Bruce Wang By Bruce Wang • February 27, 2017

Why APIs Are Eating The World

Over the past decade, we’ve seen old technology be given totally new uses. There’s the internet for one (hello, social web) and cloud computing for another.

A really big one, though, that doesn’t get as much attention is Application Programming Interfaces (APIs). As far back as the 1960s, these clever little messengers carried information back and forth between the end user and computer programs.

Over a few decades, as technology advanced, APIs became more powerful. In the late 1990s, things really started to pick up. Back then, everyone had APIs, but there were no standards for accessing them and documentation was confusing or nonexistent.  Then standards like SOAP and REST helped change that, and web frameworks like Spring, Rails, and Django made it much easier to write API based services.

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The Age Of The API

The combination of ease of use and powerful functionality gave rise to the age of the API.  Big companies like Salesforce and eBay started offering APIs in addition to their traditional products, and when social media sites launched in the mid-2000s, they quickly followed up their platforms with APIs.

The first to make a real bet on APIs was Amazon Web Services (AWS), which allowed developers to access Amazon's massive scaling efforts in storage and compute with a few API calls.  When it launched in 2006, it set itself apart from other companies by offering APIs as its only product. AWS was the start of a trend of offering APIs as the product instead of an afterthought to other products.

Jeff Lawson’s Twilio in 2007 and the Collison brothers’ Stripe in 2010 took the stakes to a whole new level. Both Lawson and the Collison brothers founded their companies because they believed APIs offered simple and elegant solutions to telecommunications and online payments. As it turns out, they were right. And, even better, other developers could replicate their model across industries.

A New Business Model

What made AWS, Twilio and Stripe different was their business model. Now, instead of offering a traditional product with monthly or annual pricing, they offer an API and an API only at very low per usage price points.

Because of this, their organizational structure is completely different, with sales and marketing targeting developers, focusing on volume and continual usage.

The goal, then, for support teams within an API company is to drive existing clients’ volume up until their costs become a significant revenue stream. Take Twilio and WhatsApp for instance. WhatsApp, which uses Twilio’s API to verify users and generates a 100 million calls a day between users, makes up around 17% of Twilio’s revenue. WhatsApp’s early days with Twilio likely did not generate that much volume, but as it grew, so did Twilio’s revenue.

APIs Are The Future

Today, the barrier to building apps with tons of functionality is incredibly low. For a few dollars a month, a developer can access the power of billions of dollars of infrastructure for functions like messaging, payments, online video and more. Even novice developers can create great websites and apps because they stand on the shoulders of giants.

Consumers can only benefit from all this power of functionality. As companies stitch capabilities together, consumers get access to useful apps like WhatsApp, Dropbox and Snapchat, for next to nothing.

Maybe even more fascinating, API companies have turned a mindset upside down. In the past, quality was associated with cost. Power and customized software came at a high price, in software, service fees and time. Now, developers expect to be able to integrate functionality in a matter of minutes for pennies with no commitment.

Five years ago, the things we can now do with APIs were virtually impossible. What do the next five years hold?

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