It is highly likely we all know the chicken or the egg metaphor – was it the chicken or the egg who existed before the other? And more specifically, which of the two caused the existence of the other? By searching through the Internet to find articles about the new economy, it seems a similar question arises in the field of business model innovation.
Interest in this topic was spurred by an article published by Forbes (2017), in which the author claimed that ‘2017 is quickly becoming the year of the API economy’. Before diving into the topic, let’s first get our facts straight.
An API is a customizable software interface which enables initially separate software components to effectively interact and share data by building bridges between them, and thus overcoming ‘the inherent incompatibilities’ resulting from different software systems or applications (Mulesoft, 2017). Platforms create their value by facilitating an exchange of products or services or enabling co-creation of value for distinct user groups (Bonchek and Choudary, 2013). In the context of building bridges, it seems like both APIs and platforms fulfil a similar role as the connection between two (or more) different sides. Adding the word ‘economy’ to both of these terms simply refers to the way in which respectively APIs and platforms can positively affect overall organizational profitability (Mulesoft, 2017), or more specifically in the case of platforms, overall value created for the platform owner, provider, producers and consumers (Van Alstyne et al. 2016).
Law and Birmingham (2016) refer to APIs as the ‘oxygen for the platform economy’, following from the critical role these play in the success of platform business models. As APIs (1) provide an non-proprietary, open interface to participants of the platform, (2) enable data creation and flow back to users and (3) serve as an integration layer between different user devices, these are the go-to-tool for platform creation and development.
From the aforementioned, one can conclude that at the very least, APIs as lines of code, have enabled the value created for users and platform operators, and thus enabling the platform economy. However, as established above, the term ‘API economy’ reflects the way in which organizations are able to profit from APIs rather than emphasizing the omnipresence of APIs. The question at hand thus becomes: did the API economy fuel a platform’s ability to create value, or did the platform economy fuel the need for APIs as profitability- and business model innovation tools?
Stating which of these economies is the chicken and which is the egg is difficult – I think both are simply eggs enabled by a chicken we call the ‘Information Technology economy’. The API economy provided the agile tools for organizations to enable these to ‘plug and play’ different business opportunities onto the platform, and quickly test what could work and deliver value to stakeholders. So yes, the API economy fuels a platform’s ability to create value. Yet, stepping away from the traditional pipeline models to platform business models is not necessary fuelled solely by the fact that business leaders now simply have the tools to do so. These leaders recognized an attraction in the market between two different user groups and simply facilitated this connection through an IT channel. As such, the need for platforms fuels the need for a tool that could enable user connection – which are indeed, APIs.
But what do you think about this matter and the API- and platform economy? Please let me know in the comments!
References
Bonchek, M. & Choudary, S. P. 2017. Three Elements of a Successful Platform Strategy. [ONLINE] Available at: https://hbr.org/2013/01/three-elements-of-a-successful-platform. [Accessed 14 October 2017].
Forbes (L. Columbus). 2017. 2017 Is Quickly Becoming The Year Of The API Economy. [ONLINE] Available at: https://www.forbes.com/sites/louiscolumbus/2017/01/29/2017-is-quickly-becoming-the-year-of-the-api-economy/#3bb39de26a41. [Accessed 14 October 2017].
Law, C. K. & Birmingham, A. 2017. API is Oxygen to the Platform Economy. [ONLINE] Available at: https://which-50.com/api-oxygen-platform-economy/. [Accessed 15 October 2017].
Mulesoft. 2017. What is an API Economy (Application Programming Interface Economy). [ONLINE] Available at: https://www.mulesoft.com/resources/api/what-is-an-api-economy. [Accessed 12 October 2017].
Van Alstyne, M. W., Parker, G. G., & Choudary, S. P. 2016. Pipelines, platforms, and the new rules of strategy. Harvard Business Review 94(4) 54-62. [ONLINE] Available at: https://hbr.org/2016/04/pipelines-platforms-and-the-new-rules-of-strategy. [Accessed 02 October 2017]
