walgreens, Expedia, John Deere, Salesforce, and Roblox. Each of which is active in very different verticals. Firstly, let's look at how developers can help a company create value. Developers are product extenders. Consider how developers are creating value on top of the iPhone, the iPad, Apple TV, and Apple Watch by building millions of apps. These apps are effectively the features that the iPhone or the iPad did not ship with. For Apple, developers are the product extenders that allow Apple to claim that its products cater to a million different needs with a million different features, what Apple calls, "There's an app for that". Similarly, FedEx allows developers to extend its logistics services and tailor them to any e-commerce website. FedEx allows developers to add product shipping functionality to any website or mobile app and automate processes like creating shipping labels, estimating transit times or tracking shipment status. In this case, FedEx uses developers to extend its product. It's much like Expedia as we shall see, who uses developers to extend its travel booking services to any partner in the tourism, airline, and hotel industries. Developers can also add values as product connectors. For example, by connecting a Nest thermostat to a door lock so that your heating turns on as soon as you walk into your apartment. In this case, developers connect the application programming interface, or API, for the thermostat and the door lock and orchestrate the interactions between those devices. We'll dive into some of these examples later on. Now, let us look at how developers can help a company deliver value. Developers can help a company deliver a product to a new market or a new user. This is a role very similar to a distributor or a retailer. For example, let's take Uber. Uber works with developers to integrate the company's on-demand transportation platform into new apps and services. The company works with developers in hotels, airlines, and so on to allow Uber to reach new customers using airline and hotel services. Similarly, Amazon works with developers to sell and resell physical and digital products. Its mobile associates program allows developers to earn a commission on Amazon purchases made through the developers mobile apps and games. All of these cases of developers as distributors and resellers, we will examine in further detail, later in this module. Thirdly, developers allow a company to create value in different ways. For example, let's take Twilio. It's a startup that has created an API on top of standard telecom services and built a more than $400 million a year business by providing tools for developers to integrate texting and telephony into their apps. That is before acquiring email marketing API platform SendGrid. By integrating with Twilio, developers can now allow their users to make phone calls and send text messages through the same software. Developers pay for these calls and texts on a pay per use basis as a customer of Twilio. Amazon Web Services, Microsoft Azure, Salesforce App Cloud are all good examples of capturing value by charging developers for the services offered. Value can be captured with data and not just money. Some companies use developers as the data brokers that help them capture data about their users. For example, Twitter offers a suit of toolkits to developers allowing them to get user information, track usage of their apps, fix bugs and much more. Twitter collects data from these apps in order to inform its advertising business and improve its user targeting. In this case, developers indirectly broker user data to Twitter. Let's see another example. Facebook works with developers to integrate their identity services into as many apps as possible. The reason is simple. The more apps that use Facebook's login system to identify their users, the more Facebook will know about their users. Developers help Facebook to harvest user data to make their ads more effective and therefore make more money. Many of you will have seen that Facebook has come under intense scrutiny for allowing user data to be shared with third parties. Similarly, the GDPR regulation in Europe which took effect in May 2018 is very strict with regards to how user consent to access data is obtained, imposing large fines to companies that do not comply. This level of public scrutiny and regulation will significantly limit how companies can monetize user data as part of their business model. Finally, another aspect of developers as business model extenders. Developers are the value builders that help a business defend against the competition. For example, Apple with iOS, Google with Android were the first mobile platforms that managed to build and grow powerful network effects around their platforms. By the time Nokia, Microsoft, and Mozilla, and Samsung's Tizen joined the mobile platform wars, it was just too late. The sheer number and quality of apps on iOS and Android meant that users had a clear choice on in which phone and therefore which platform to buy. This came to be known as the "app gap" within mobile industry circles. Despite their multi-billion dollar investments, Nokia, Microsoft, Mozilla, and Samsung were simply late to the mobile platform wars. As such they were not able to amass the number of developers or the diversity of apps that they produced and therefore could not provide a comparable phone experience comparable to that of iOS or Android. In the next lesson, we'll dive into many more case studies on developers as product extenders and many, so in diverse industries from e-commerce and cars to smart home and drones.
