Innovation in Business: The API Economy

Even if you’ve never heard of an application programming interface (API), you’ve probably already used one.

In essence, an API is the set of programming instructions and standards that allows one piece of software to ask another to perform a service. If you’ve ever bought a live updated Amazon product via a third-party website, or viewed a Google Map embedded into the “find us” section of a site, you’ve used an API. Similarly, if you used a website to buy a movie ticket online, that website would use an API to confirm your payment details via a remote app. You would only see the interface of the ticket sales platform you’re using, but APIs are constantly there, seamlessly communicating with each other in the background.

In terms of Web API and the evolution of what has come to be known as the API economy, Amazon was undoubtedly the catalyst. When Amazon’s APIs were released, it allowed other developers to easily establish an Amazon presence on their own sites. Third-party website owners could use the API to access product information and use features such as the ability to post links with current, updated prices and a “buy now” option. This followed a now infamous edict laid down by chief executive (CEO) Jeff Bezos demanding that teams should communicate internally through service interfaces and design these interfaces from the ground up to be exposed to developers in the outside world.

According to Forbes, that directive stoked an IT and cultural architecture that saw Amazon Web Services become a multi-billion dollar business in its own right.

Others followed suit and Forbes reports that Salesforce.com generates more than half of its $2 billion-plus revenue through its APIs. The Salesforce AppExchange is a great place to see innovation in action as developers and those looking for solutions come together in the marketplace.

So what does all this mean for business in general and your business in particular?
Potentially quite a lot. How you engage with the API economy will of course depend on the nature of your business. The API revolution is not only relevant to digital native companies, or even those with a distinct technological side to their operations.

Speaking on the topic of connected business and the API economy at the WSO2Con 2014 in Colombo, Sri Lanka, the Commonwealth Bank’s head of innovation and digital financial services technology, Asia, Rana Peries, highlighted the taxi and hotel industries as two perhaps surprising examples of industries where those unprepared for the API economy have found their businesses disrupted by those who are.

Uber, the taxi booking service that allows customers looking for a taxi to connect with drivers of vehicles for hire, has caused waves and made headlines all over the world. When Seoul announced it was looking to ban the service, Uber responded that the city was “in danger of remaining trapped in the past and getting left behind by the global ‘sharing economy’ movement.”

Airbnb, meanwhile, provides a service that allows the owners of houses and apartments to find and connect with short-term renters and vice versa. This has had an impact on traditional hotels and bed-and-breakfast establishments in Western cities from San Francisco to London and Paris. Now, the company has its sights set firmly on expanding its Asian presence.

Product growth manager Gustaf Alstromer admitted that the region is throwing up challenges due to differences in the digital landscape, such as the inaccessibility of the Google Play store, Facebook, and Twitter in China. It’s a set of challenges they’re looking to overcome and Asian companies offering similar services are themselves starting to spring up.

It’s clear that by not embracing the API economy you could be vulnerable to competitors and outside innovators. But the increasing interconnectedness, which also takes in the cloud, social, and mobile, should be seen as a great source of opportunity rather than a threat. From social media APIs that allow brands to be part of their customer communities to translation APIs that allow you to localize for new markets more seamlessly by connecting your website’s CMS with a translation platform, the possibilities are boundless. Companies that open their own APIs to customers and partners have the potential to create new exciting business opportunities.

“The API economy is an economy where companies expose their business services in the form of APIs to external parties in order to generate additional revenue. Today’s customers are demanding a more personalized service which is integrated to their lifestyles [and] this is translating toward delivery of next-generation services such as taxi services and the banking and payment industry,” said Peries.

Whatever type of business you are in, the implication is clear. Embracing the API economy can bring great potential benefits, while failing to do so could see you get left behind.