Written by Saeid Heshmatisafa Tampere University
For decades, many companies have developed APIs as a means for their partners to share information and facilitate integration. In the past, integrating software products with business partners might have taken 12 to 18 months, while APIs not only accelerate the process but also allow many business partners to collaborate and interact within an ecosystem. Web APIs form modern middleware that provides access to any type of content, data, and other digital assets to build creative desktop, mobile, and web applications.
In today’s digital economy, the value of your assets will remain limited if it is isolated within the individual business ecosystem. The outside-in practice of open innovation has led many companies to look outside of their organizational boundaries for the next novel ideas in order to expend their products and services and maximizing the value of their technologies. Open APIs are one of many ways that enable companies to gain positive network effect along with spotting emerging trends, developing new products/services, and creating a digital economy. It can be argued that APIs are the components that enable various apps, systems, and platforms to connect and share data with partners and third parties to develop new API-consuming solutions. Moreover, such a strategy can be seen in the case of Visma’s e-sign, the company could gain 180 customers with their traditional UI product. Nevertheless, as they began to embrace risking and move from the utilization of APIs primary for supporting integrations towards accepting third party users, the number of customers increased to 180,000 (by 100 times). Currently, the digital signature service has approximately 36,000 users.
ProgrammableWeb.com, one of the most popular API directory, has more than 23,539 public APIs in its database. Currently, the average single application is integrated by 18 APIs, and 50% of the B2B collaborations are powered through APIs. Most significantly, according to Akamai’s Tony Lauro, APIs are responsible for 83% of all web traffic. Google Maps, one of the earliest open APIs, can be found in many applications that include a geospatial aspect. For instance, Uber is a mobile application connecting taxi drivers (providers) to customers/consumers. However, behind the scene, Uber is an ecosystem of providers; Google Maps is used as a front-facing interface, Stripe handles the payments, Twilio for communications, and many more aiding the process of developing value chains of APIs.
It is evident that API technology has surpassed its original purpose as a “technical asset” and became the major force of the economy. A significant revenue stream of many incumbent companies is generated by their APIs, such as eBay’s (60 percent), Salesforce (50 percent), Expedia (90 percent), and Amazon Web Services (full 100 percent). APIs not only open a new monetization stream from “shelved intellectual properties,” but it also incentivizes the emergence of API-first companies and building a lucrative platform empire. For instance, Salesforces merged with MuleSoft – an API management system – for a value of $6.5 billion. Another example is the acquisition of Plaid – a startup company specialized in the development of APIs to connect payment apps such as Venmo to share banking and other financial information – by Visa for $5.3 billion.
APIs are not just another high-tech product; they are the next generation of the internet. Enterprises that take technological risks and embrace digital strategy are more likely to become the next digital transformation leaders. However, API strategies vary depending on the type of role a firm aims. In this regard, companies can experiment by exposing non-core assets through open APIs. Nonetheless, firms need to take a couple of critical capabilities into account when designing an open API. First, the value exposed by the API must be unique and useful. Second, API must be planned to address a well-defined need; exposing existing capabilities may require redesign and implementation from the perspective of potential users. Third, the simplicity and flexibility to meet user needs and styles of consumption. Fourth, ensuring consistent accessibility and operation. Fifth, it must be supported and extended throughout its lifetime. API providers require to invest a great deal of effort into the creation of the ecosystem and support existing users, advocate new users, and evangelizes. Thus, APIs have become a crucial asset for many businesses.