APIs – picks and shovels & bulldozers and excavators

16 Jun 2021 • Strategy & Business Design

APIs (Application Programming Interfaces) allow any company to create business value by connecting with other software platforms. The API stack is creating new opportunities for companies to go direct to consumers, innovate on the core infrastructure of their business, and develop entirely new business models. With a company like Airbnb that relies on thousands of APIs and integrations, one can imagine that their business could be significantly impacted if a large percentage of the logistics system suddenly shifted to legacy systems as IoT, AI, and AR continue to mature.

Why are we seeing such massive adoption? APIs are the ‘picks and shovels’ of our modern digital age. Defacto building blocks, APIs provide core infrastructure and enable developers to build quickly without needing to code everything from scratch. Yet, at the risk of taking the analogy too far, APIs are moving from just picks and shovels to becoming bulldozers, excavators, and even complete prefab buildings.

In other words, we’ve moved from the 1st layer of APIs that provide API Infrastructure components, into the 2nd layer of APIs that offer higher value API Services. Together, API Infrastructure and API Services, along with consolidated API Platforms, make up the API Stack. The API Stack blurs the boundaries between infrastructure and applications in an exciting way that will create opportunities for developers to build more, faster. I try to define the reasoning behind each layer ”movement” below.

1st Layer: Infrastructure

This first layer of the API economy can be defined as API Infrastructure, the picks and shovels, or the foundation of the API Stack used to build applications. The API Infrastructure layer is where we can find the data, content, and connectivity that fuels the API Economy.

The foundation or underlying technology of this layer is becoming more important as companies are realizing that their software infrastructure needs to support a more micro-services-oriented way of developing applications. In other words, moving from large monolithic applications to smaller self-contained components, or microservices. Microservices have become wildly popular over the past three years because they are considered better for business agility. This is due in part to the fact that microservices facilitate rapid and continuous delivery, which is a core tenet for Agile Development.

Microservices allow companies to respond faster to customer needs and manage the complexity of larger projects. For example, a large enterprise might build one application by stitching together numerous microservices from different vendors. Each service solves a specific business problem or task. In between the monolith and microservices you can find usually composable commerce that relies on packed business capabilities.

2nd Layer: API Services

With API Services, developers can now offer e.g. business banking & loans as an extension to their existing business without any of the hassle of needing to establish a bank license or build any technical infrastructure such as start-up Bankify does with challenger banks. API Services are enabling traditional brick and mortar businesses to move more quickly towards digitization. Finally, we are seeing API Services that allow new digitally native startups to be built more quickly, allowing for more specialized differentiation and faster time to market.

As noted by the examples above, API Services will become critical enablers for developers moving forward, and this is the area where we’ll see the most innovations among API companies. As an example, while Lending Club, a peer-to-peer lending startup, allowed anyone to lend money over the internet and earn a return on their investment, it was very difficult for consumers to get started. As Lending Club continues to grow and expand its services beyond lending money, the company is doing so with API Services that provide more robust functionality for consumers. For instance, the company’s API Services enable consumers to track their loan payments easily. This functionality is particularly important for a company like Lending Club that is still in the early stages of growth. API Services ripe for breakout include APIs for Banking, Mortgages, Insurance, and Commerce.

Consolidation: API Platforms

For those companies that have gone beyond the early stage of building an API infrastructure, API Platforms allow companies to accelerate their development efforts by connecting their APIs to business services across industries and geographies. Even with APIs being considered as a foundational technology, this layer is also moving forwards at a fast pace. Today, some companies can offer entire API Platforms that span multiple industries and geographical locations.

What will become of the API Infrastructure and API Services companies in the long term? As noted above, there will be many opportunities for standalone companies with large successful outcomes to be built, especially for those that solve core needs, are revenue drivers, and have mass applicability. That being said like we’ve seen in virtually every other market since the dawn of the industrial revolution, whether it’s railroads, cable companies, or investment banks, there will be consolidation and platforms will emerge. We are already seeing the initial winners like Stripe and Twilio continue to build more products and acquire API companies to become platforms, much like Google Cloud Platform has done within a cloud infrastructure.

I’m confident that there is a bright future for the startups that are building this next generation of APIs, as well as all the businesses that will be built by this new set of infrastructure and services.

Interested in learning more about the opportunities APIs may provide? Don’t hesitate to get in touch with us!