February 04, 2021

What the API Economy means for developers

By Nick Borrett

In this article, we'll examine the basics of what the API Economy is, how developers can tap into its potential, and what developers should be aware of before taking steps into the arena of API-driven services.

Introduction

The API Economy represents a seismic movement away from silos and monoliths towards collaboration between people and products. It is a frequently-used phrase that denotes the importance of APIs as a core element of the business model to generate revenue for companies and deliver state-of-the-art experiences to customers.

What is an API?

An API, or Application Programming Interface, is an interface to a set of business functions. It abstracts the complex implementation of those functions behind a series of programmable endpoints, which developers can consume through code and turn into applications. For example, an e-commerce application may use an authentication API to control user access, a content API to fetch a list of products, and a payment API to take people's payments.

APIs encourage seamless interaction between unrelated applications, potentially built using different technologies. We can compare the use of APIs in applications to the use of cogs in machines. Cogs can be placed together with other components in a machine. Once the machine is switched on, the cogs and components start working together, and the machine performs the desired task. The machine generates value to the operator. The cogs are the APIs, the machine is the application, and the active operation of the machine is the API Economy.

What is the API Economy?

The API Economy is the integral use of APIs by companies to turn their products into platforms and collaborate with partners to open up new avenues of revenue that would be difficult to achieve by themselves. It enables their business expertise to be integrated into modern and innovative applications leading to first-rate customer experiences.

In 2002, Jeff Bezos shared an internal memo to all employees at Amazon to enforce the use of "service interfaces," not only to share data between teams but also to expose data to developers in the outside world. These interfaces, or APIs as we know them now, became the key building blocks in the architecture at Amazon, and their prevalence helped build the foundation of Amazon Web Services. Amazon's shift to an API-driven approach is symbolic of what we see with today's global trend moving towards API-driven services.

Since then, cloud computing's popularity has notably increased API usage in applications and turned APIs from programming interfaces into valuable business assets. The emergence of software companies that focus on an API strategy at the core of their business model has formed what we recognize today as the API Economy.

Today, enterprise platforms such as Twilio (communications), Stripe (payment infrastructure), and Auth0 (authentication) use APIs to bring new products to the market which provide functionality that can be shared and combined with other applications. Even companies in non-tech industries, such as healthcare, are using APIs to gain new business, improve user experiences, and ultimately improve the bottom line through efficiencies and economies of scale.

In some situations, this digital transformation means that the API is no longer part of the product - the API is the product.

Take the financial services sector as an example. The fastest-growing banks and financial institutions invest millions of dollars into being part of the API Economy, and those who aren't are getting left behind and finding it much harder to compete with their digital counterparts.

Around 10 years ago, Stripe launched a basic API to process credit card payments, and since then, they have expanded their suite of APIs to support a wider range of payment infrastructure tasks, such as business financing and fraud protection. Today, Stripe has a valuation of more than $36 billion and is one of the fastest-growing fintech companies worldwide.

The introduction of the Open Banking initiative has allowed regulated apps to access personal account information from your bank via secure APIs to make financial decisions and recommendations. This approach has led to new ideas and innovation on a scale not previously seen in the financial services sector.

How can developers benefit from the API Economy?

Developers take great satisfaction turning original ideas into new products. Thanks to a rich ecosystem of APIs, it has never been more convenient for developers to integrate with data from diverse sources to build creative and innovative applications. The limits are only the developer's imagination and the capacity of the APIs.

Convenience

APIs in the public domain cover many use-cases, and developers can outsource complex tasks to those APIs with relative ease.

Let's take the example of an e-commerce application, which requires a list of products that a merchant can sell. Without an API-first approach, a developer may need to create and manage a database of products, develop a front-end to validate, store, and retrieve products from the database, and ensure that this is fully tested against all possible scenarios. That sounds like a lot of work! A developer may not have the time or expertise to develop to support a multi-layered system like this. With an API-first approach, the developer can use a content API to perform the same task.

The net result is twofold. First, the developer spends more time writing code to make their application unique and original and less time writing code to solve problems that have already been solved. The team at Uber integrated with the Google Maps API to provide mapping functions, allowing them to focus on developing their application's core features. Second, the developer can build their product much quicker since they only need to hook into an existing API rather than build a solution from scratch.

Cost

Many APIs in the public domain implement pricing tiers. These cater to the needs of developers and enterprises. These pricing tiers are often usage-based (pay for what you use), subscription-based (pay monthly or annually), or a combination of the two. Each pricing tier may offer different options with different usage allowances, so the choice of which pricing tier to use is generally determined by the options required and the API's predicted usage.

As far as developers are concerned, the benefit is that most APIs offer a free pricing tier. This provides access to most, if not all, of the key features of their APIs, albeit with usage limits lower than chargeable pricing tiers. This makes it accessible for developers to use, explore, and experiment with the API to build prototypes or proofs-of-concept. It also makes it scalable for startups and larger enterprises that may need more options or increased usage allowances to meet the increased demand for their applications.

Developer support

With the API Economy becoming a key part of the business model of companies across the globe, the relationship between those companies and the developers who work with their APIs is more important than ever. The integral role of external developers has led to the emergence of developer relations teams within companies. These teams' key objective is to focus on building the relationship with external developers and increasing the level of developer engagement with their APIs. They can support developers by providing how-to guides, API references, technical documentation, and access to developer communities.

Is this a benefit for developers? Absolutely! Developers who are given the necessary support to understand and consume an API with confidence, but also know where to turn if things aren't going as expected, are more likely to get pleasure and satisfaction using that API, which will be reflected in the quality of what they build.

What negative impacts should developers consider about the API Economy?

From what we've described so far, the API Economy is mutually beneficial for both companies and developers who are involved. However, there is one main disadvantage that developers must consider before launching head-first into an API-first approach: dependencies.

Integrating third-party APIs into an application introduces dependencies on external systems out of the developer's control. If any of those APIs go offline or become unavailable, the application built upon those APIs may become unstable at best, unavailable at worst. In the same way that a chain is only as strong as its weakest link, an application built on fragile APIs will be a fragile application. Also, the API may change over time, and this requires an element of ongoing maintenance from developers to ensure their application stays in sync with the API definition.

These risks can be mitigated by investigating the APIs. Ideally, developers should seek APIs that are stable, reliable, and well-document. These APIs should be from companies that offer a service-level agreement for promised uptime and have 24/7 support to help with severe issues.

It is always worth noting that, so long as the external dependency exists, the risk of downtime will always exist.

If the developer needs all aspects of the system to be under their control for regulatory or performance reasons, it may not be possible for them to benefit from what the API Economy offers.

What does the future hold?

With the endless opportunities available to build and monetize innovative applications using the power of the API Economy, the future for developers is an exciting one. The great news is that it is just getting started. For example, the Internet of things (IoT) is a concept built upon the real-time exchange of data between devices over the Internet, so this may be a prime area for further growth, scalability, and innovation. Automation and machine learning are sectors that may also gain from their connectivity with the API ecosystem.

More companies, from startups to enterprises, realize the benefits of an API-first approach and the need to place developers at the heart of it. The developers are the ones who will consume these APIs; they are the ones who will place the cogs in the machine. Without a doubt, the API economy's impact will last for the foreseeable future, and it offers developers the chance to play a prominent role in shaping it.

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