Iddo Gino is the CEO and founder of RapidAPI. In this article, he discusses the evolution of the API economy.
I started the company with a mission to empower developers to create transformative software, a very developer-centric mission. Our approach is how can we help developers build better software and do it more quickly. We found, over time, that one of the biggest accelerants to software development is the reuse and leveraging of APIs and being able to compose APIs into the new software. We enable developers to do that with our public hub. We are the world’s largest API hub connecting over 4 million developers to 10s of 1000s of APIs and processing billions of API calls through our platform.
Over the last decade, we have seen an explosion of API-first companies, with entire companies offering APIs to developers and centering their business around offering APIs. We also see that the vast majority of internet traffic today is centered around API.
APIs are the fundamental building blocks powering software development. APIs and API tooling is the fastest-growing API and developer tooling industry sub-segment. APIs and offering APIs as a product are growing at over 63% annually. So even when the economy is slowing down digital transformation and additional digital initiatives are still important.
As we progress, every company gets divided into two different types of companies. We have the company’s B2B businesses working on deeply technical problems not just in software or the cloud but in any space and providing infrastructure. And then you have other B2C companies taking those tools in that infrastructure, connecting to it via APIs, and turning that into consumer-first companies. Let us look at a few examples.
Apple Card – Apple recently launched its credit card. It’s already become one of the most popular credit cards in the world. Apple is not providing any financial services. Goldman Sachs is the bank. Apple has built a great consumer experience based on the Goldman Sachs infrastructure and connected to Goldman Sachs via an API. Goldman Sachs is a financial infrastructure provider, solving many problems of creating a banking and financial infrastructure, securing it, complying with regulations and security, and offering that as an API B2B service.
Robin Hood– Robin Hood is the new stock trading application that has become super popular over the last few years. Robin Hood is not a financial services company. They use services like Citadel and offer stock trading and holding.
Clubhouse – They provided this great experience around setting up live clubhouses, talking to influencers, and having interesting conversations. Only they didn’t want to go and deal with a lot of the infrastructure of actually doing live audio encryption, coding and decoding, and powering audio infrastructure. They used the API Agora to drive that.
The overall trend that has been powering the API economy has been this bifurcation of the industry, where you’ve got companies that take the deeply technical problems, create infrastructure around them and provide that infrastructure as a B2B API. The other companies, those B2C consumerizers, take those infrastructure APIs and turn them into consumer-first applications.
What’s next for the API economy?
- Every company becoming an API company. We’ve seen a bifurcation of the market between B2B API providers and API consumerizers. Every company is going to be on one side or another of that trend; o either providing APIs or consuming APIs to create an application, so every company will become an API company.
- Companies will create more APIs for more reasons.
- Successful companies will invest more in the API stack. They are thinking more about API tooling and how it enables them to create more APIs and participate more thoughtfully in the API economy.
Most legacy companies did not participate much in the API space for most of the first ten to fifteen years of the API economy. Let us discuss an example in the Telco space. Classic, well-established telco companies had the infrastructure in the telco space. But for a long time, they did not have the APIs that were accessible to developers to empower them to create software on top of them. So, a new startup came along. Twilio is connected to that infrastructure. Twilio doesn’t own any wires, antennas, or physical infrastructure; they rely on the existing companies in the space. They provide a new API that is compelling to developers on top of that. We get a two-layered economy where legacy infrastructure providers did all the hard work to create the infrastructure. Then you have the API startup, which are tech companies creating a compelling developer-first API on top of them, and becoming tremendously successful with that. These companies are making 80% plus margin profits on top of that existing infrastructure. Now that the API economy is maturing, legacy businesses have realized they must become API-first companies. This is why we’re seeing more developers, especially those working in the enterprise, invest more time building partner and customer-facing APIs.
Business drivers for API creation
There are also a few other drivers for companies to create more APIs.
- Direct revenue – generating an API to bring a new revenue stream into the company. You develop APIs to drive telco revenue, banking revenue, and more sales for your product through an API channel.
- Data Collection – Companies increasingly realize that by creating APIs and getting companies to integrate with those APIs, even if those APIs are free, the data received by the companies through the consumption of those APIs is becoming immensely more valuable.
- Product Stickiness – Companies realize if we create an API, and we provide that API to our customers, and they integrate with that API, that creates a whole wealth of integrations around our product, which makes it hard to switch away from our product later. So, we should encourage our customers to create more API integrations. And those API integrations will make it harder for them to switch off of our product later and make our products stickier.
- Extension – Enabling startups to cater to new segments and industries by making their product extensible and creating a marketplace of those extensions around their business.
- Product relevancy – Products might have a tremendous amount of data, market effects, or network effects, but they may fall behind in relevancy. Becoming an API provider can keep that product top of mind.
To conclude, driving revenue is one of the most critical things in a company. But we also see trends that relate to driving continuous innovation for the business and guaranteeing the future relevancy of that business. We are realizing that to be successful, you need APIs.