A year or so after becoming Microsoft CEO, Satya Nadella said “every business will be a software business.”
Of course, he didn’t mean that every business would start selling shrink-wrapped application software; even Microsoft hardly does that any more. Instead, it’s all about how businesses differentiate themselves. The way that today’s companies become more efficient, offer new benefits to customers, and deliver entirely new products is increasingly enabled by code.
Partly, that’s code they write themselves but what makes modern software development so effective is that developers can easily build on the work of others through APIs.
When you think of APIs it’s likely that some big names come to mind: Nexmo, the Vonage API platform; Stripe for payments; or one of the new Open Banking APIs. Although these are among the best known, you can also find APIs in almost any kind of business. In fact, the website ProgrammableWeb has over 21,000 public APIs in its directory.
Satya was right. Software is central to the success of just about every business today. And one of the ways to fast-track competitive advantage through software is to execute an API strategy.
One Second, API?
Let’s take a moment to review what an API actually is. It stands for Application Programming Interface and an API is a standard way to make a defined set of software functionalities available for other developers to use.
Let’s take Nexmo’s SMS API as an example. When Tony and Eric, the Nexmo founders, built a system that sent and received SMS messages, they could have kept it to themselves. For example, they might have created a downloadable application that let businesses use SMS from Windows PCs. Instead, they made their SMS functionality available as an API. That meant that any developer could then add SMS to their own software.
By releasing an API, a developer makes certain functionality––such as sending SMS messages––available for other developers to use in their code. That way, people who are skilled at coding SMS tools can focus on that and other developers can make use of it without having to become SMS experts.
Think of APIs as building tools. If you’re building a house, you don’t go and create cinder block from first principles. No, you buy cinder block that is manufactured by a specialist, allowing you to focus on delivering the thing you’re really good at.
That’s all well and good but, let’s face it, developers have been doing useful yet obscure things for decades. How are APIs any different?
APIs aren’t just for tech businesses. In fact, APIs are cropping up in all industries. Most importantly, APIs play two vital roles in the broader economy: they are a new route to market and they make it supremely easy for developers to pull together different services in ways their creators couldn’t have imagined.
APIs are at the Heart of Fintech
Think about banking. In some ways, it’s hard to imagine a more traditional business. APIs are changing that in two ways.
First, there are the fintech start-ups. APIs are crucial in fintech. Take a look at the Forbes Fintech 50 list; each of those companies is built on top of APIs of one kind or another. That means they can get to market far quicker than if they had to build everything in-house or, worse still, they had to engage with vendors in the capital-intensive 20th century way. With APIs, those companies pay only for what they use and it comes out of OpEx.
Many of those fintech start-ups also see APIs as a route to market. For Stripe, the core of their business is to provide merchant services through easy to use APIs. For others, APIs provide a secondary way to drive revenue by packaging their service for other companies to build into their products.
Outside of start-ups, traditional retail banks are investing in public APIs. Across Europe, legislation has obliged the largest banks to provide standard APIs designed to make it easy for regulated firms to build innovative products on top of the data and functionality provided by banks. Some, such as Barclays, Santander, ABN Amro, and Deutsche Bank, have taken this further and are now building new partnerships through their self-service APIs.
Travel and Leisure
Technology has been at the heart of the travel industry for decades. In fact, the first ever commercial database software was deployed by IBM and American Airlines in the early 1960s to speed up flight bookings.
Creating public APIs has been relatively easy for the travel industry, as their business has relied on private APIs since the mid-1980s. Companies known as Global Distribution Systems (GDS) have provided a digital marketplace where airlines, travel agents, hotels, and other privileged businesses can advertise availability and make bookings.
Today, the largest of these GDS companies also have public APIs available to any developer. Sabre, the company that emerged from the IBM and American Airlines collaboration, and their European competitor Amadeus now provide some of their services to any developer who wants to sign-up.
What This Means for Your Business
APIs are at the heart of a fundamental shift in how businesses are working together. In the old world, partnerships were fraught and governed by hard fought negotiation. With APIs, collaboration becomes inevitable.
For business leaders considering what their API strategy should be, the answer is a mix of looking at where APIs can enhance what you have today along with planning your API-driven future.
First, audit the software-driven functionality that your organization already has. This process should take into consideration not just the things that you consider to be products or services for customers, but any competency that might be useful to other businesses, that you can monetize, and that can be turned into a public API with an investment that’s commensurate with the likely return.
For the longer term, when building new products you should always consider how the building blocks and the product itself could be delivered through an API.
APIs are changing how businesses create new products and how they take their products to market. Just as the Nexmo APIs form part of the larger Vonage business, your APIs can help deliver your expertise in new and profitable ways.