In computer programming, an application programming interface (API) is a set of routines, protocols, and tools for building software applications. An API expresses a software component in terms of its operations, inputs, outputs, and underlying types. An API defines functionalities that are independent of their respective implementations, which allows definitions and implementations to vary without compromising the interface. A good API makes it easier to develop a program by providing all the building blocks. A programmer then puts the blocks together.
APIs used to be the nice-to-have part of the system you were building so that occasional partners could integrate products or internal systems could work together more seamlessly. They were typically awkward to work with and took a great deal of time to finesse and finagle into new connected solutions.
Now it has all changed.
In recent years APIs have become a core element for B2B and B2C relationships, even integrating on a personal and code hobbyist level. Open data has helped create momentum and new world platforms have loosened up and set their APIs free.
There more APIs available today and companies are combining APIs to offer new ways for companies to create and capture value. In the Harvard Business Review article ‘The Strategic Value of APIs‘ Bala Iyer and Mohan Subramaniam state that there are over 12,000 APIs offered by firms today, and that Salesforce.com generates 50% of its revenue through APIs, Expedia.com generates 90%, and eBay, 60%. Salesforce.com even has a marketplace (AppExchange) for apps created by its partners that work on its platform; they now have over 300 APIs available. ProgrammableWeb provides a pretty extensive list.
Very few ‘traditional’ firms are active in the open API economy. Maybe this is the fault of legacy systems but it is most likely due to outdated architectures, bureaucratic IT systems management and development practices. Banking, insurance, pharmaceuticals, food, transportation and energy are all guilty here.
The new and burgeoning API economy is dominated by young digital platform companies. Businesses that are focused in areas such as social, mapping, search, on-line payment, image sharing, video and messaging are leading the way. Instantly recognizable companies like Google, Microsoft, Facebook, Amazon, eBay, Yahoo, Salesforce and Twilio, as well as lesser-known companies like Quova, Anedot, and Zapier, are all getting benefits from having open API philosophies.
In the article ‘Decoding the API Economy with Visual Analytics‘, Peter C. Evans and Rahul C. Basole outline how things have changed and they have chosen to visualize what this ecosystem looks like today and call out Amazon and Wal*mart as example of the two ends of the spectrum.
Amazon has had an explicit policy of creating open APIs. The results show. Amazon has over 33 open APIs, which have been combined with other APIs to create over 300 API mashups. Walmart, by contrast, has only one API that has yielded only one mashup. When you run standard network algorithms you find that Amazon sits near the core of the API economy whereas Walmart is at the periphery. While Walmart still beats Amazon in overall sales, it is far behind Amazon with less than one-sixth the online sales. Amazon’s revenue is also growing faster, with year-on-year growth from 2013-2014 of 20 percent compared to 1.9 percent for Walmart. While there are a variety of explanations for these results, the differences in APIs strategy provide valuable clues contrasting approaches to innovation and customer engagement.
You can see what they are talking about from their amazingly well presented data visualization of the API Economy Ecosystem they present in their article.
Amazon continues to grow the number of open APIs it offers. In eCommerce space alone there are now 140 mashups built on Amazon APIs. You can see that they have created a huge competitive advantage if you look at their direct competition.
Amazon is also going beyond eCommerce into other areas such as cloud, enterprise tools, mapping, messaging, networking and payments. These are fundamental information infrastructure services for the Internet of Things. As a result, it may be important to consider whether it will be necessary to reclassify Amazon’s industry peer group.
We see big implications with what Amazon, and other progressive companies are doing. The Internet of Things (IoT) will be plugged straight into eCommerce platforms and Amazon Dash is a simple demonstration of that. Amazon Echo, and the future smart home will be plugged right into the supply chain for goods and services.
Open source retail economies are likely to give power to the people that plug into multiple APIs with maybe some help and referrals for even the smallest family run businesses. Affiliate relationship can be seen as old school business, but it is still good business and Open APIs are here to make the world work together a little more easily.
Nikolas Badminton is a world-respected futurist speaker that researches, speaks, and writes about the future of work, how technology is affecting the workplace, how workers are adapting, the sharing economy, and how the world is evolving. He appears at conferences in Canada, USA, UK, and Europe. Email him to book him for your radio, TV show, or conference.