The emergence of the 'API Driven Economy'

The API economy has drastically changed the way many business interact, model their processes and offer value (anything you see marketed “as a Service”)  in a wide range of domains. I haven’t found a commonly used definition of what is the API economy or a definition that resonates good with me, so my own take on this:

The API economy, is an aggregation of business models, services and applications which are greatly influenced if not focused, on extensive use of Application Programming Interfaces (APIs). The APIs in such economies are not considered the technical means to an end, but a product by itself.

A more elaborate and probably better definition of what is an API economy is given by Steven Willmott and Guillaume Balas from 3scale, where they define it as:

“The emerging economic effects enabled by companies, governments, non-profits and individuals using APIs to provide direct programmable access to their systems and processes. The opening of APIs typically enables organizations to innovate more rapidly and provide uniform data and transaction interfaces to internal and external developers, partners and customers, for improved data access and transactions. Such organizations can also develop software applications to access these APIs to create new functionality and value both for themselves and the wider world. The resulting economy enables many new classes of applications with the potential to transform the way business is done.”

The API driven economy is a big thing, it is comparable with when companies were running to create their web pages. But now the digitalization is to a far greater extend. APIs in their most essential form, make easier the exchange of digitalized information and services.

The API economy is tightly related to the hottest technologies and trends, such as Social Networks, Machine-to-Machine (M2M) applications, the Internet of Things and the “Cloud”. In fact I wouldn’t just say tightly related, but these technologies are dependent on APIs since APIs are the glue that brings their different components together. The biggest leaders/innovators in the API economy are Amazon, Twitter, Salesforce.com and Facebook.

However, the API economy also affected other more traditional domains, for example the travel industry. You know these ticket search engine sites? They all use APIs from airlines and similar to retrieve information and provide the price comparisons and ticket booking services most of us use.

There are numerous ways from which API economy generates profits. First directly by services (more than half of Salesforce.com’s $2.3 billion in revenue originated from its APIs, not its user interfaces), by mash-up applications (use of one or more APIs to combine content and functions to produce new valuable applications or services) and finally through cost-efficient integration.

For me, APIs at their simplest level, are an integration issue and allow the easy communication between different software systems. Clean and well written/documented APIs can be used as a lighter and cheaper alternative to Enterprise Service Busses or a bunch of developers in the “integration team” for cases that they are simply not necessary.

The API economy is booming, not just in the tech domain and personally I am happy to see business and technological drivers being closely related.