API: The Evolution of Tech Enablers
It was a tough week. I started writing very early, last Friday, but self-doubt struck me more times than I could have ever imagined. Fellow writers call it imposter syndrome. Last week was my first attempt at writing about tech in the business world. It went splendidly well, I suppose. I got greedy and chose a tech-concept based topic. It is important to understand but wasn’t easy to comprehend for a non-technical noob like me.
Reading my favourite writers on tech made it even harder because they did a fabulous job at it. Why am I ranting instead of getting to the point? Well, I am sure that you’ll find value in this read. What I’m unsure of is how much? To counter that problem, I will be writing more tech-concept based essays in future. It will help me to understand the tech businesses better and help create value for you as an operator, investor and strategist in business.
Now, let’s get to it.
In this essay, we will uncover:
What is an API
Three types of API
“Infrastructure as a Service” to “SaaS” to “API-first Business”
Benefits of leveraging API for your business
Let’s get right to it.
What is an API
If you are a F.R.I.E.N.D.S fan:
Ross explains to Janine, the Australian dancer, that by the year 2030, there'll be computers that can carry out the same number of functions as an actual human brain. So, theoretically, you could download your thoughts and your memories into this computer through a process called interfacing.
We do live in an age where we are able to transpire our thoughts into computers, the simplest way to look at it would be social media. Your social media account would live even after you are long gone(Rest in Peace). It would be representative of who you were and your thoughts.
We currently live in an age where software can seamlessly interact with each other, they do that through APIs.
Manufacturer’s Analogy
API stands for an application programming interface. API’s are how computer software interacts with each other.
I co-founded a product design company in my engineering days. As our first product, we designed an infinity bed - an economical and ergonomic bed that enabled students to get a good night’s sleep. In order to actualize the design vision from paper to the real world, we needed manufacturing. What did we do?
We contacted a manufacturer who had manufacturing experience and equipment more than our combined age. We outsourced the manufacturing and focussed on our core functionality: Designing world-class products for our customers.
Manufacturing houses take an input(design), process it(manufacturing) and provide the output(product).
APIs are the manufacturing houses of the software world.
Justin Gage’s illustration in his essay “what’s an API” encapsulates this idea splendidly:
“API: Manufacturing House” analogy is very broad in the practical sense.
Imagine: when you are driving, you simply push the accelerator and the car moves ahead or behind(possibly on purpose). What happens under the hood is known to engineers but it really does not matter to the driver. All users need to care about is the car moves when they accelerate and stops when they apply the brakes.
At the same time, understanding what goes under the hood could propel you to navigate conversations with mechanical engineers. Maybe even use that knowledge in transposition.
We are talking about APIs today because technology has disrupted every business on the planet.
Marc Andreessen puts it eloquently in his essay: Software is eating the world. The interesting bit, it is dated 2011. I am about 10 years late to the party. His vision has come true in 10 years but API first economy is fairly new and exponentially growing.
Let’s dive deeper into types of API and understand how they work and why they are important.
Three types of API:
1. Public (Open) API
Open API is largely business and development driven. For instance, if you want to integrate Google Maps into your website, you can leverage its open API. It enables developers to build layers on top of the original code and create new tools, software and even fix errors.
For instance: it is the year 2016 and you are living in New York. The most important elections(in retrospect) in the United States are afoot. You wonder what people are talking about the candidates on Twitter. You could do either one of the below things:
Possibly, you could refresh the feed every hour, make a note of tweets and repeat.
You can leverage Twitter API. You can make an API call, filter the data based on location and political stance. Once you have so much data flowing through your system, the possibilities are infinite to get creative with.
2. Partner APIs
Sometimes, an open API does incorporate rules dictated by the API parent company. It is more restrictive than open API in terms of usage by specific developers.
Eg. I was booking my train from Paris to Epernay yesterday through Omio. It had a link that directly took me to booking.com to look for accommodations in Epernay. The label read: powered by booking.com. It was probably a Partner API in action.
3. Internal APIs
Software is a bunch of API’s, built on API’s, further built on lines of foundation code. Internal APIs are how a company’s software interacts internally. At times, Internal APIs combine two or more sequences of operations, which is called a composite API.
Let me explain.
When you interact with the GUI(graphical user interface) and perform an action on an app or a website, it triggers an API call to the backend of the app. The backend has APIs categorized based on functions(composite APIs). These internal APIs make it easier to perform complex functions and enable cross-team functions inside the company.
Eg. When you order an Uber, you input the location. The API call is made to fetch the longitude & latitude of the location you are in and where you want to go. Another API handles the driver dashboard. A different API would be operating when you use the payment options for the ride.
How did we reach API economies though?
III. “Infrastructure as a Service” to “SaaS” to “API-first Business”
What is Infrastructure as a Service?
