You have probably heard of APIs. If you have a more technical background, you probably understand APIs quite well. But have you thought about how APIs will affect the economy and businesses in the future? This text will not be very technical. I will mostly talk about the side of APIs that might interest business students more: how APIs have changed businesses and industries, how consumers benefit from them, and what are some business-related challenges in the new API economy. But first, let’s get a one-paragraph introduction to APIs so that we are all on the same page.
APIs, or Application Programming Interfaces, are tools that allow software components to exchange information with one another (“What Is an API? – API Beginner’s Guide – AWS,” n.d.). There are many different protocols and architectures that APIs use, but I will not dive deep into this. If you want to dive a little deeper into the technical stuff I would recommend the above reference from Amazon. For the scope of this blog, I think it’s just important to understand that APIs facilitate communication and data exchange between two different softwares.
To make you understand how important these APIs are in the 21st-century economy, I will provide a few examples of where APIs are used. If you have ever visited a website that requires you to create a user, you have probably seen the possibility of logging in with a Google or Facebook account. This is possible because of APIs that allow the website to communicate with Google or Facebook. When you order something from a website and pay for it by clicking on the PayPal logo, or iDEAL in the Netherlands, you are seeing an API in use. So as you see, we rely on APIs every day, probably without thinking about it at all. In these examples, we see some of the benefits of the API economy for both companies and users. For companies, this means that products can be developed faster and easier. For example, log-in integrations from Google and Facebook mean that you do not need to code a log-in service for your website yourself, but instead it is provided to you by another company. Third-party log-in also helps consumers as you do not need to create a new account and password for every website. In general, APIs enable a more seamless customer experience for end users.
However, APIs do not come without their challenges. There are many areas of concern in the API economy and obstacles that firms need to overcome to take advantage of the opportunities that APIs provide. In older companies, the culture of closed-off, proprietary product development is often in contradiction with the openness of APIs that aims to create an ecosystem where third-party providers offer an integrated solution (Sisk, 2015). Also, APIs have some security concerns and poorly designed APIs have resulted in considerable data breaches (Munsch & Munsch, 2020). In addition, APIs make a company more dependent on other companies. In the log-in example above, a website using Google’s log-in is dependent on Google so that users can access their accounts.
Despite these concerns and obstacles, APIs are here to stay. For example, Google and Twitter alone process billions of API requests a day (Savitz, 2012). The breakthrough of the API economy also goes beyond big tech companies as considerable adoption is already seen in industries, such as finance and real estate (Sisk, 2015) Thus, it is important for managers to think about strategies to make the most of this technology and for students to understand the API economy in which they will most likely be working in the future.
References
Munsch, A., & Munsch, P. (2020). The future of api (application programming interface) security: the adoption of apis for digital communications and the implications for cyber security vulnerabilities.(article 2). Journal of International Technology and Information Management, 29(3).
Savitz, E. (2012, August 29). Welcome To The API Economy. Retrieved September 15, 2022, from https://www.forbes.com/sites/ciocentral/2012/08/29/welcome-to-the-api-economy/?sh=50bbb9e53a21
Sisk, D. (2015, January 30). API economy. Retrieved September 15, 2022, from https://www2.deloitte.com/us/en/insights/focus/tech-trends/2015/tech-trends-2015-what-is-api-economy.html
What is an API? – API Beginner’s Guide – AWS. (n.d.). Retrieved September 15, 2022, from https://aws.amazon.com/what-is/api/
Very interesting post about APIs! I have heard from them before but I have never really thought about the fact that I also take advantage of those APIs quite frequently myself. In my opinion, it is very convenient that when logging into Facebook, logging into Spotify as well can be done in one go. Additionally, APIs in terms of mobile payment using IDEAL is also something that I use at least once a week. Another example of APIs that you did not mention but I love is that when searching on Google for restaurants that are close by, you immediately get information about opening hours, reviews, contact information etcetera, and when clicking on the map icon, the API will direct you to the Google maps app in order to see the exact location and a possible route to go there. Yet, as you mentioned I think the red flag of APIs regarding data security can pose a real issue, especially since data privacy is becoming more and more important in the current days. I am curious to know how this issue will affect the further adoption of APIs and how tech companies will combat this issue. Do you expect to see APIs be increasingly used in more industries in the coming years?
Great examples! To answer your question, I do believe so. First, here’s a market study saying that API management will grow at a CAGR of 25.1% from 2022 to 2027 which indicates a very strong growth (https://www.marketsandmarkets.com/Market-Reports/api-management-market-178266736.html). Second piece of evidence for this I will give from my work. So, I work for a company that makes locking systems. I think this is a very traditional industry where some key players have been in existence since the 1800s. Back in the day, you would have only mechanical locking systems, that you will still most likely have at home. Think of a normal key and a lock. But for some time now, locks have become mechatronic or electronic. So, you have a key or a card where the access rights are held in electronic format, and when the key is inserted to the lock or the card is shown to a reader, the access rights are validated electronically. These systems use software to manage the keys and locks and APIs have changed the industry quite a bit. Nowadays, any new product introduction will have APIs as an integral part. This is because they streamline the customer’s processes so significantly. For example, a customer might have a workforce management software. When a new employee joins the company, you have to enter their name and role to this software. Without APIs, you would also have to enter the same information to the locking system software. But because of APIs, the locking system software receives the information automatically. There are many more examples, but the key point is that APIs save a lot of time. To get back to your question, as we see that APIs are growing fast in a very traditional industry, I think they will become more and more meaningful to lots of industries every day.