Context
Like many of you, I have been following Dalton Caldwell's proposal for the future of App.net . I think Dalton's idea is ambitious and applaud his transparency and candor. That said, it appears that most of the debate and skepticism surrounding app.net is related to its business model and potential for monetization.
Personally, I have no concerns regarding the technical feasibility of app.net but I am skeptical of its ability to monetize their business model on a large scale. I will use this post to share my mental model on API-based business models and look to the community to provide feedback to refine my understanding.
Four Types of APIs
If you are building an API, it is helpful to understand how your service will be viewed in the market. I believe all APIs can be classified into one of four categories: presentation, information, transaction, and infrastructure. If the categories look familiar, I structured the categories to align to various layers found in any modern multi-tier architecture.
Real World Examples
To validate my model, I classified several popular start-ups into one of the four categories. The list is not exhaustive but if you identify any potential exceptions and outliers, please let me know. Note: Besides the popular payment processors, I struggled to identify start-ups that expose a transactional API.
Customer Value Proposition and Business Models
Once I was comfortable with the categories, I stepped back and tried to figure out what job is the API hired to do? In other words, what value is derived by using the API. By understanding the value created, one can determine which business models would be viable options when it comes monetization. 
Barriers to Entry and Basis of Competition
When analyzing the business models, I noticed information & transaction API-based start-ups have more optionality in its business models and at a higher premium than presentation and infrastructure APIs. Its turns out that information and transaction-based APIs have higher barriers to market entry. Barriers to entry are obstacles that make it difficult for competitors to build similar APIs and compete in a given market. For example, the network effect created by Twitter's large user base is a barrier to entry that prevents new market entrants such as app.net from effectively competing in the micro blogging space.
It is also important to understand how the basis of competition for the different types of APIs. By knowing an API’s basis for competition, you can understand how developed (e.g. commoditized) the market is. In a commoditized market, companies compete solely on cost. Ideally, every start-up desires to compete on product innovation instead of being a low-cost provider.
This blog post is a work in progress and will continue to refine it based on feedback and recommendations received from the community.