Infrastructure as a Service was one of the biggest developments that took place in the tech industry. It revolutionized how technology companies are built.
If you were to start a company in the '80s, even remotely related to tech, you would have to think about data centres(for storage of data), server costs(to keep the tech running) etc. AWS offers more than 100 services today.
The inception of Amazon Web Services(AWS) eradicated the need for all that by introducing a “pay as you go” subscription model, offering all of these as solutions, on the cloud. AWS takes care of everything on the backend while you focus on your business at hand.
It became exponentially easier to start a company. All that is required is the know-how of code. The “need to know” of coding is also changing today as we speak with no/low code tools which we will uncover in a future essay.
The natural progression was the boom of many software companies, hence SaaS.
What is SaaS?
SaaS stands for software as a service. A product delivered over the internet.
I am writing on Google Docs right now which is itself a SaaS. It provides access to documentation tools without the need to download any software and saves everything on the cloud without me worrying about storage space on my computer(which is dangerously low).
Hubspot is a great example of a SaaS product for marketers. It offers all its features online and charges a subscription fee based on “per-seat”. Most of the SaaS companies work on a similar “subscription as a business model”. Interestingly, Netflix is also a SaaS product. It charges you a subscription and allows you to stream movies and series through the internet.
SaaS companies have the ability to create an API first business model.
We covered what APIs are and how they work in the first section of the essay. Let’s dive into the benefits of leveraging them for businesses.
IV. Benefits of leveraging API for your business:
1. Core Product Focus
APIs allow companies to keep their focus on their core product. The functionalities to sustain the business such as finance, messaging, content management and customer relations can be done through API first companies.
For instance, if you ever used any dating apps like Bumble or Tinder, it offers you to connect your Spotify & Instagram to your account. At the mere click of a button, it lets users explore the music taste(Spotify) & lifestyle(IG) of other users.
If APIs did not exist, the dating app would have to build that functionality in-house. APIs allow them to focus on their core product: “helping people connect” while plugging in APIs for other essential yet non-core product features.
Packy McCormick explains why Shopify is married to Stripe in order to keep focussing on its core product: building a seamless platform for launching businesses.
2. Developer Driven
Businesses were largely run by management.
If you have seen Ford vs Ferrari, there is a dramatic scene where Shelby takes Henry Ford II on a car ride of his lifetime. The speed at which they travel leads to Henry Ford II crying tears of joy. Yes, he weeps his heart out. He had never experienced what he did at that moment. It was crucial for him to understand that to make better management decisions. We call it “Skin in the Game”.
The hierarchical management structure still exists but the crucial decision making is shifting. When it comes to API, it is a developer decision in contrast to SaaS where the whole team is involved on some level.
3. Third Party API Economy
Packy McCormick wrote in his essay: we have moved from “there’s an app for that(iPhone ad) to “there’s an API for that”. Grace Isford demonstrates that beautifully in her essay “third party API economy”.
When you are starting a company, instead of hiring numerous engineers & spending millions of dollars to build the perfect payments app, you can simply plug in the Stripe API. Similarly, you can refer to the table below and find an API for almost any business utility.
4. Rise of Super Apps:
I was having a conversation with my friend Akshay who raised a valid point of “how many apps do you have in your phone which you use every day”? A share on your phone’s home screen.
The analogy is similar to credit/debit cards on the top of your wallet. “The Card” which you use every day.
The rise of super-apps stems from this thought.
Whatsapp & Wechat are classic examples of super-apps. Whatsapp was able to build a billion-dollar business hedging on APIs like Twilio. Leveraging APIs to create multiple functionalities while limiting team resources to core product functionality is a wonder in itself.
API is not merely a productivity tool. It can be understood as more of a focus tool. It lets products create functionalities beyond the scope of your business.
Josh Nussbaum puts it beautifully in his essay disruption vs enablement:
“API’s need to be a tax on large and fast-growing industries and services that are able to support millions or even billions of calls in order to build a successful business”
Final Note
API Economy is growing at an unprecedented rate. The businesses which started out as SaaS have more often than not built a third-party API. It includes the tech-giants like Uber, Google Maps etc.
Stripe, a payment processing platform, which leads the API first economy is currently valued at $95 billion. Twilio, another API-first economy company is valued at $63 billion. The business is hedged with the growth of business in the world. As the business economy grows, API first economy will grow with it.
I will be writing individual essays covering Stripe, Twilio and many other API first businesses soon.
Before we depart, I would like to thank Packy McCormick, Justin Gage, Grace Isford and Josh Nussbaum whose essays I learnt a lot from and have linked to in the essay.
I hope you enjoyed this essay, do share this with your favourite person:
See you in the next one!