The API economy of the 21st century

15

September

2022

5/5 (1)

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/

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CANNIBALIZE YOUR OWN BUSINESS

5

October

2018

No ratings yet. When it comes to business strategy, it is essential to learn from past examples and great strategists. For example, we all know that business cannibalization is a hard task that entails obstacles of many types. Not only it means giving up on known success in exchange of unknown future, but it also creates competition within a company, as it entails winners and losers. And yet, successful masters embraced it and brought it to the next level, accelerating the process.

Steve Jobs once said: “If you don’t cannibalize yourself, someone else will”.

This simple and powerful sentence well explains his approach to a subject matter that he overemphasized by thinking, developing and selling Apple’s new products as substitutes of the old ones, without being afraid of the risks that this entailed.

For example, in 2005, even though sales of the iPod were satisfactory and steady, Steve Jobs started fearing that such a product could soon be cannibalized. In fact, smartphones at the time were presenting more and more features. If the iPod was to be replaced by a phone, Steve Jobs wanted to guide the company in charge of creating and commercializing such a device.

This became his priority and, only two years and a half later, he presented the “the best iPod ever made”. The iPhone was the combination of three different things:

  • A widescreen iPod with touch controls
  • A revolutionary mobile phone
  • A breakthrough communication device

and it was priced accordingly, as it was sold for the sum of the prices of the bestselling iPod and of an average smartphone. It was, of course, a revolutionary product. One of those unique products that change the entire industry they belong to.

As we know, it was an innovation miracle. The revenues boomed and, although the sales of the iPod were shrinking, the company was surfing the wave of success.

In 2010, with the launch of the first iPad, the story repeated itself. When asked what effect it had over Macintosh sales, Tim Cook simply replied: “Some customers chose to purchase an iPad instead of a Mac. Even more decided to buy an iPad over a Windows PC.”

As exemplified, cannibalizing your own business is never easy but can deliver unexpected and incredible results, therefore, it is undoubtedly worth the risk.

 

References:

Yoffie, David B., and Cusumano, Michael A. Strategy Rules: Five Timeless Lessons from Bill Gates, Andy Grove, and Steve Jobs. New York: HarperBusiness, 2015.

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Botnets and Smart-houses: Attack on Philip’s Hue Bulbs

15

October

2017

No ratings yet. What is a botnet?

It is a collection of devices which are all connected to the internet, where each one is running one or more bots (autonomous program). These include any type of device that can be controlled by malware. Most of the time, the owners of these devices do not know that their devices are infected.

But why is this topic becoming more important? With more variety and cheaper devices becoming a part of ‘the internet of things’, there is a larger pool of devices which can be infected. Since many of these devices have very little security, they are easily infected and large networks are quickly made.

So, what can the hackers do with these botnets? They can take down websites with large DDoS attacks (you may have experienced these playing online games), that take down the servers by flooding their bandwidth using botnets. Secondly, they can commit click fraud, where advertisers online are led to believe people are clicking their ads. This could ultimately destroy the internet advertising model. Furthermore, they can use these their botnet network to mine bitcoins (and earn a considerable amount of money doing so).

However, another type of attack is equally frightening. The smart-LED-light system from Philips, the Philips Hue is just as vulnerable to attacks as any other device connected to the internet. These Hue lights allow the user to control their lights via the internet, with a lot of different functions. With more people adopting these type of technologies (myself included) large scale attacks can have serious effects.

Researchers from Canada were able to remotely hack hue bulbs from a distance of 70 meters using botnets, allowing them to control them. Not only is this something you obviously do not want as a consumer, but it can seriously damage an electrical grid of a densely populated area. This was all done with equipment only costing a few hundred dollars. Although the researchers worked together with Philips to improve their system, similar attacks may follow.

The Hue lights are only one aspect of a smart house. When more devices are added to your house for convenience, a hack can do a lot more damage. As a consumer who enjoys these technologies a lot, I am left to trust these large companies to improve their software to keep me protected. But to what extent can these technologies put me at risk? Are you willing to trade the risk of being hacked for the reward of  “super cool lights”?

https://www.technologyreview.com/s/603500/10-breakthrough-technologies-2017-botnets-of-things/

https://www.cnet.com/news/new-study-details-a-security-flaw-with-philips-hue-smart-bulbs/

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Differentiation as the basis of competition

9

September

2016

5/5 (3) In his article about strategy and the internet Michael Porter (Strategy and the Internet, 2001) points out that because of the internet technology companies tend to shift the basis of competition away from quality, features, and service and toward price. I think he makes a very good point, but let’s take a different view on this.

Therefore, let’s take a look on Adam Smith’s perfect market. In order to have perfect competition some conditions must be fulfilled. The most important conditions are:

  1. Lots of buyers
  2. Lots of sellers
  3. Homogeneous products
  4. No entry barriers
  5. Perfect knowledge and information

The effect of these conditions are that firms have no possibility to stand out and ask a different price than their neighbour. If you sell the same t-shirt as your neighbour and he sells it for less money, nobody will buy your shirts. Due to the perfect information everybody knows that your neighbour sells it for less. So far economics 101.

Over the past few decades businesses were able to sell products for a price which they could set themselves. The local clothing shop might have been selling the same products as the clothing shop a few miles further for a higher price. But it never minded, nobody knew this difference.

Internet has changed the situation completely. Because of the internet the barriers disappeared. Your local retailer can sell his clothes online, just as the retailer from a few miles further. The potential group of buyers immediately increases from the local town to everybody with access to the internet. Besides, lots of retailers which were unattainable become attainable and sell the same products as you were used to buy from the local shop. We can see that the internet shifted the market more to the perfect competition. Because of the internet there are more buyers and sellers on the market, the entry barriers are lower (see also the Porter article) and we know exactly what we can buy where and for what price.

Coming back on where I started. Porter sees that there is a fierce price competition going on because of the internet and that we shifted away from competition based on the differentiation of products and service. But the internet does not change anything about the homogeneous condition of perfect competition. The only way to stand out is to deliver a differentiated product or service. Otherwise the price will indeed be the basis of competition.

Isn’t the internet exactly the reason to shift the basis of competition towards quality, features and service?

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