API Business Models

re: APIs – “Anyone who doesn’t do this, will be fired”​ – Jeff Bezos

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TL;DR – APIs are emerging as a significant and strategic engine of business growth. They (e.g. Twilio, Braintree, Stripe) are allowing companies to re-focus on delivering value differentiation, expanding into new markets, and building software – much quicker. Additionally, generating millions in new revenue, improving agility, and reducing the cost of technology. Jeff Bezos promised to fire people if they didn’t create APIs. Yet APIs have not garnered the attention from non-technical executives. I cover how to explain APIs to your CTO/CEO, why they should care, and what they can do to act.

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Since waking up, without knowing it, you’ve probably used 50+ Application Programming Interfaces (APIs).

Checked the markets on the Stock App? It pulls stock data from the Yahoo Finance API.

Checked your favourite News app? It pulls articles from ESPN, Bloomberg, AP’s APIs.

Uber-ed home? Uber uses

  • Google Maps API for your location, finding the driver, and plotting a route
  • Twilio API to keep you up-to-date with real-time “Your driver is approaching” texts
  • PayPal Braintree API to process your credit card payment
Uber's Tech Stack is a combination of APIs

API companies are quietly and fundamentally changing the dynamics of how software is created and brought to market. And tech forward companies are taking notice – Mulesoft was acquired for $6bn by Salesforce. Monetization of Google Maps API will generate $5bn annually. Plaid’s payment processing API was acquired for $5.3bn by VISA.

APIs need to be thought of as an asset

Yet, they have not garnered the attention of CTO/CEOs. Just as the Assembly Line and specialization of labour have led to faster, cheaper, better goods in the physical economy, APIs are advancing quality, speed and cost in the software economy.

So, how do you explain APIs to your CEO? 

Simple and sophisticated, APIs, are best explained through an analogy – a restaurant menu, or as I’ll call it, a “Food Ordering Interface (FOI)”.

The menu acts as an interface (I) from which I can order (O) food (F). It is the agreed method for the restaurant and customer to exchange information (ie. order). The FOI (i.e menu) tells me everything they have in stock and the information they need to accept my order. For example, ‘3’ ‘Large’ ‘Grilled’ ‘Chicken’ ‘Burger’ and ‘Salad’ ‘to-go’. In return, I get a product (burgers) and a service (cooking).

Without this system (the FOI), I’d walk in and have no idea what they have to offer or how to convey my order. So, I’d have to leave, return home and cook myself. Common Food Ordering Interfaces (i.e menus) are McDonalds and Starbucks, and they are (almost) the same no matter where on Earth – scalable and repeatable.

“Anyone who doesn’t do this [APIs] will be fired. Thank you; have a nice day!” – Jeff Bezos, Amazon’s API Mandate

Similarly, an API is the digital menu card. It is the Interface (I) from which a developer can program (P) applications (A).The API tells the developer what data or process is available, and how to submit an “order” to receive the data and/or process. For example, the Uber app can “order” the travel time between two locations using GoogleMaps API, or “order” payment processing services from Paypal.

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Why should CEOs care? 

Before APIs, companies built each component of their software in house – regardless of their core competencies. Take Parts Unlimited, a car parts company from Gene Kim’s novel The Unicorn Project. Parts Unlimited found itself defending rather than disrupting. In addition to their car parts, they built and managed their own payroll and other critical systems. Just before November’s shopping season, a massive outage in their Payroll system caused IT to shift to ensure employees would get paid correctly. Technical debt caused loss of focus, which caused product recommendations and deal bundles SKUs to not be ready in time. Stores were backed up, sales were lost and it was headline news. No CEO wants that.  Today, most companies plug in to ADP’s HR services through APIs.

CEOs should ask CTOs, where are we dedicating precious resources to recreating something in-house that’s done better elsewhere? – Daniel Levine, Accel

Today, a new breed of API first companies are allowing their customers to get back to disrupting rather than defending, by:

  • Focusing on competitive differentiation – rather than re-creating data and processes that have been made better elsewhere. Companies can reallocate engineering resources to focus efforts on creating a differentiated product, and dominating their market. Apps like Uber and AirBnB focus on micro-mobility and curated experiences. They simply pay for global transaction processing (Paypal API) and telephony services (Twilio APIs). These services are downright better and benefit from economies of scale.
  • Rapidly expanding into new markets and use cases – creating new revenue streams. Google Maps started as a navigation app, and has now permeated almost every eCommerce website for ‘store locations’. Real Estate companies (Zillow, Compass) map their listings on top of Google Maps, and restaurant search apps like Resy and Yelp allow users to find new experiences. PayPal, originally built for paying for eBay auctions, is now on every site globally as another payment method. Organizations are effectively creating a storefront and allowing others to plug into their data and processes through APIs for a usage fee.
  • Accelerating delivery time – teams do not need to start from scratch. Instead, they create new applications by using existing APIs in new combinations. Walgreens exposed their internal Photo Printing API, allowing a large number of popular photo editing applications to offer Walgreens in-store printing. These apps are better than anything Walgreens could have been able to build. The new in-store cohort also represented increased foot traffic, with higher customer engagement, and higher sales per visit. Reusing APIs allowed HSBC to reduce app development time by 75%, releasing every two weeks vs once a quarter.
  • Improving internal IT people operations – teams could be organized to build and maintain their API, becoming experts and having clear lines of ownership. Developers use each other’s assets without having to wait around for permission.
  • Improving developer productivity, as many of the APIs are focused on making it easier for developers to just get started! This sector has seen major advancements, driven by AWS and Google. This is essentially Ford’s assembly line, which reduced the time to build the Model-T from 12 to 2.5 hrs.

What should I do as the CEO? 

Ask your Engineering team: Are we making it easy for internal/external customers to use our APIs? Where are we dedicating precious resources on reinventing the wheel?

Ask yourself, “Is my Engineering team defending or disrupting on a daily basis?”

CTOs and CEOs now have the responsibility to understand how APIs play a critical role in the advancement of building new products faster, reaching new markets, and improving operational efficiencies. Or risk getting left behind as software eats the world.

This article originally appeared here.

Ayan Dutta
Ayan Dutta brings a millennial perspective to the rapidly changing technology landscape. He traded in a gig as a Consulting Actuary to F100 insurance companies to follow his passion and work directly with CTOs of hyper scaling, technology first companies. He is in the front lines working with CTOs, architects and lead engineers to modernize their backend technology using noSQL and containers, to build competitive advantages in cost, productivity and time-to-market. His area of expertise lies in Enterprise Software and Decision Making, and believes we are entering the age of software automation, APIs, no-Code, noSQL. Early in his career, he sold his music blog and podcast to Billboard.com, and enjoys writing about actionable insights based on real customer experiences.

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