The Netflix Effect and the API Effect: Parallel paths to disruption?

Will the API Effect be as disruptive as the Netflix Effect and fundamentally change how enterprise organizations obtain and use communications applications?

The Netflix Effect and the API Effect: Parallel paths to disruption?

The Netflix Effect has kicked off waves of disruption that are changing how the media business has run for decades. Similar to the Netflix Effect, the API Effect might fundamentally change the ground rules in the industries of companies that provide real-time communications applications to enterprise businesses. The implications for both universes have many parallels and portend possibly massive marketplace changes. 

What are the Netflix Effect and the API Effect?

What is the Netflix Effect? In the media industry it is the waves of change set off by the disaggregation of content and content production from the traditional methods of creation and distribution (cable and television networks and movie studios).

Similarly, the API Effect is when the participants in the Application Programing Interface (API) economy make it possible for enterprise organizations to buy communications functionalities that were once only bundled as part of monolithic stacks from vendors such as Avaya, Cisco, Mitel and the company that is today Unify. Traditional analogs in the content/media industry might be The Walt Disney Company, Time Warner and Comcast where in various combinations content creation and the means for distributing the content were consolidated.

How does this apply to enterprise communications?

In the content industry, Netflix, Hulu, iTunes, YouTube Movies and others employ over the top (OTT) methods for delivering content that is freeing consumers from dependence upon vertically integrated distribution companies. In the communications industry, companies including Slack, WhatsApp and Zang are making it possible for enterprise organizations to consume functionality in an OTT model. Examples of the enterprise communications functionality I refer to are advanced telecommunications functions, messaging and collaboration. Formerly platform-based, APIs now allow for individual elements of functionality to be distributed, consumed, mixed and matched independent of a larger and more comprehensive code base within which these functions were previously embedded.


An outcome of the Netflix Effect has been an explosion of new creativity as the path to monetize content becomes de-monopolized. So too in the communications industry, age-old notions of how enterprise organizations communicate and collaborate are shifting as new models emerge. Slack is not your granddaddy’s unified communications.

Other comparisons include the way content is packaged. In the waning model in the media industry, consumers had limited options. Previous to Netflix, consumers who subscribed to cable networks were offered bundled packages that left little flexibility.

Likewise in the communications industry; enterprises had minimal choice in communications platforms. There were base functionalities for a set price. In the ways that cable TV subscribers could add premium channels, so too enterprises might upgrade to more advanced applications, including contact center and unified communications.

The impact of the NetFlix Effect on the media business is dramatic with a “blurring the lines of traditional television business models” taking place. Some predict that the OTT model will render cable obsolete. The API effect is also beginning to shake the foundations of the enterprise communications applications industry.

Once communications applications such as telephony, messaging and videoconferencing could be obtained only from a server with functionality bundled to the hardware and priced as a capital expense. Even with the evolution to IP telephony, the applications typically resided on dedicated servers. Now, with the API approach, incremental functionality is becoming available in discrete units, in novel forms and from new and disparate sources. 


In the way that a Netflix subscriber can pick and choose the movies and television programs without the baggage of the basic packages, enterprise organizations are increasingly able to obtain individual components of functionality without needing to consume the 500 other features insisted by the previous model. Netflix subscribers pay on the order of “20 percent of the cost of most cable packages.” As the API economy emerges, will enterprise communications follow a similar path? The two marketplaces seem to be traveling in parallel in many ways.

Perhaps having learned the lesson of cable providers and media conglomerates that were late to realize the impact of the Netflix Effect, some big enterprise communications software providers took an early lead and have been exposing their intellectual property to development through new API-based platforms. Avaya Breeze, Cisco Spark and Unify Circuit are examples. Will these moves be enough to stave off the API Effect from fundamentally changing the basis of competition in the real-time enterprise communications industries? Time will tell.

Copyright © 2016 IDG Communications, Inc.

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